LSETF

LAGOS STATE EMPLOYMENT TRUST FUND

FINANCIAL
REPORT 2020
MR. BABAJIDE OLUSOLA
SANWO-OLU
GOVERNOR OF LAGOS STATE

1
 BOARD
LSETF
OFBOARD
TRUSTEES
MEMBERS

Mrs. Mrs.
Tejumola
Bola Adesola
Abisoye, Mrs.
Mrs. Tejumola
Ifueko OmoiguiAbisoye
Okauru, MFR, Otunba
Mrs. Tatiana
Mrs. Yetunde
Mousalli-Nouri
Arobieke, Mr. Idris Olorunnimbe.
Chairperson
Ag. Board
Executive Of Trustees
Secretary Chairman BoardSecretary
Executive of Trustees Member, Board
Memberof Trustees Member

Mr. Sinari Bolade

,snitraMDaranijo
eleD .rM Mr. Segun Ojelade Mr.
Ms.Dele
KofoMartins,
Durosinmi-Etti Dr. Rabiu
Rabiu Onaolapo
Onaolapo Olowo,
Olowo
seetsurT Member
fo draoB ,rebmeM Member, Board
Memberof Trustees Member, Member
Board of Trustees Member, Member
Board of Trustees

Otunba
OtunbaMrs.
Mrs.Yetunde
YetundeArobieke
Arobieke, Mr. Ronald Chagoury Jnr
Member, Member
Board of Trustees Member

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Financial Highlights:
for the year ended 31 December 2020
In thousands of Naira 31-Dec-20 31-Dec-19

Gross income 257,321 201,954

Program expenses (327,592) (612,979)
Operating and personnel expenses (741,768) (766,254)
Deficit before impairment, depreciation & amortisation* (812,039) (1,177,278)
Impairment charge on loans and advances 332,625 (414,237)
Depreciation of property and equipment (84,943) (94,400)
Amortization of intangible assets (15,036) (46,088)
Total deficit from operations (579,393) (1,732,003)

Deficit for the year (579,393) (1,732,003)

Total assets 5,678,968 4,570,984

Total liabilities (187,766) (217,922)
Reserves 5,491,202 4,353,062

The above stated program and operating expenditures were funded through the following sources during the year:

Source of Funding 31-Dec-2020 31-Dec-2019

Subvention from LASG 1,717,533 1,700,000
Grants/donations received during the year 55,803 78,515
Interest income received during the year 37,889 35,964
Repayments from loan beneficiaries (Gross) 671,607 1,301,702
2,482,832 3,116,181

* This represents the deficit arising from the Fund’s activities/operations during the year, excluding non-cash expenses such as impairment,
depreciation and amortisation.

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SDGs Spotlight

4
Our Development Agenda for a
Greater Lagos
Our Development programmes will be built upon 5 Pillars,
T.H.E.M.E

T H

Traffic Management & Health &

Transportation Environment

E M E

Education & Making Lagos a Entertainment &

Technology 21st Century Tourism
Economy

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Environment
Through its Employability programme, the Fund has invested in training
young persons in the renewable sector.

Social
Launched the W Initiative and Edu Loans to support members of the
vulnerable population.

Goal:
Support 2,133 low-cost private schools and

Improve quality of education for over 200,000 children.

Support 2,000 female entrepreneurs

Launched the Lagos Economic Acceleration Programme (LEAP) to assist

businesses impacted by the Pandemic.

Goal : Support 2,505 businesses

Launched the MSME Recovery Fund to aid businesses vandalized by the

End SARS Riots

Goal: 1880 businesses supported.

Organized 2 hackathons to address socio-economic issues

Achievement of the SGDs through our Ideahub Programme

Governance
Ÿ The 2nd Board of Trustees of the Fund were inaugurated in July.

Ÿ The board is made up of independent and diverse members with

strong credentials, broad skills and experiences.

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 TRUSTEES
REPORT
For the year ended 31 December 2020

LAGOS STATE EMPLOYMENT TRUST FUND IN 2020:

In 2020, the World and Nigeria faced various macro and socioeconomic challenges largely due
to the COVID 19 pandemic. This resulted in the country experiencing a recession in third quarter
of year 2020. Despite this disruption, LSETF managed to maintain focus on creating
interventions that stemmed the loss of employment and enabled entrepreneurship
opportunities through the following interventions

1. MSME Support
a. Loan Program: LSETF received loan applications for its Micro, Small and Medium
Enterprise (MSME) Loan Programme in year 2020. Approvals were stopped during the
lockdown and only resumed in October 2020. Of the approved loans,(this includes spill-
over approved applications from 2019) beneficiaries have drawn N124.17 million. In
addition to providing loans, the Fund also trained beneficiaries during the year, fulfilling its
mandate to deepen business management capabilities and financial literacy amongst
MSMEs.

b. Lagos Economic Acceleration Programme (LEAP): This is a bouquet of COVID-19

intervention programmes aimed at cushioning the effect of the pandemic on small
businessess. The target sectors and specific programmes launched as at year end was: -
NGN 250million EduFund in partnership with First Bank and Edfin MFB, targeted at low-
cost schools.

c. The MSME Recovery Fund: In response to the damages to the goods and properties of
businesses, stemming from the vandalism experienced during the End SARS protests,
LSETF initiated the MSME Recovery Fund, to support businesses affected. The Fund
received applications from the affected businesses, applications were verified, claims
were approved and disbursment was made.

2. Start Up Support
a. Innovation Driven Enterprise Program "Lagos Innovates": Lagos Innovates is a series of
programs designed to create an enabling environment for technology and innovation-
driven start-ups to thrive in Lagos State. By providing access to high-quality infrastructure,

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 learning, capital, and networks. Lagos Innovates is aimed at cementing the position of
Lagos as the leading destination for Tech start-ups in Africa.

b. Talent Development Student Loan Programme: In partnership with Honeywell Group,

the Talent Development Program is a platform to support capacity development by
facilitating access to technology skills via student loans and improving job placement
opportunities. The 2nd cohort was trained in 2020 with 41 beneficiaries.

c. Idea Hub: The Idea Hub Programme is a mentorship/incubation platform that allows Tech
entrepreneurs to take their businesses from ideation to early-stage, by pairing mentees
with industry expert mentors. The first cohort successfully completed the program in
2020 with 20 beneficiaries

3. Employability Support (LSESP)

The LSETF Employability Support Project plans to increase the pool of skilled manpower to
alleviate the acute shortages of employable labour in Lagos State. In 2020, applications
were received across all partnership programmes- United Nations Development
Programme (UNDP), Deutsche Gesellschaft Fur Internationale Zusammenarbeit (GIZ),
United States African Development Foundation (USADF) and Coursera. In total 7,226 were
trained. 2,722 of the trained applicants were certified and 415 of the certified trainees have
either been placed on jobs or are self-employed.

4. Funding
The LSETF received grant funding of N55million from GIZ in 2020 and this contributed to
increasing the capacity of the LSETF to meet its objectives under employability initiatives.

5. LSETF Employment Summit

The theme of the summit was "Showcasing Leading Practices for Job Creation" and aimed at
discussing remedies that address unemployment and the future of jobs in Africa. The
summit featured 51 speakers and had in attendance representatives of Governments across
the 36 States in Nigeria and Africa, NGOs, Corporate Organisations, International Donor
Agencies and Government Agencies.

6. Other Activities of The Board

2020 was a transition year from the pioneer Board of Trustees of the Fund to a newly
constituted Board on July, 2020. During the interim period between 29 February, 2020 (when
the tenure of the pioneer Board ended) and July 2020, the affairs of the Fund continued to be
overseen by the Executive Secretary and the two standing commissioners of Finance and
Ministry of Wealth Creation and Employment, Dr Rabiu Olowo Onaolapo and Honourable
Yetunde Arobieke, respectively.

In 2020, the Board of Trustees held 10 meetings. To effectively provide oversight, the Board
Committees also held 17
meetings, broken down as follows:
1. Audit and Risk Committee (3 meetings)
2. Credit and Investment Committee (5 meetings)
3. Governance Committee (6 meetings)
4. Stakeholders Committee (3 meetings)

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 LSETF SOURCES OF FUNDS AND
EXPENDITURE ANALYSIS
For the year ended 31 December 2020

SOURCES OF FUNDING
As a government owned Fund, LSETF’s operations are funded via the following means:

Subvention from the Government

The Lagos State Employment Trust Fund (LSETF) derives its major source of funding from the
Lagos State Government (LASG) in the form of subvention to run the Fund’s programmes and
for both capital and recurrent (operating) expenditures.

In line with Generally Acceptable Accounting Principles (GAAP) and applicable accounting
standards (International Public Sector Accounting Standards), this source of funding is
regarded as funding from owners of the Fund and as such reported as capital contribution
rather than income in the Fund’s financial statements. Subvention received from LASG in 2020
was ₦1.72 billion (2019: ₦1.7billion) and has been disclosed as capital contribution for the
purpose of these financial statements. The Fund has received a total of ₦12.87 billion as
subvention from LASG since inception.

Grants & Donations

LSETF also funds its programmes and operations through grants and donations received from
donor agencies (international and local). Grants could be in form of cash or kind. Grants
received with conditions attached to them are not recognized as revenue until the stipulated
conditions are met. For this type of grant, income is recognised on a systematic basis over the
period in which the Fund recognises expenses for the related cost for which the grant is
intended to compensate. Major Grant donors to the Fund in 2020 include:

United Nations Development Programme (UNDP): In 2017, LSETF entered into a partnership
agreement with United Nations Development Project (UNDP) for the funding of the Lagos State
Employability Support Project (LSESP). This Project aims at training 10,000 people between the
ages of 18 - 35 years in the manufacturing, healthcare, construction, entertainment, garment
making, hospitality and tourism sectors by 2020. The funding agreement is in the ratio of
3:1($3,000,000 and $1,000,000) for LSETF and UNDP
respectively.

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Though the Fund did not receive any grant from UNDP during the year, it received the sum of
$500,000 (₦162.2million) in 2017. As such, a pro-rata Nil was recorded in the year under review
(2019: ₦11.4million) of the total related cost was recorded nil in 2020 (2019:₦355.2million) was
recorded as grant income relating to the partnership during the yea

Deutsche Gesellschaft Fur Internationale Zusammenarbeit (GIZ): The Fund received the sum
of ₦55.8 million from GIZ in the year 2020. The grant is specifically geared towards providing
opportunities for returning and potential illegal migrants. The inflow has been recorded as
unearned income in the financial statements since the expenses for which the grant is intended
was not incurred as at year end.

The Fund also received a donation of ₦1.25 million from FCMB during the year which was
recognised as Grant income.

Loan Repayments
Loan repayments refer to repayments on loans and advances made to beneficiaries of the
Fund’s loan programmes. Loan repayments are essentially used to fund more loans as well as
related expenditure. During the year, the Fund received a total sum of ₦671.6million (2019
₦1.3billion) as repayment of due principal and interest on loans granted to beneficiaries.

Interest from Investments

LSETF also derives its funding from cash generated from the investment of idle funds. As part
of the Fund’s cash management strategy and the need to obtain maximum benefit from assets,
certain sums were placed with financial institutions during the year earning investment interest
of ₦37.9million (2019: ₦35.9million)

EXPENDITURE
Expenses incurred during the course of carrying out the operations and programmes of the
Fund are categorised as cash and non-cash with the non-cash element not requiring actual
outflow of cash and based on applicable accounting standards and principles. Some of the
Funds cash related expenses are stated below:

Program Expenses
This refers to the direct expenses incurred in carrying out the Fund’s programmes and
interventions: Loan Program Expenses: These are expenses directly attributable to the Loan
Programme. Some major expenses incurred include, predisbursement trainings for loan
beneficiaries, insurance policies taken on loan beneficiaries, management fees paid to
fulfillment partners (micro finance and commercial banks) to manage the loan facilities given
out, etc. The program expenses for 2020 was ₦180.60million (2019: ₦152.07million).

Other Program Expenses: This refers to non-loan related program expenses and covers
expenses for the employability programme, Lagos Innovates, Market Stimulation, etc. in 2020.
Other Program Expenses amounted to ₦152.99million (2019: ₦496.94million).

Operating/Recurrent Expenses
These are expenses incurred during the course of normal operations of the Fund. For the
purpose of these financial statements, operating expenses have been presented in 2 broad
categories as listed below:

Personnel expenses: This include staff salaries and wages, staff allowances and pension

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contribution. Personnel expenses in 2020 was ₦473.03million (2019: ₦407.68million).

Other operating expenses: This include Office/equipment maintenance, administrative

expenses, rent and service charges, board related expenses, trainings etc. Other operating
expenses in 2020 amounted to ₦268.74million (2019: ₦358.57million).

As required by relevant accounting standards and principles, the Fund takes certain non-cash
expenses as part of the total expenses during any accounting period regardless of whether
there is an actual cash outflow during the period or not. These expenses are explained below:

Impairements Charges: This relates to charges made to the Income statement of estimated
loss arising from the extent of recoverability of the loans granted to beneficiaries. Under the
incurred loss model of IPSAS 29, a financial asset or a group of financial assets is impaired and
impairment losses are incurred if there is objective evidence of one or more events occurring.
Measurement of impairment losses across all LSETF loan categories requires judgement on
the estimation of the amount and timing. These estimates are driven by several factors,
changes to which result in different levels of allowances. The Fund’s impairment calculations
are outputs of models with several underlying assumptions regarding the choice of variable
inputs and their interdependencies. Impairments are non-cash charges hence does affect the
liquidity of the Fund. The Fund assesses whether there is objective evidence that Fund Under
Management are not carried at fair value, i.e. impaired. Financial assets are impaired when
objective evidence demonstrates that a loss event has occurred after the initial recognition of
the asset, and that the loss event has an impact on the future cash flows on the asset that can
be estimated reliably.

Objective evidence that financial assets are impaired can include;

Ÿ Significant financial difficulty of the obligor,
Ÿ Default or delinquency by a borrower resulting in a breach of contract,
Ÿ Restructuring of a loan or advance by the Fund on terms that the Fund would not otherwise
consider,
Ÿ Indications that a borrower will enter bankruptcy,
Ÿ Other observable data relating to a group of assets such as adverse changes in the payment
status of borrowers, or economic conditions that correlate with defaults.

LSETF loans are unsecured. Where no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, the Fund includes the asset in a
group of financial assets with similar credit risk characteristics and collectively assesses them
for impairment.

Some impairment parameters like Loss Given Default (LGD) and Probability of Default (PD),
Recovery Rate (RR) are typically set at loan program level. These parameters are significantly
influenced by collection strategies and collateral deposits. In 2020, the Fund had a net write
back on Impairment of ₦332.59million (2019: Net impairment charge of ₦414.23million).

Depreciation: Depreciation represents the reduction in the value of an asset over time due to
wear and tear. The Fund calculates its depreciation using the straight-line method and the rate
applied varies based on the estimated useful life of the assets (Motor vehicle, Office equipment,
Furniture & fittings, etc.). Depreciation in 2020 was ₦84.9million (2019: ₦94.4million).

Amortization of intangible assets: Amortization refers to the allocation of the cost of an

intangible asset over time. The Fund calculates the amortization costs on a straight-line basis
over the useful life of the asset. Intangible assets include, Softwares. Amortization costs for
2020 was ₦15.04million (2019: ₦46.08million).
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 STATEMENT OF
TRUSTEES

Statement of Trustees' responsibilities in relation to the

preparation of financial statements for the year ended
31 December 2020

The Trustees accept responsibility for the preparation of the annual financial statements that
give a true and fair view in accordance with International Public Sector Accounting Standards
(IPSAS) and in the manner required by the Lagos State Employment Trust Fund Law 2016 and
the Financial Reporting Council (FRC) of Nigeria Act, 2011.

The Trustees further accept responsibility for maintaining adequate accounting records as
required by the Lagos State Public Finance Management Laws, Laws of the Federation of
Nigeria, 2004 and for such internal control as the Trustees determine is necessary to enable the
preparation of financial statements that are free from material misstatement whether due to
fraud or error.

The Trustees have made an assessment of the Fund's ability to continue as a going concern
and have no reason to believe that the Fund will not remain a going concern in the year ahead

SIGNED ON BEHALF OF THE BOARD OF TRUSTEES BY:

12
 BOARD AUDIT AND RISK
COMMITTEE REPORT
For the year ended 31 December 2020

The Audit and Risk Committee of the Board of Trustees of the Lagos State Employment Trust
Fund (LSETF) is pleased to present its report for the year ended 31 December 2020.

Functions and Responsibilities

The principal functions and responsibilities of the Audit and Risk Committee include the
following:
i. Review, monitor compliance with and make recommendations on the integrity of the
financial statements and financial reporting process;
ii. Review, monitor and make recommendation on the choice of accounting policies and
principles;
iii. Review, monitor and make recommendations on the activities, hiring, performance and
independence of the external and internal auditors;
iv. Review, monitor compliance with and make recommendations on the effectiveness of
the system of internal controls, accounting and operating procedures;
v. Review, monitor compliance with and make recommendations on policy standards and
guidelines for risk assessment and management;
vi. Review, monitor compliance with and make recommendations on legal and regulatory
requirements, including completeness of disclosures; and,
vii. Review, monitor compliance with and make recommendations on ethics, and whistle-
blowing policy.

Composition
The Audit and Risk Committee consists of the following members:
I. Segun Ojelade (Chairman)
ii. Idris Olorunnimbe
iii. Tatiana Moussalli-Nouri
iv. Rabiu Onaolapo Olowo (The Hon. Commissioner, Lagos State Ministry of Finance).

Meetings
During the year, the Committee held three meetings on the following dates:
i. August 13, 2020
ii. September 9, 2020
iii. December 9, 2020

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Activities
A summary of the activities of the Audit and Risk Committee during the year under review is
presented below:
i. 2019 Financial Statements
The Committee reviewed, adopted and recommended the audited financial statements for the
year ended 31 December 2019, the audit findings and management's responses, to the Board
and was approved.

ii. LSETF Loan Impairment Model

The Committee reviewed the internaly updated loan impairment model based on IPSAS 29
to be adopted in year 2021 as presented by Management. The review included an appraisal
of the Peer Group Loss Experience Benchmarking Approach earlier adopted to estimate the
impairment to the Fund's portfolio and presented its recommendations to the Board for
approval.

iii. Internal Audit

The Committee considered the Fund's monthly and quarterly internal audit reports, and
where required, proposed remedial actions to the Board and Management. The Committee
also reviewed the 2021 Internal Audit Plan and recommended it to the Board for approval.

iv. Consideration of the External Audit Plan for the 2020 Financial Year
The Committee reviewed the external audit plan for the year ended 31 December 2020 and
presented it to the Board for approval. Signed on behalf of the Audit and Risk Committee

Signed on behalf of the Audit and Risk Committee

………………………….
Segun Ojelade
Chairman, Board Audit and Risk Committee
FRC/2020/003/00000021863
23 July 2021
Lagos State Employment Trust Fund
Annual Report 31 December 2020

14
 BOARD CREDIT AND INVESTMENT
COMMITTEE REPORT
For the year ended 31 December 2020

The Credit and Investment Committee of the Board of Trustees of the Lagos State Employment
Trust Fund (LSETF) is pleased to present its report for the year ended 31 December 2020.

Functions and Responsibilities

The principal functions and responsibilities of the Credit and Investment Committee include
the following:
i. Determining appropriate credit and investment policies and procedures;
ii. Determining the extent to which funds raised will be disbursed directly to beneficiaries
as credit or through Fund Managers subject to the rules guiding funds raised or sourced;
iii. Overseeing the Fund's credit and investment risks by ensuring that an appropriate
control environment and reporting process are in place to govern the management of
credit and investment risks;
iv. Provide oversight for the Fund's investment activities and periodically review and
evaluate the Fund's approval policy for
investments;
v. Oversee significant treasury matters such as capital structures, liquidity and fixed
income;
vi. Overseeing the management of the Funds' investment portfolio; vii. Recommend to the
Board all viable credit and investment proposals, related applications and execution of
related instruments; and,
viii Determine key performance indicators for the counter party financial institutions that
may be engaged by the Board for disbursement to ensure they meet the requisite
standard.

Composition
The Credit and Investment Committee consists of the following members:
I. Sinari Daranijo (Chairman)
ii. Kofo Durosinmi-Etti
iii. Ronald Chagoury Jnr
iv. Rabiu Onaolapo Olowo (The Hon. Commissioner, Lagos State Ministry of Finance).

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Meetings
During the year, the Credit and Investment Committee met five times on the following dates:
I. January 30, 2020
ii. August 7, 2020
iii. September 29, 2020
iv. October 19, 2020
v December 2, 2020

Activities
Presented below is a summary of the significant matters considered by the Credit and
Investment Committee:

i. Review of Loan Applications

The Committee made the final decisions in respect of loan applications between
N0.5million to N2.5million. The Committee reviewed and made recommendations to the
Board for the approval or rejection of SME loan applications from N2.5million to
N5million.

ii. Review of Product Papers

The Committee reviewed various product papers aimed at improving LSETF's offering to
education, technology, transportation, fashion and agriculture sector as well as the
Fund's intervention to cushion the effects of the Covid-19 pandemic on residents of
Lagos State.

iii. Credit Risk Management

The Committee reviewed the Fund's loan portfolio, credit loss ratio and portfolio at risk
from time to time. During the period under review, the Committee also made
recommendations to the Board on the review of the LSETF credit process.

iv. LSETF Credit Policies

The Committee developed and reviewed the Fund's credit policies and made
appropriate recommendations to the Board. v. Lagos Innovates
The Committee recommended the allocation of workspace vouchers to successful
applicants by the Board. Signed on behalf of the Credit and Investment Committee

.....................................
Sinari Daranijo
Chairman, Board Credit and Investment Committee
23 July 2021
Lagos State Employment Trust Fund
Annual Report 31 December 2020

16
 BOARD GOVERNANCE COMMITTEE
REPORT
For the year ended 31 December 2020

The Governance Committee of the Lagos State Employment Trust Fund (LSETF) Board of
Trustees is pleased to present a report of its activities for the year ended 31 December 2020.

Functions and Responsibilities

The principal functions and responsibilities of the Governance Committee include the
following:

i. Reviewing, monitoring compliance with and making recommendations for

amendments to the corporate governance framework of the Fund;
ii. Reviewing and making recommendations on the proposals for the remuneration of the
Board for presentation to the Governor;
iii. Reviewing and proposing for the Board's approval, the overall remuneration and
benefits policy for employees of the Fund;
iv. Monitoring proper reporting and disclosure of the state of affairs of the Board to the
Governor, Accountant-General and other stakeholders;
v. Overseeing the finance and human resource management functions;
vi. Ensuring optimal performance of the Board towards achieving its mandate as enshrined
in the laws governing the operation of the Fund;
vii. Monitoring, overseeing and making recommendations to the Board on all actions
instituted or proposed by the Fund at the Small Claims Court or any other court for the
recovery of loans from defaulters.

Composition
The Governance Committee consists of the following members:
i. Tatiana Moussalli-Nouri (Chairman)
ii. Sinari Daranijo
iii. Segun Ojelade
iv. Yetunde Arobieke (The Hon. Commissioner, Lagos State Ministry of Wealth Creation and
Employment).

17
Meetings
The Governance Committee held the following meetings during the year under review:
I August 12, 2020
ii August 27, 2020
iii September 7, 2020
vi. September 16, 2020
v. October 6, 2020
iv October 20, 2020

Activities
A summary of the activities of the Governance Committee during the year under review is
presented below:

i. Budget Performance Report: The Committee reviewed the implementation of the

Fund's 2019 budget as well as the implementation of the 2020 budget on a quarterly
basis.

ii. LSETF Compensation Structure: The Committee reviewed and recommended the
implementation of a review process that allowed staff to get an increment based on
increase in the inflation rate.

iii. Executive Management Appraisal for 2019: The Committee reviewed and made
recommendations to the Board on the performance of the Executive Management for
2019

iv. Review and Revalidation of Staff and Board Remuneration: The Committee reviewed
and made its recommendations to the Board on an upwards review to the Board
remuneration and the revalidation of the hitherto reviewed staff remuneration.

v. Ammendments to LSETF Law and Regulations: The Committee deliberated

extensively on the proposed changes to the LSETF Law and Regulations and presented
its recommendations to the Board.

vi. Consideration of 2020 Key Performance Indicators for Executive Management: The
Committee reviewed and made recommendations to the Board on key performance
indicators for assessing the performance of the Executive Management. The aim is to
ensure that Management's key performance indicators align with the Fund's strategic
goals.

vii. Approval of the Assets Disposal Policy: The Committee reviewed the Fund's Asset
Disposal Policy as presented by Management and made recommendations to the
Board.

viii. Disengagement of the former Board Secretary: The Committee carried out an
extensive review of the Fund's Human Resource Policy as well as the disengagement
process, found the disengagement satisfactory and recommended the disengagement
to the Board for ratification.

ix. Consideration of the Succession Plan for Executive Management: The Committee
reviewed and made recommendations on the Succession Plan for Executive
Management. The purpose of the Succession Plan is to ensure the Fund's operations is
not impaired by any changes in the Fund's Management.

18
x. Staff Appraisal for 2019: The Committee reviewed the Fund's 2019 employee
performance appraisal exercise and presented Management's recommendation of the
promotion of high performing employees to the Board for approval.

xi. Interview and Selection of the Director, Programmes and Coordination: The
Committee interviewed the shortlisted candidates for the position of the Fund's Director,
Programmes and Coordination and made appropriate recommendations to the Board
for selection in this regard.

xii. Engagement of a Telecoms Recovery Agent: The Committee reviewed Management's

recommendations to engage a telecoms recovery agent to aid the Fund's loan recovery
strategy and made its recommendations to the Board for approval

xiii. Appraisal of Recovery Agents: The Committee reviewed the performance of the Fund's
Recovery Agents and recommended the renewal of the contracts of some of the Agents
for Board approval
xiv. Engagement of a Data Protection Compliance Organization: The Committee reviewed
Management's recommendations to engage a Data Protection Compliance
Organization in line with the Federal Government Directives and made its
recommendations to the Board for approval

xv. Review of the Liaison Offices Key Performance Indicators: The Committee made
recommendations to the Board on the Key Performance Indicators for the Fund's liaison
offices to ensure that it is still effective for the achievement of the Fund's goals and
strategic targets.

Signed on behalf of the Governance Committee

...............................
Tatiana Mousalli-Nouri
Chairman, Governance Committee
23 July 2021
Lagos State Employment Trust Fund
Annual Report
31 December 2020

19
 BOARD STAKEHOLDERS COMMITTEE
REPORT
For the year ended 31 December 2020

The Stakeholders Committee of the Board of Trustees of the Lagos State Employment Trust
Fund (LSETF) is pleased to present a report of its activities for the year ended 31 December
2020.

Functions and Responsibilities

The principal functions and responsibilities of the Stakeholders Committee include the
following:
i. Identification, engagement and management of stakeholders and stakeholder groups
relevant to the Fund;
ii. Determining how stakeholder/media enquiries are to be handled and maintaining a
broad overview of strategic issues that may be of interest to specific stakeholders;
iii. Building credibility, inspiring commitment and creating stakeholder support for the
Fund;
iv. Developing strategy for advocacy and interaction within Lagos State and relationships
with other States and the Federal Government;

v. Determining the quantum, nature and source of funds to be raised to meet the Fund's
mandate, as input into the overall strategic plan of the Fund; vi. Raising of funds from
stakeholders; and vii. Redressing stakeholders and donor complaints.

Composition
The Stakeholders Committee consists of the following members:
i. Idris Olorunnimbe (Chairman)
ii. Kofo Durosinmi-Etti
iii. Ronald Chagoury Jnr
iv. Yetunde Arobieke (The Hon. Commissioner, Lagos State Ministry of Wealth Creation and
Employment).

Meetings
The Stakeholders Committee held the following meetings during the year under review:
I. January 30, 2020
ii. August 31, 2020
iii. November 8, 2020

20
 Activities
Presented below is a summary of the significant matters considered by the Stakeholders
Committee at its meetings:
i. Review of Communications and Stakeholder Engagement Plan for 2020: The
Committee reviewed and recommended the Communications and Stakeholder
Engagement Plan 2020 to the Board. The purpose of the plan is to provide a roadmap to
engage the Fund's Stakeholders

ii. 2020 Fundraising Plan: The Committee evaluated the Fund's 2020 Fundraising Plan and
recommended its approval to the Board.

iii. Review of LSETF method of Communications, Stakeholder Management and

Fundraising: The Committee evaluated the Fund's adopted process of communications
and presented its findings to the Board

iv. Fundraising for the Lagos MSME Recovery Fund: The Committee at different occasions
deliberated extensively on the fundraising drive for the Lagos MSME Recovery Fund
provided its recommendations to the Board for approval

Signed on behalf of the Stakeholders Committee

......................................
Idris Olorunnimbe
Chairman, Stakeholders Committee
23 July 2021
Lagos State Employment Trust Fund
Annual Report 31 December 2020

21
STATEMENT OF FINANCIAL PERFORMANCE
For the year ended 31 December 2020

In thousands of Naira Notes 31-Dec-20 31-Dec-19

Revenue
Interest income 14 88,034 148,650
Grant income 15 93,717 51,554
Other income 16 75,570 1,751

Total revenue 257,321 201,954

Expenses
Amortisation of intangible assets 8b (9,039) (10,043)
Depreciation of property and equipment 9 (84,943) (94,400)
Impairment charge 17 332,625 (414,237)
Program expenses 18 (333,589) (649,024)
Personnel expenses 19 (473,027) (407,683)
Other operating expenses 20 (268,741) (358,571)

Total operating expenses (836,714) (1,933,957)

Performance for the year (Deficit) (579,393) (1,732,003)

The accompanying notes are an integral part of these financial statements.

22
STATEMENT OF FINANCIAL POSITION
For the year ended 31 December 2020

In thousands of Naira Notes 31-Dec-20 31-Dec-19

ASSETS
Cash and cash equivalents 4 3,799,940 2,952,699
Loans and advances 5 1,067,389 1,225,565
Prepayments 6 20,970 22,822
Other assets 7 703,659 241,698
Intangible assets 8 2,151 17,187
Property and equipment 9 84,859 111,013

Total assets 5,678,968 4,570,984

LIABILITIES
Managed funds 10 56,274 46,274
Unearned income 11 40,980 55,885
Other liabilities and accruals 12 90,512 115,763

Total liabilities 187,766 217,922

EQUITY
Capital contribution 13 12,867,533 11,150,000
Accumulated deficit from operations 22 (7,376,331) (6,796,938)

TOTAL EQUITY 5,491,202 4,353,062

Total liabilities & equity 5,678,968 4,570,984

(0) (0)
The accompanying notes are an integral part of these financial statements.

The financial statements were approved by the Board of Trustees on 23 July 2021 and signed on their behalf by:

………………………………………………………
Bola Adesola
Chairman, Board of Trustees
FRC/2013/CIBN/00000001629

…………………………………………………………
Teju Abisoye
Executive Secretary
FRC/2019/NBA/00000019573

Additionally certified by:

…………………………………………………………
Adedamola Jolaoso FCA
Director, Finance and Corporate Services
FRC/2020/001/00000022366

23
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020

In thousands of Naira Capital Accumulated Total

Notes contribution Deficit equity

Balance as at 1 January 2020 11,150,000 (6,796,938) 4,353,062

Transaction recorded directly in equity 13(a) 1,717,533 - 1,717,533

Performance for the year - (579,393) (579,393)

Balance as at 31 December 2020 12,867,533 (7,376,331) 5,491,202

In thousands of Naira Capital Accumulated Total

Notes contribution Deficit equity

Balance as at 1 January 2019 9,450,000 (5,064,935) 4,385,065

Transaction recorded directly in equity 13(a) 1,700,000 - 1,700,000

Performance for the year - (1,732,003) (1,732,003)

Balance as at 31 December 2019 11,150,000 (6,796,938) 4,353,062

The accompanying notes are an integral part of these financial statements.

24
STATEMENT OF CASH FLOWS
For the year ended 31 December 2020

In thousands of Naira Notes 31-Dec-20 31-Dec-19

Cash flows from operating activities

Deficit from operations (579,393) (1,732,003)

Adjustments for non-cash items:

Amortisation 8 15,036 46,088
Depreciation 9 84,943 94,400
Allowance for (write back)/ impairment charges 5(c) (332,625) 417,249
Late repayment fees 5 - (1,856)
Unearned grant income 15 (60,708) (38,816)
Interest income 14 (88,034) (148,650)
(960,781) (1,363,588)

Changes in prepayments 21(i) 1,852 24,938

Changes in other current assets 21(ii) (461,962) (148,117)
Changes in loans and advances 21(iii) 540,946 373,245
Changes in unearned income 21(v) 45,803 78,487
Changes in other liabilities and accruals 21(iv) (25,249) 16,110
Net cash used in operating activities (859,391) (1,018,925)

Cash flows from investing activities

Acquisition of intangible assets 8 - -
Acquisition of property and equipment 9 (58,789) (6,180)
Interest received on term deposits 14 37,889 35,964
Net cash from investing activities (20,900) 29,784

Cash flows from financing activities

Capital contribution 13(a) 1,717,533 1,700,000
Managed funds 21(vi) - (2,204)
Net cash from financing activities 1,717,533 1,697,796

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year 4 2,952,699 2,244,044
Net increase in cash and cash equivalents 837,241 708,655

Cash and cash equivalents at 31 December 4 3,799,940 2,952,699

The accompanying notes are an integral part of these financial statements.

25
Notes to the financial statements for
For the year ended 31 December 2020

1 Reporting entity
The Lagos State Employment Trust Fund (“LSETF” or “the Fund”), was established in 2016
by the Lagos State Employment Trust Fund Law of the Lagos State House of Assembly
and is domiciled in Nigeria. LSETF was established to provide financial support to
residents of Lagos State, for job, wealth creation and to tackle unemployment. LSETF
serves as an instrument to inspire the creative and innovative energies of all Lagos
residents and reduce unemployment across the State. The Fund has the mandate to
directly invest N25 Billion in helping Lagos residents grow and scale their Micro Small
and Medium Enterprises (“MSMEs”) or acquire skills to get better jobs. LSETF will focus
on promoting entrepreneurship by improving access to finance, strengthening the
institutional capacity of MSMEs and formulating policies designed to improve the
business environment in Lagos State. The registered office is located at 16, Billings Way,
Oregun Ikeja, Lagos.

The Fund recognizes the subventions received from the Lagos State Government (its
major shareholder and regulatory board), as equity in the statement of financial position,
using the Assets-Liability approach, as adopted from the guidance of IPSAS 23 "Revenue
from Non-Exchange Transactions"

The financial statements of the Lagos State Employment Trust Fund (LSETF) for the year
ended 31 December 2020 were authorised for issue in accordance with a resolution of
the Board of Trustees on 23 July 2021.

2 Basis of preparation and statement of compliance with International Public Sector

Accounting Standards
(a) Basis of preparation
These financial statements have complied with the International Public Sector
Accounting Standards (IPSAS) for accrual basis of accounting issued by International
Public Sector Accounting Standards Board (IPSASB) and Financial Reporting Council
(FRC) of Nigeria Act, 2011. The measurement base applied is historical cost basis.
The financial statements have been prepared on a going concern basis and the
accounting policies have been consistently applied throughout the year.

(b) Functional and presentation currency

The financial statements are presented in Nigerian currency (Naira) which is the Fund's
functional currency. Except otherwise indicated, financial information presented in Naira
have been rounded to the nearest thousand.

(c) Going concern

The Fund's Trustees have made an assessment of the Fund's ability to continue as a
going concern and are satisfied that the Fund has the resources to continue in business
for the foreseeable future. Furthermore, the Trustees are not aware of any material
uncertainties that may cast significant doubt upon the Fund's ability to continue as a
going concern. Therefore, the financial statements have been prepared on the going
concern basis.

26
 (d) Use of estimates and judgments
The preparation of the Fund's financial statements require management to make
judgments, estimates and assumptions that affect the reported amounts of income,
expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of
the reporting period. However, uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying amount of the
asset or liability affected in future periods.

Estimates and assumptions

Property and equipment
The Fund carries its property and equipment at cost in the Statement of financial
position. Estimates and assumptions made to determine their carrying value and related
depreciation are critical to the Fund's financial position and performance. The charge in
respect of periodic depreciation is derived after determining an estimate of an asset's
expected useful life and the expected residual value at the end of its life. The useful lives
and residual values of the assets are determined by management at the time the asset is
acquired and reviewed periodically. The lives are based on historical experience with
similar assets as well as anticipation of future events, which may impact their life, such as
changes in technology.

Impairment allowance
Assets accounted for at amortized cost are evaluated for impairment on a basis
described in the accounting policy 3.6. In calculating impairment allowance, assets are
categorized into individually impaired and, collectively impaired. In categorizing assets
into whether individually or collectively impaired, Management exercise some degree of
judgement regarding what events/criteria are the loans to be measured against. The
specific counterparty component of the total allowances for impairment applies to
claims evaluated individually for impairment and is based upon management's best
estimate of the present value of the cashflows that are expected to be received. In
estimating these cashflows, management makes judgements about a counterparty's
financial situation. Each impaired assets is assessed on its merits, and the workout
strategy and estimate of cashflows considered recoverable are independent reviewed
by the risk management function.

Collectively assessed impairment allowance cover credit losses inherent in portfolios of

loans and advances with similar economic characteristics when there is objective
evidence to suggest that they contain impaired loans and advances but the individual
impaired items cannot yet be identified. In order to estimate the required allowances,
assumptions are made to define the way inherent losses are modelled and to determine
required input parameters, based on historical experience or benchmark (when there is
no sufficient historical data). The accuracy of the allowances depends on how well future
cash flows for specific counterparty allowances and the model assumptions and
parameters used in determining collective allowances are estimated.

3 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial
statements are set out below. They have been applied consistently for similar
transactions, other events and conditions unless otherwise stated.

3.1 Property and equipment

(i) Recognition and measurement
Property and equipment are stated at historical cost less any accumulated depreciation

27
 and any accumulated impairment losses. The cost of an item of property and equipment
is recognised as an asset if, and only if, it is probable that future economic benefits
associated with the item will flow to the Fund and the cost of the item can be measured
reliably. The cost of equipment comprises their purchase cost and any incidental costs of
acquisition. For assets acquired through non-exchange (e.g. donations to the Fund) the
cost represents the fair value of the acquired items.

(ii) Subsequent costs

Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Fund and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to profit or loss during the
financial period in which they are incurred.

(iii) Depreciation
When parts of an item of property or equipment have different useful lives, they are
accounted for as separate items (major components) of property and equipment.
Depreciation is calculated using the straight–line method to write down the cost of
property and equipment to their residual values over their estimated useful lives.
The estimated annual rates of depreciation are as follows:

Percentage (%)

Furniture and equipment 20

Office equipment 25
Motor vehicles 25
Computer equipment 25
Leasehold improvements Over the term of the lease

The residual values, useful life and depreciation method are reviewed at each financial
year end, and adjusted prospectively, if appropriate. The carrying values of property and
equipment are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable.

(iv) Derecognition
An item of property and equipment and any significant part initially recognised is
derecognised upon disposal or when no future economic benefits are expected from its
use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is
included in the statement of income or expenditure when the asset is derecognised.

(v) Leasehold improvements

The Fund recognises leasehold improvements as property and equipment. The
improvements are measured at cost on initial recognition, when it is probable that
economic benefits will flow to the entity and the resources will be used for more than one
financial period. Subsequent to initial recognition the asset is measured at cost less
accumulated depreciation in the same policy as other items of property and equipment.

3.2 Intangible assets

(i) Recognition and measurement
Software not integral to the related hardware acquired by the Fund is stated at cost less
accumulated amortisation and accumulated impairment losses.

28
 Costs associated with maintaining computer software programmes are recognised as
an expense as incurred. Development costs that are directly attributable to the design
and testing of identifiable and unique software products controlled by the Fund, are
recognised as intangible assets when the following criteria are met:
Ÿ it is technically feasible to complete the software product so that it will be available for
use;
Ÿ management intends to complete the software product and use or sell it;
Ÿ there is an ability to use or sell the software product;
Ÿ it can be demonstrated how the software product will generate probable future
economic benefits;
Ÿ adequate technical, financial and other resources to complete the development and
to use or sell the software product are available; and
Ÿ the expenditure attributable to the software product during its development can be
reliably measured. (ii) Subsequent measurement
Ÿ Subsequent expenditure on computer software is capitalised only when it increases
the future economic benefits embodied in the specific asset to which it relates. All
other expenditure are expensed as incurred.

(iii) Amortisation
Amortisation is recognised in profit or loss on a straight-line basis over the estimated
useful life of the software, from the date that the asset is available for use since this most
closely reflects the expected pattern of consumption of the future economic benefits
embodied in the asset. The estimated useful life is 3 years. Amortisation methods, useful
lives and residual values are reviewed at each financial year-end and adjusted if
appropriate.

(iv) De-recognition:
An item of intangible asset is derecognised on disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on the de-
recognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the income or deficit in the
year it was de-recognised.

3.3 Impairment of non-financial assets

For impairment testing, assets are grouped together into the smallest group of assets
that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or cash generating units. The recoverable amount of an
asset or cash generating unit is the greater of its value in use and its fair value less costs
to sell. Value in use is based on the estimated future cash flows, discounted to their
present value using a pretax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset or cash generating unit. An
impairment loss is recognised for non-financial assets when the amount by which the
asset or cash generating unit's carrying amount exceeds its recoverable amount. Non-
financial assets that suffered an impairment are reviewed for possible reversal of the
impairment at each reporting date.

Intangible assets not yet available for use are tested for impairment annually. All other
assets are assessed for indicators of impairment at the end of each reporting period.

3.4 Revenue
Revenue recognition criteria for exchange and non-exchange transactions

29
 Revenue from an exchange transactions is recognized to the extent that it is probable
that the economic benefits will flow to the Fund and the revenue can be reliably
measured. such revenue is measured at the fair value of the consideration received or
receivable, taking into account contractually defined terms of payment excluding taxes.
Revenue from a non-exchange transaction recognised as an asset shall be recognised
as a revenue except to the extent that a liability is also recognised in respect of the same
inflow. Such revenue shall be measured at the amount of the increases in net assets
recorded by the Fund.

The Fund's revenue comprises interest income, grant income, donations and other income:

Interest income
For all financial instruments measured at amortised cost and interest-bearing financial
assets, interest income is recorded using the effective interest rate (EIR). EIR is the rate
that exactly discounts the estimated future cash payments or receipts over the
expected life of the financial instrument or a shorter period, where appropriate to the net
carrying amount of the financial asset or liability. Interest income is included in finance
income in the statement of income or expenditure.

Interest Income Received are the funds generated through the placement of funds with
financial institutions.

Grant income
A number of the Fund's programs are supported by grants received from donor
agencies (both local and international). If conditions are attached to a grant which must
be satisfied before the Fund is eligible to receive the contribution, recognition of the
grant as revenue is deferred until those conditions are satisfied.

Grants are recognised in Income statement on a systematic basis over the period in
which the Fund recognises as expenses the related costs for which the grants are
intended to compensate.

Grants that are receivable as compensation for expenses or losses already incurred or
for the purpose of giving immediate financial support to the Fund with no future related
costs are recognised in the profit or loss in the period in which they are received or
become receivable.

Donations
Donations collected are recognised as revenue when the Fund gains control, economic
benefits are probable and the amount of the donation can be measured reliably.

Grants/donations are the grant received through the partnership between LSETF,
USADF and GIZ during the period.

Other income
Other income represents income generated from sources other than interest and grant
income. It includes income realised from income generated from current account
balances and penal charges on late repayments by beneficiaries. Income is recognized
when the right to receive the income is established.

3.5 Financial instruments

(a) Classification

30
The classification of financial instruments depends on the purpose for which the assets
are acquired. The Fund classifies its financial assets in the following category:
Ÿ loans and receivables;
The Fund's liabilities are classified in the following categories:

Ÿ other financial liabilities.

Classified as loans and receivables are loans and advances to beneficiaries, cash and
bank balances and placements with maturities of three months or less from the
acquisition date that are subject to an insignificant risk of changes in their fair value, and
are used by the Fund in the management of its short-term commitments.

Classified as other financial liabilities are other payables, unearned income and
managed funds.

(b) Recognition
Financial instruments are initially recognised at fair value and on the trade date at which
the Fund becomes a party to the contractual provisions of the instrument. Financial
instruments are derecognised when the rights to receive cash flows from the financial
instruments have expired or where the Fund has transferred substantially all risks and
rewards of ownership.

Loans and receivables

Loans and advances to customers are initially measured at fair value. These represent
the Fund's Owned and Managed Loans and advances.

Managed Loans
This is a counter party funding between LSETF and other third parties. Risks and rewards
are also borne by each party based on the agreement.

Other financial liabilities:

Other financial liabilities are initially measured at fair value.

(c) Subsequent measurement

Loans and receivables
Loans and receivables are subsequently measured at their amortised cost using the
effective interest method (cost plus accrued interest) in the statement of financial
position.

Repayments from Loan beneficiaries refers to repayment amount on loans and

advances to beneficiaries of the Fund's loan programs.

Other financial liabilities:

Other financial liabilities are subsequently measured at amortised cost.

(d) Derecognition of financial instruments

The Fund derecognises a financial asset when the contractual rights to the cash flows
from the asset expire, or it transfers the rights to receive the contractual cash flows on
the financial asset in a transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred, or has assumed an obligation to pay
those cash flows to one or more recipients, subject to certain criteria.

31
 The Fund may enter into transactions whereby it transfers assets recognised on its
statement of financial position, but retains either all risks or rewards of the transferred
assets or a portion of them. If all or substantially all risks and rewards are retained, then
the transferred assets are not derecognised from the statement of financial position. In
transactions where the Fund neither retains nor transfers substantially all the risks and
rewards of ownership of a financial asset, it derecognises the asset if control over the
asset is lost. The rights and obligations retained in the transfer are recognised separately
as assets and liabilities as appropriate. In transfers where control over the asset is
retained, the Fund continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to which it is exposed to changes in the value of
the transferred asset.

Any interest in transferred financial assets that is created or retained by the Fund is
recognised as an interest income or interest expense in the surplus or deficit.

(e) Amortised cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial
asset or liability is measured at initial recognition, minus principal repayments, plus or
minus the cumulative amortisation using the effective interest method of any difference
between the initial amount recognised and the maturity amount, minus any reduction
for impairment.

(f) Fair value measurement

The Fund did not measure any assets or liabilities at fair value at the end of the reporting
period. However, fair values of financial instruments measured at amortised cost are
disclosed. Fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
Ÿ In the principal market for the asset or liability, or
Ÿ In the absence of a principal market, in the most advantageous market for the asset
or liability The principal or the most advantageous market must be accessible to by
the Fund.

The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability assuming that market
participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market

participant's ability to generate economic benefits by using the asset in its highest and
best use or by selling it to another market participant that would use the asset in its
highest and best use.

The Fund uses valuation techniques that are appropriate in the circumstances and for
which sufficient data are available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs.

3.6 Impairment of financial assets

The Fund first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for
financial assets that are not individually significant. If the Fund determines that no
objective evidence of impairment exists for an individually assessed financial asset,

32
 whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for impairment.

a) Individually assessed financial assets

The Fund assesses at each reporting date whether there is objective evidence that a
financial asset is impaired. A financial asset is impaired and impairment losses are
incurred if, and only if, there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the assets (a 'loss event'), and
that loss event (or events) has an impact on the estimated future cash flows of the
financial asset that can be reliably estimated.

The following factors are considered in assessing objective evidence of impairment:

Ÿ evidence of default of contractual payment terms;
Ÿ there is an observable data indicating that there is a measurable decrease in the
estimated future cash flows of the financial assets.

If there is objective evidence that an impairment loss on an account receivable has been
incurred, the carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in profit or loss. The amount of the loss
is the difference between the receivable carrying amount and the present value of the
estimated cash flows expected to be received. Estimates of changes in future cash flows
for financial assets are reflected and directionally consistent with changes in related
observable data from period to period. The methodology and assumptions used for
estimating future cash flows are reviewed regularly by the Fund to reduce any
differences between loss estimates and actual loss experience. If, in a subsequent
period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised (such as the
repayment of outstanding balance), the previously recognised impairment loss is
reversed by adjusting the allowance account. The amount of the reversal is recognised
in profit or loss under impairment charge for credit losses.

b) Collectively assessed financial assets

For the purposes of a collective evaluation of impairment, financial assets are grouped
on the basis of similar credit risk characteristics. Those characteristics are relevant to the
estimation of future cash flows for groups of such assets by being indicative of the
debtors' ability to pay all amounts due according to the contractual terms of the assets
being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for
impairment are estimated on the basis of the contractual cash flows of the assets in the
Fund and historical loss experience or benchmark experience with credit risk
characteristics similar to those in the Fund. Historical loss experience or benchmark
experience is adjusted on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss experience is
based and to remove the effects of conditions in the historical period that do not
currently exist or entity specific situation to reflect the effects of conditions that are
present in the benchmark but not in the Fund and vice versa. The methodology and
assumptions used for estimating future cash flows will be reviewed regularly by the
Fund to reduce any differences between loss estimates and actual loss experience

3.7 Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances and placements with

33
 maturities of three months or less from the acquisition date that are subject to an
insignificant risk of changes in their fair value, and are used by the Fund in the
management of its short-term commitments. Cash and cash equivalents are carried at
amortised cost (cost plus accrued interest) in the statement of financial position.

3.8 Provisions
A provision is recognised if, as a result of a past event, the Fund has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow
of economic benefits will be required to settle the obligation and a reliable estimate of
the amount can be made. Provisions are determined by discounting the expected cash
flows using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risk specific to the liability.

A provision for onerous contracts is recognised when the expected benefits to be

derived by the Fund from a contract are lower than the unavoidable cost of meeting its
obligation under the contract. The provision is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of
continuing with the contract. Before a provision is established, the Fund recognises any
impairment loss on the assets associated with that contract.

3.9 Other current assets and prepayments

Other current assets are measured at amortised cost. Appropriate allowances for
estimated irrecoverable amounts are recognised in profit and loss when there is
objective evidence that the asset is impaired.

Prepayments are carried at cost less accumulated amortisation.

3.10 Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency at exchange
rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated to the
functional currency at the spot exchange rate at the reporting date. Non monetary
assets and liabilities that are measured at fair value in a foreign currency are translated
to the functional currency at the spot exchange rate 33
at the date on which the fair value
was determined. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at period-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the surplus or
deficit. Non-monetary assets and liabilities denominated in foreign currencies that are
measured at historical cost are translated to the functional currency using the exchange
rate at the transaction date. Exchange differences on non-monetary assets are
accounted for based on the classification of the underlying items.

3.11 Employee benefits

(a) Defined contribution plan
The Fund has a defined contribution plan.
A defined contribution plan is a post-employment benefit plan under which an entity
pays fixed contributions into a separate entity and will have no legal or constructive
obligation to pay further amounts.

Obligations for contributions to defined contribution plans are recognized as an

employee benefit expense in Income and Expenditure in the periods during which

34
 services are rendered by employees. Prepaid contributions are recognized as an asset
to the extent that a cash refund or a reduction in future payments is available.

The Fund operates a defined contribution retirement benefit scheme for its employees
under the provisions of the Pension Reform Act 2014. The employer and the employee
contributions are 10% and 8% respectively of the qualifying employee's salary.
Obligations in respect of the Fund's contributions to the scheme are recognized as an
expense in the surplus or deficit on an annual basis.

(b) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and
are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash
benefits such as accumulated leave and leave allowances if the Fund has a present legal
or constructive obligation to pay this amount as a result of past services provided by the
employee and the obligation can be measured reliably.

3.12 Expenditure
All expenses are accounted for on an accrual basis. The Funds expenses are classified
into programs expenses and other operating expenses. Program expenses are
expenses incurred wholly and exclusively for the direct actualization of the programs
activities of the Fund while other operating expenses are mainly Secretarial and/or
Office running expenses.

3.13 Contingent assets and liabilities Contingent assets

Contingent asset
is a possible asset that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the Fund. Contingent assets are disclosed in the financial
statements when they arise.

Contingent liabilities
Contingent liability is the probable obligation that arises from past events and whose
existence will be confirmed only by the occurrence or nonoccurrence of one or more
uncertain future events not wholly within the control of the Fund. However, they are
recognised, if it is probable that an outflow of economic resources will be required to
settle the obligation and the amount can be reliably estimated. Contingent liabilities are
disclosed in the financial statements when they arise.

3.14 Taxation
The income of LSETF is exempted from income tax based on the provisions of Section 23
(i) of the Companies' Income Tax Laws of Nigeria and the Section 26 of the Lagos State
Employment Trust Fund Act.

3.15 Equity
The Fund's Equity majorly comprises subventions received from the Lagos State
Government (LASG), its parent company (Owner), and the deficit for the year, which is
usually net off from the Fund's capital contribution (Subventions). Subventions can be
defined as a sum of money received by a business from a government.
Section 16 of the Fund's bill states that:

35
 The Board shall have power to raise money for the Fund through voluntary subscription
and donations from all interest Government Agencies, Private Organizations and
Individual but not limited to:
a) State Government Subventions,
b) Contribution from the Federal and Local Government Council in the State,
c) Financial or material donations from any person whether corporate or otherwise,
and several other sources.

These subventions received by the Fund from the Lagos State Government (LASG), are
classified as Ownership Contributions, in line with the provisions of IPSAS 1 (The
Conceptual Framework for General Purpose Financial Reporting by Public Sector
Entities).

Ownership contributions are defined as "Inflows of resources to an entitiy, contributed by

external parties in their capacity as owners, which establish or increase an interest in the
net financial position of the entity. IPSAS 1, also guides that ownership contributions may
take the form of an initial injection of resources at the creation of an entity or subsequent
injection of resources, as is consistent with the Lagos State Employment Trust Fund
("The Fund").

Based on the relevant guidance as highlighted above, the Fund has elected to
recognize the subventions received from the Lagos State Government (its Shareholder),
as equity in the statement of financial position, as adopted from the explicit guidance of
IPSAS 23 "Revenue from Non-Exchange Transactions".

Subvention received from Lagos State Government was treated in form of capital
contribution to run the activities of the Fund.

3.17 New standards and interpretations not yet effective

The following new or revised standards and amendments which have a potential impact
on the Fund are not yet effective for the year ended 31 December 2020 and have not
been applied in preparing these conslidated financial statements. The Fund also plans
to apply the standards and amendments disclosed below once they are applicable.
However, the Fund's assessments of the new standards and amendments is not yet
concluded but is expected to have significant impact on the Fund's operations and
subsequent financial position.

36
IPSAS Effective Date Key Requirement

IPSAS 41 is to replace IPSAS 29 (Financial

Instruments: (Recognition and Measurement).

IPSAS 41 is based on International Financial

Reporting Standard (IFRS 9-Financial
Instruments), and is set to establish new
requirements for classifying, recognizing and
IPSAS 41 measuring financial instruments.
(Financial
Instruments) 1 January 2022. I P S A S 4 1 p rov i d e s u s e r s o f fi n a n c i a l
statements with more useful information than
IPSAS 29, by:

Applying a single classification and

measurment model for financial assets that
considers the characteristics of the assets's
cash flows and the objective for which the
assest is held;

Applying a single forward-looking expected

credit loss model that is applicable to all
financial instruments subject to impairment
testing; and

Applying an improved hedge accounting

model that broadens the hedging
arrangements in scope of the guidance. The
model develops a strong link between an
entity's risk management strategies and the
accounting treatment for instruments held as
part of the risk management strategy

37
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

4 Cash and cash equivalents

In thousands of Naira 31-Dec-20 31-Dec-19

Cash in hand 83 60
Current accounts with banks (see (a) below) 3,697,224 2,670,431
Deposits with financial institutions (see (b) below) 102,633 282,208
3,799,940 2,952,699

Classified as:
Current 3,697,306 2,670,492
Non-current 102,633 282,208
3,799,940 2,952,699

(a) Balance in the Fund's current accounts is further analysed as follows:

In thousands of Naira 31-Dec-20 31-Dec-19

Balance with Fulfilment Partner Banks 376,076 747,522

Other Bank balances 3,321,148 1,922,909
3,697,224 2,670,431

The amount with fulfilment partner banks represents sums available for onward disbursement to beneficiaries who are yet to meet
the conditions precedent to draw-down and repayments from beneficiaries who have assessed loans as at 31 December 2020. Funds
yet to be disbursed to beneficiaries will be disbursed as these conditions are met.

(b) Deposit with financial institutions include:

In thousands of Naira 31-Dec-20 31-Dec-19

Access Bank Plc 102,541 282,116

Other Banks 92 92
102,633 282,209

The deposit with financial institutions represents call deposit of N100 million with Access Bank at an interest of 0.75% per annum.

5 Loans and advances

In thousands of Naira 31-Dec-20 31-Dec-19

Movement in loans and advances during the year

Balance at the beginning of year 3,949,224 4,207,927

Loan disbursed during the year (see note (a) below) 130,661 929,265
Interest earned (see note 14 (b)) 50,145 111,878
Late repayment fees (see note 16 (a)) - 1,856
4,130,030 5,250,926
Repayments (671,607) (1,301,702)
Gross loans 3,458,423 3,949,224
Allowance for impairment (See note (c) below) (2,391,034) (2,723,659)
1,067,389 1,225,565

Gross loans for the year is made up of the following:

Small and medium enterprises 2,012,930 2,372,694
Micro-enterprises 1,409,746 1,525,625
Hub loan 7,934 27,592
Honeywell Loan 4,500 -
Managed loans 23,313 23,313
3,458,423 3,949,224

38
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

Net Loans is classified as:

Current 414,833 555,715
Non-current 652,556 669,850
1,067,389 1,225,565

(a) Loan disbursed during the year is made up of the following:

In thousands of Naira 31-Dec-20 31-Dec-19

Small and medium enterprises 32,304 505,871

Micro-enterprises 90,719 378,844
Hub loan - 30,000
Honeywell Loan 4,500 -
Managed loans 3,138 14,550
130,661 929,265
Hub loans are part of the Tech StartUp program aimed at high-performing, outcome-focused providers of co-working
spaces, innovation hubs, incubators and similar workspaces in Lagos State. It is targeted to support the capacity expansion,
or facilities upgrade of existing hubs.
By granting Hub loans, LSETF hopes to support the growth and sustainability of this segment and other innovation-driven
enterprises (IDEs)
.
Honeywell Loan represents the amount disbursed to the Fund towards the fulfilment of the Talent Development Programs
(Trainings) engaged by the Fund during the year. These programs are conducted in partnership with Honeywell Limited

Small and medium enterprises are loans granted to business owners at cadre of Small and Medium enterprises
Micro-entrprises are loans disbursed to business owner on micro/micro startup enterprises during the period under review.

(b) Loans disbursed under the Managed Loan scheme is made up of the following:

In thousands of Naira 31-Dec-20 31-Dec-19

LSETF contribution 1,569 7,275
Counterparty contribution to loan advanced to beneficiaries 1,569 7,275
3,138 14,550

LSETF enters into counter-party agreement with individuals and local governments to contib equally between parties,
towards the advancement of loan to beneficiaries in specified locatio agreement vary across counterparties. See note 10(b)
for funds received during the year.

(c) Movement in impairment charge on loans and advances during the year
Collective allowance for impairment

In thousands of Naira 31-Dec-20 31-Dec-19

Balance as at 1 January 2,723,659 2,306,410
Charge for the year (note (d) below) (332,625) 417,249
Balance as at 31 December 2,391,034 2,723,659

Total impairment 2,391,034 2,723,659

(d) Impairment charge

In thousands of Naira 31-Dec-20 31-Dec-19
SME loans (353,970) 232,001
ME loans 24,736 179,558
Hub loans - 2,066
Late repayment fees 0 110
LSETF's contribution to managed loans (3,391) 502
(332,625) 414,238
Managed funds advanced to beneficiaries (see note 10(f)) - 3,012

Impairment charge for the year (332,625) 417,249

39
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

6 Prepayments

In thousands of Naira 31-Dec-20 31-Dec-19

Non financial Assets

Rent 5,787 5,787
Other prepayment (see note (a) below) 10,229 7,102
Credit insurance (see note (b) below) 1,487 6,220
Prepaid insurance 3,467 3,713
20,970 22,822

Classified as:
Current 20,970 22,822
Non-Current - -
20,970 22,822

(a) Other prepayment represents prepaid rent, service charge, subscription and retainer fees.
(b) Credit insurance represents protection of the loan sum granted to beneficiaries against default burglary and fire of
business premises of loan beneficiaries.

7 Other assets

In thousands of Naira 31-Dec-20 31-Dec-19

Financial Assets

Balance in joint arrangement account with UNDP (see notes (a) below) 98,485 68,405
Balance in joint arrangement account with USADF (see notes (b) below) 302,553 162,000
Other receivables 9,578 10,293
Advance payments 3,040 1,000
Deposit for Edu-Loan (Edfin MFB) (See note (a) below) 250,000 -
Deposit with British Council 40,003 -
703,659 241,698

Classified as:
Current 703,659 241,698
Non-Current - -
703,659 241,698

(a) LSETF entered into a partnership agreement with the United Nations Development Project (UNDP) for the funding of "The
Lagos State Employability Support Project". This Project aims at training 10,000 people between the ages of 18 - 35 years in
the manufacturing, healthcare, construction, entertainment, garment making, hospitality and tourism sectors by 2020.
The Partners agreed to contribute $3,000,000 and $1,000,000 respectively.
As at 31 December 2020, LSETF and UNDP had contributed USD3,260,883.65 and USD589,513.71 respectively.

LSETF also signed memorandum of understanding with Edfin MFB and deposited N250million for the purpose of granting
loans to school owners affected by COVID 19 and EndSARS protests

LSETF also signed an MOU with British Council in building filmlabs for those in creative/films industry

The movement in the balance in the Joint arrangement account with UNDP is as shown below:

In thousands of Naira 31-Dec-20 31-Dec-19

Balance, beginning of year 68,405 80,512

Contribution by LSETF 30,080 381,955
98,485 462,467
Expenditure on project during the year (see note 18(b) below) - (355,253)
Management fees to UNDP (see note 18(b) below) - (38,808)
Balance, end of year 98,485 68,405

40
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

The movement in the balance in the Joint arrangement account with USADF is as shown below:

In thousands of Naira 31-Dec-20 31-Dec-19

Balance, beginning of year 162,000 -

Contribution by LSETF 173,447 162,000
Interest recognised on deposit 115 -
335,562 162,000
Expenditure on project during the year (see note (b) below) (33,009) -
Balance, end of year 302,553 162,000

(b) The United States African Development Foundation (USADF) and LSETF executed an agreement in May 2019 to fund an
Employability Program to the tune of $2,000,000 annually. The partners agreed to make this contribution in ratio 50:50 for a
duration of 5 years. The program aims to support 3,000 young people (50% female and 50% male) per annum to attain the
relevant industry trade skills that cut across sectors, including but not limited to: Technology, Creative Arts, Agriculture,
Transportation and Logistics, Renewable Energy, Construction; thereby increasing the market competitiveness of youth in
Nigeria to gain access to employment, create more jobs and generate income. LSETF and USADF expect to place a
minimum of fifty percent (50%) of the trainees in jobs within these sectors.

As at 31 December 2020, the program has kicked off and LSETF has contributed the sum of USD900,000 to the project
account. The total contribution deposit of $450,000 for the year under review was converted at N385.43/$.

(c) There was no impairment charge recognised on other assets.

41
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

8 Intangible assets

31 December 2020

Loan Accounting
In thousands of Naira Application Software &
Software Others Total

Cost:
Balance as at 1 January 2020 108,135 29,451 137,586
Additions - - -
Balance as at 31 December 2020 108,135 29,451 137,586

Amortisation:
Balance as at 1 January 2020 (102,128) (18,272) (120,400)
Charge for the year (5,997) (9,039) (15,036)
Balance as at 31 December 2020 (108,125) (27,311) (135,436)

Carrying amounts
Balance at 31 December 2020 10 2,141 2,151

Cost:
Balance as at 1 January 2019 108,135 29,451 137,586
Additions - - -
Balance as at 31 December 2019 108,135 29,451 137,586

Amortisation:
Balance as at 1 January 2019 (66,083) (8,229) (74,312)
Charge for the year (36,045) (10,043) (46,088)
Balance as at 31 December 2019 (102,128) (18,272) (120,400)

Carrying amounts
Balance at 31 December 2019 6,007 11,179 17,187

(i) There were no leased assets included in the balances as at year end (2019: Nil).
(ii) There were no authorised or contracted capital commitments as at the reporting date (2019: Nil).
(iii) There were no impairment losses on intangible assets during the year (2019: Nil).
(iv) Intangible assets represent development cost with respect to the computer software i.e. the beneficiary selection software
used for managing the loan beneficiaries' selection process and purchased software for the Fund's accounting function
and, technological start-ups program.

(b) Amortisation
31-Dec-20 31-Dec-19
Loan Application Software (see note (i) below) 5,997 36,045
Accounting Software & Others 9,039 10,043
Amortisation expense for the year 15,036 46,089

(i) The amortization charge for Loan Application Software is classified as a part of the loan programs expense considering
its direct relationship with the loan program. See note 18(a).

42
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

9 Property and equipment

The movement in this account during the year was as follows:

31 December 2020
Motor Computer Office Furniture & Leasehold
In thousands of Naira Total
vehicles Equipment Equipment Fittings Improvements

Cost:
Balance as at 1 January 2020 143,487 194,337 13,989 37,248 34,957 424,018
Additions 43,000 14,551 243 995 - 58,789
Disposal (30,192) - - - - (30,192)
Balance as at 31 December 2020 156,295 208,888 14,232 38,243 34,957 452,615

Accumulated depreciation:
Balance as at 1 January 2020 (116,022) (139,203) (8,366) (22,346) (27,068) (313,005)
Charge for the year (28,361) (45,495) (3,481) (7,606) - (84,943)
Disposal 30,192 - - - - 30,192
Balance as at 31 December 2020 (114,191) (184,698) (11,847) (29,952) (27,068) (367,756)

Carrying amounts
Balance at 31 December 2020 42,104 24,190 2,385 8,291 7,889 84,859

31 December 2019

Motor Computer Office Furniture & Leasehold

In thousands of Naira Total
vehicles Equipment Equipment Fittings Improvements

Cost:
Balance as at 1 January 2019 143,487 190,111 13,959 35,324 34,957 417,838
Additions - 4,226 30 1,924 - 6,180
Balance as at 31 December 2019 143,487 194,337 13,989 37,248 34,957 424,018

Accumulated depreciation:
Balance as at 1 January 2019 (80,150) (91,366) (4,876) (15,145) (27,068) (218,605)
Charge for the year (35,872) (47,837) (3,490) (7,201) - (94,400)
Balance as at 31 December 2019 (116,022) (139,203) (8,366) (22,346) (27,068) (313,005)

Carrying amounts
Balance at 31 December 2019 27,465 55,134 5,623 14,902 7,889 111,013

(i) No leased asset is included in property and equipment as at year end (2019: Nil).
(ii) There were no authorised or contracted capital commitments as at the reporting date (2019: Nil).
(iii) There were no impairment losses on any class of property and equipment during the year (2019: Nil).
(iv) There was no property and equipment pledged as security for borrowing as at year end (2019: Nil).
(v) There are no capitalised borrowing costs related to the acquisition of property and equipment during the year (2019: Nil).

43
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

10 Managed funds
In thousands of Naira 31-Dec-20 31-Dec-19

Financial liabilities
Managed Funds (see note (a) below) 56,274 46,274
56,274 46,274

Classified as:
Current 56,274 46,274
Non - Current - -
56,274 46,274

(a) The movement in the managed funds is as shown below:

Balance as at beginning of year 53,200 52,392
Additions (see notes (b) below) 10,000 -
Interest income on LSETF portion of loan (see note (d) below) - -
Interest income on counterparty portion of loan (see note (e) below) - 808
63,200 53,200
Collective impairment on loan disbursed (see note (f) below) (6,926) (6,926)
56,274 46,274

(b) Managed Funds represents funds received from counterparties under a joint scheme, for loan disb particular locations.
The Fund and the counterparties contribute funds at agreed ratio for the program respective funds contributed.

Ojo Local Government 5,000 5,000

TAM FUND 5,000 5,000
Lagos Island Local Government 10,000 10,000
Hon. Agunbiade 10,000 10,000
Itire Ikate LCDA 5,000 5,000
Apapa Local Government 10,000 10,000
Honeywell Group 10,000 -
55,000 45,000

(c) The utilisation of the managed funds is as follows:

31-Dec-20 31-Dec-19
Funds disbursed during the year 1,569 7,275
1,569 7,275

(d) The movement in the impairment on managed loans is as shown below:

31-Dec-20 31-Dec-19
Balance as at beginning of year 6,926 3,914
Additions (see note 5 (d)) - 3,012
6,926 6,926

44
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

11 Unearned Income
In thousands of Naira 31-Dec-20 31-Dec-19

Financial liabilities
Unearned Income on agreement with GIZ (see note (a) below) 40,980 45,885
Unearned Income on agreement with Honeywell (see note (b) below) - 10,000
40,980 55,885

Classified as:
Current 40,980 55,885
Non - Current - -
40,980 55,885

(a) The movement in unearned income on GIZ employability project is as shown below:
In thousands of Naira 31-Dec-20 31-Dec-19
Opening Balance 55,885 16,186
Additional inflow from GIZ during the year 55,803 68,515
Income earned during the year (See note 15) (60,708) (38,816)
Reclassification (Honeywell) (10,000) -
Additional inflow from Honeywell - 10,000

40,980 55,885

(b) Unearned grant income represents funds received from Honey well Nigeria Group for the Lagos Innovates programme.
Income recognition of this grant is conditional to performance of agreed activities.

12 Other liabilities and accruals

31-Dec-20 31-Dec-19
In thousands of Naira
Financial liabilities
Due to fulfilment partners 7,446 30,192
Audit fee payable 11,825 10,500
Other payables (see note (a) below) 33,343 43,342
52,614 84,035
Non-financial liabilities
PAYE payable 182 182
Withholding tax payable 19,525 16,235
Value added tax payable 13,919 11,247
Development levy payable (see (b) below) 4,272 4,064
37,898 31,728

90,512 115,763

Classified as:
Current 90,512 115,763
Non - Current - -
90,512 115,763

(a) Other payables is made up of IT infrastructure payable, consultancy fee payable amongst others.
(b) Development levy is a 1% deduction made by all agencies and parastatals from all payments to suppliers and contractors as
mandated by the Lagos State Government.

45
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
13 Capital contribution
This comprises:

In thousands of Naira 31-Dec-20 31-Dec-19

Capital contribution from Lagos State Government (LASG) (see note (a) below) 12,717,533 11,000,000
Take-off fund (see note (c) below) 150,000 150,000
12,867,533 11,150,000

(a) The movement in capital contribution is as shown below:

In thousands of Naira 31-Dec-20 31-Dec-19
In thousands of Naira
Opening balance 11,000,000 9,300,000
Capital contribution from LASG (see note (b) below) 1,717,533 1,700,000
12,717,533 11,000,000

(b) LSETF received the sum of N1.72 billion as capital contribution from the Lagos State Government during the financial year.
As at 31 December2020, the Fund had received a total of N12.87 billion from the Lagos State Government. The capital
contribution is to target programs meant to generate employment including disbursement of loans to MSMEs, Employability
programmes or as may be required to support employment creation.

(c) The take-off grant of N150million represents funds provided by the Lagos State Government to support the operational costs
of setting up the Fund.

14 Interest income
In thousands of Naira 31-Dec-20 31-Dec-19
Term deposits 37,889 35,964
Loans and advances (See note (a) below) 50,145 112,686
88,034 148,650

(a) Interest income on loans and advances

Micro Enterprises 15,517 44,632
Small and Medium Enterprises 33,995 67,730
Hub Loan 633 324
50,145 112,686

(b) Interest income on loans and advances

Managed loans - 807
Own loans (see note 5) 50,145 111,878
50,145 112,686

15 Grant income
In thousands of Naira 31-Dec-20 31-Dec-19
UNDP joint arrangement - 11,488
USADF 33,009 -
GIZ (see note 11(a)) 60,708 38,816
Others - 1,250
93,717 51,554

46
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

16 Other income
In thousands of Naira 31-Dec-20 31-Dec-19
Late repayment fees (see note (a) below) - 1,856
Sundry income 12,816 4,633
Donation - MSME Recovery Fund 3,500 -
Foreign Exchange gain/(Loss) 59,254 (4,738)
75,570 1,751
Sundry income is made up of income earned on the Fund's current account balances with Banks and donations from the
employment summit.
(a) Late repayment fees
In thousands of Naira 31-Dec-20 31-Dec-19
Accrued late repayment fees (see note 5) - 1,856
Late repayment fees received - -
- 1,856

17 Impairment (write back)/ charge

In thousands of Naira 31-Dec-20 31-Dec-19
Impairment (Write back)/ charge on loans and advances (See note 5(d)) (332,625) 414,237
(332,625) 414,237

18 Programs expenses
In thousands of Naira 31-Dec-20 31-Dec-19
Loan program expenses (see (a) below) 180,595 152,077
Other programs expenses (see (b) below) 152,994 496,947
333,589 649,024

(a) Loan programs expenses

Management fees (see note (i) below) 33 40,025
Credit insurance (see note (iii) below) 7,282 23,036
Beneficiary training (see note (iv) below) 126 17,303
Beneficiary selection (see note (v) below) 300 4,438
Amortization of loan application software (see note 8 (b)) 5,997 36,045
Other loan program costs (see note (vi) below) 19,242 31,230
MSME Recovery Costs 147,615 -
180,595 152,077

(i) Management fees relate to payments made to fullfillment partners for loan disbursment, monitoring and collection of repayments. The fees
are charged at the rate of 2.5% and 3.5% for Small and medium enterprises and Micro enterprises loans respectively.
(ii) Credit insurance represents the amortised portion of annual premium paid for the protection of the loan sum grantedto beneficiaries. This
covers against default arising from death of loan beneficiaries, burglary and fire of business premises of loan beneficiaries.
(iii) Beneficiary training representscost of providing trainings on business managementamongstothers to successful loan applicants on how to
better utilize and turn around capital and manage their businesses.
(iv) Beneficiary selection fees represents the fees paid to independentconsultants to managethe beneficiary selection process and recommend
candidates to the Fund for approval.
(v) Other loan programs cost represents among others cost of engagingconsultants to carry out an impact assessmentof the Fund and cheque
presentation ceremony.
(vi) MSME Recovery Costs represents the amount disbursed to the businesses that were affected during the ENDSARS protests in Lagos State.

47
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

(b) Other programs expenses

In thousands of Naira 31-Dec-20 31-Dec-19
Employability program cost - UNDP arrangement (See note 7(a)) - 355,253
Employability program cost - Management fees to UNDP (See note 7(a)) - 38,808
Employability program costs - GIZ (see note 11(a)) 60,708 38,816
Employability program costs - others 74,337 19,615
Technological start-ups program cost 17,949 43,455
Market stimulation program cost - 1,000
152,994 496,947

19 Personnel expenses
In thousands of Naira 31-Dec-20 31-Dec-19
Wages and salaries 453,119 388,205
Defined contribution plan (see note (a) below) 19,908 19,478
473,027 407,683

(a) This is the contribution made by LSETF to employees' pension accounts. LSETF and its employees make contributions of 10% and 8% respectively
of the base salary, housing and transport allowance to each employee's retirement savings account maintained with the employees' nominated
Pension Fund Administrators.

Total personnel expenses includes the Executive Secretary's remuneration.

(b) Analysis of personnel expenses

Employees of the Fund, earning more than N500,000 other than the Board of Trustees, whose duties were wholly or mainly discharged in
Nigeria, received emoluments (excluding pension contributions and certain benefits/allowances) in the following ranges:

Number Number
N500,001 - N1,500,000 15 15
N1,500,001 - N2,500,000 12 8
N2,500,001 - N3,500,000 8 13
N3,500,001 - N4,500,000 13 10
N4,500,001 - N5,500,000 4 2
N5,500,001 - N6,500,000 4 8
N6,500,001 - N7,500,000 3 1
N7,500,001 - N 8,500,000 2 1
N8,500,001 and above - -
61 58

The Board of Trustees' emoluments comprise:

In thousands of Naira 31-Dec-20 31-Dec-19
Trustees' sitting allowances (see note 20) 50,147 22,346
50,147 22,346

The sitting allowances disclosed above include amounts paid to:

In thousands of Naira 31-Dec-20 31-Dec-19
The Chairman 3,400 1,950
The Executive Secretary 8,039 8,039
The highest paid Trustee 11,439 9,989

There were no fees paid to the Trustees during the year.

48
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

20 Other operating expenses

In thousands of Naira 31-Dec-20 31-Dec-19
Rent & service charge 22,113 21,700
Professional fees 1,803 6,558
Audit fees (See note 20 (a) below) 11,825 10,500
Trustees' sitting allowance (See note 19(b)) 50,147 22,346
Liaison office 5,950 25,467
General and administrative expenses 5,761 6,520
Fueling 4,612 5,012
Transport and travelling 120 29,791
Bank charges 702 1,991
Security costs 429 673
Board and staff strategy session 4,315 10,268
Board training 374 28,426
Staff training 1,681 26,678
Electricity & power 11,000 13,030
Office repairs and maintenance 1,363 1,694
Printing and stationeries 501 1,131
Motor vehicles repairs and maintenance 2,723 4,587
Advert, publicity and engagement 65,341 63,589
Computer accessories & consumables 35,851 32,121
Insurance 42,132 45,505
Other expenses - 985
268,741 358,571

(a) There were no non-audit fees paid to the Fund’s External Auditors (KPMG Professional Services)
during the year under review (2019:NIL).
21 Reconciliation notes to the statement of cashflows
(i) Changes in prepayments
In thousands of Naira 31-Dec-20 31-Dec-19

Balance, beginning of the year (see note 6) 22,822 47,760

Balance, end of the year (see note 6) 20,970 22,822
Decrease in prepayments 1,852 24,938

(ii) Changes in other current assets

In thousands of Naira 31-Dec-20 31-Dec-19
Balance, beginning of the year (see note 7) 241,698 93,580
Balance, end of the year (see note 7) 703,659 241,698
(Increase)/Decrease in other current assets -461,962 - 148,117

(iii) Changes in loans and advances

In thousands of Naira 31-Dec-20 31-Dec-19
Loans granted during the year (see note 5) (130,661) (929,265)
Cash repayments received (see note 5) 671,607 1,301,702
Interest on managed loan (see note 14(b)) - 808
Decrease/(Increase) in loans and advances 540,946 373,245

49
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

(iv)Changes in other liabilities and accruals

In thousands of Naira 31-Dec-20 31-Dec-19
Balance, beginning of the year (see note 12) 115,762 99,652
Balance, end of the year (see note 12) 90,512 115,762
Increase/(Decrease) in other liabilities (25,249) 16,110

(v)Changes in unearned income

In thousands of Naira 31-Dec-20 31-Dec-19
Balance, beginning of the year 55,885 16,214
Amount written to statement of financial performance (see note 15) (60,708) (38,816)
Balance, end of the year (see note 11) 40,980 55,885
Increase in unearned Income 45,803 78,487

(vi)Changes in managed funds

In thousands of Naira 31-Dec-20 31-Dec-19
Balance, beginning of the year 46,274 48,478
Balance, end of the year (see note 10) 56,274 46,274
(Decrease)/Increase in managed funds 10,000- 2,204

22Movement in Deficit from operations

In thousands of Naira 31-Dec-20 31-Dec-19
Balance, beginning of the year (6,796,938) (5,064,935)
Addition during the year (579,393) (1,732,003)
Balance, end of the year (7,376,331) (6,796,938)

23 Contingent liabilities, litigation and claims

The Fund was not involved in any suit in its ordinary course of business as at the reporting date. The
Trustees of the Fund are not aware of any pending or threatened claims or litigations, which may be
material to the financial statements. There were no other contingent liabilities requiring disclosure
in the financial statements.

24 Taxation
The income of LSETF is exempted from income tax based on the provisions of Section 23 (i) of the
Companies' Income Tax Laws of Nigeria and the Section 26 of the Lagos State Employment Trust
Fund Act.

25 Related Parties
Parties are considered to be related if one party has the ability to control the other party or exercise
influence over the other party in making financial and operational decisions, or one other party
controls both. The definition includes trustees and key management personnel, among others.

The list of the Fund's related parties and the details of transactions with the Fund is shown below;

Name of related party Relationship Nature of transactions Due from/(Due to) Receipt/(Payment)

In thousand of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19

Lagos State Government* Parent Capital contribution - - 1,717,533 1,700,000

Restral Limited Trustee Training of Loan Beneficiaries - (2,296) – (4,350)

LASACO Assurance Plc Sister Company Insurance of the Fund's Assets - - 71 (260)
Key Management

Trustees and Relations Personnel Loan Beneficiary 401 4,041 - -

50
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

** The Lagos State Government released the sum of N1.72 billion on various dates as capital
contribution to the Fund during the year 2020 (N1.7billion: 2019). The capital contribution is to
target programmes meant to generate employment including disbursement of loans to MSMEs,

(i) Key management compensation

Key management personnel of the Fund includes all Trustees and senior management. The
summary of the compensation of key management personnel for the year is as follows:

Key management compensation

In thousands of Naira 31-Dec-20 31-Dec-19

Salaries and other short-term employee benefits 73,077 73,077

Sitting allowances (see note 20) 50,147 22,346
Total compensation of key management personnel 123,224 95,423

26 Events occurring after reporting period

There were no events occurring after the end of the reporting period which could have a material
effect on the financial position of the Fund as at 31 December 2020.

27 Financial risk management

(a) Introduction and overview
The Board of Trustees(BOT), comprising the Chairman, Executive Secretary and other Trustees is
the apex decision making body of the organization. The BOT provides guidance for the overall risk
appetite and direction of the Fund. The BOT has overall responsibility for the establishment and
oversight of the Fund's risk management framework.

The Fund's Risk Management Framework provides a disciplined and structured process upon
which the pillars of risk and control processes and extreme events management lie.

The Fund's risk management policies are established to provide guidance regarding the
management of risk to support the achievement of the Fund's strategic objectives, protect Fund's
assets and set appropriate limits and controls and to monitor risks and adherence to limits. LSETF
Risk Management Framework, Policies and Operating Procedures are reviewed at the minimum,
annually in line with changes in the operating environment, available resources among
competing Fund's activities.

The BOT have the overall responsibility for developing, monitoring and overseeing the Fund's risk
management policies, procedures and framework. The Board is assisted in its oversight role by
the Board Audit & Risk Committee, which undertakes both regular and ad-hoc reviews of risk
management controls and procedures. The Board Audit & Risk Committee has oversight over the
Fund's audit, risk and control functions. Its responsibilities include:
Ÿ Overseeing the integrity of the financial statements and financial reporting process;
Ÿ Monitoring choice of accounting policies and principles;
Ÿ Overseeing the activities, hiring, performance and independence of the external and internal
audit function;
Ÿ Overseeing the effectiveness of internal control systems, accounting and operating procedures;
Ÿ Establishing policy standards and guidelines for risk assessment and management;
Ÿ Ensuring compliance with legal and regulatory requirements, including completeness of

51
 disclosures; and
Ÿ Overseeing ethics, and whistle-blower hotlines.
Ÿ The BOT have the overall responsibility for developing, monitoring and overseeing the Fund's risk
management policies, procedures and framework. The Board is assisted in its oversight role by
the Board Audit & Risk Committee, which undertakes both regular and ad-hoc reviews of risk
management controls and procedures. The Board Audit & Risk Committee has oversight over the
Fund's audit, risk and control functions. Its responsibilities include: o Overseeing the integrity of
the financial statements and financial reporting process; o Monitoring choice of accounting
policies and principles;

52
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020

(I) LSETF's Approach to Risk

The Fund addresses the challenge of risks comprehensively through an enterprise-wide risk
management framework, applying leading The Board Legal Advisory Committee advises the Fund
on legal and litigation issues involving the Fund at the Small Claims Court or in any other court,
including those that result from collection/recovery actions.

The Management Risk Committee, headed by the Executive Secretary, drives the management of
the financial risks (liquidity and credit risk), operational risks as well as strategic and reputational
risks. The Committee is responsible for the daily operations of the Fund with jurisdiction over
multiple activities including risk management.

In accordance with Section 35 of the “Lagos State Audit Law 2011”, the Management Audit
Committee implements all recommendations contained in the Auditor General's report as approved
by the Lagos State House of Assembly and any other regulation and directive of the Lagos State
House of assembly.

The Management Credit Committee reviews and recommends to the Board Credit and Investment
Committee and Board of Trustees for approval, credit policy direction and loan applications up to the
stipulated limit as defined by the BCIC and the Board of Trustees. The Committee on an ongoing
basis ensure compliance of the credit environment in the 'Fund' with approved policies and
framework.

The Fund continuously identifies all events that, if they occur, would affect the Fund's ability to
achieve its goals. The Fund prioritizes early identification of these events, to enable proper risk
response. The Fund also educates and empowers stakeholders to own the risks applicable to them,
guiding them to being front level risk managers.

The Fund continuously carries out a risk grading exercise by evaluating the likelihood of occurrence,
and the extent of deviation from expectation if crystallization of identified risks occurs. Each risk is
graded, and controls are put in place to mitigate the risk and reduce its effect to a minimal level.
There is constant communication of risk positions to relevant stakeholders. This communication
includes periodic reporting, deviation escalation, and knowledge sharing to help in the entire risk
management process.

The key features of the Fund's risk management framework are:

Ÿ The overall risk management direction and oversight is provided by the BOT.
Ÿ The BOT approves the Fund's risk appetite.
Ÿ Risk Management is entrenched in the Fund's processes, however the Risk management function
does not influence the outcome of other risk creating functions
Ÿ The Fund manages its credit, operational and liquidity risks in a coordinated manner.
Ÿ Reports are being provided to the Management and Board by the Risk Management Unit, while
the fund's internal audit unit report to the Board of Trustees.
Ÿ The compliance function, under the leadership of the Head of Internal Audit of the Fund ensures:
Ÿ Review and analysis of all relevant laws and regulations, which are adopted into policy statements
to ensure business is conducted professionally
Ÿ The review and the compliance of our internal control and risk management practices, in line with
Board-approved and regulatory standards;
Ÿ Adequacy of controls systems;
53
Ÿ Strong Board Committees, and Executive Secretary's oversight of Risk Management, Compliance,
and Audit programs.

(ii)Risk Appetite
The Risk Appetite of the Fund is reviewed annually in line with the Enterprise Strategic objective. As
things evolve within the year, circulars and directive shall be issued periodically to reflect the changes
in risk direction. The Risk Appetite contains limit on exposure to sectors, Local Government, Age limit
where applicable, liquidity expected to cover operational expenses etc..

The Fund employs a range of quantitative indicators to monitor the risk profile. Specific limits have
been set in line with the Fund's risk appetite. The Board of Trustees of LSETF shall use a balanced
approach in determining acceptable levels of risk for the Fund to undertake.

The Fund will only pursue endeavours within its objectives in a safe and sound manner, complying
with the LSETF Law of 2016, relevant guidelines, and ensure the Fund's sustainability for a longer
term.

(iii)Risk Management Philosophy, Culture and Objectives

The Fund considers effective risk management a requirement in a long lasting institution.
Ÿ The Fund's Risk Management Framework gives all relevant stakeholders a clear and consistent
direction of its approach to managing risks, and individual's role in the Risk Management Process.
Ÿ The Fund continually educates and empowers stakeholders to be risk managers, guiding them to
be the front line of risk response thereby building a shared perspective on risks
Ÿ All risks are brought together under limited number of oversight functions, thereby having a
holistic and integrated approach to risk management
Ÿ Clear segregation of duties between Finance & Corporate Services Directorate, Programs and
Coordination Directorate, Strategy, Partnerships and Stakeholder Management Directorate, Lagos
Innovates, Risk Management and Internal Control. All activities with risk implication are
thoroughly assessed.
Ÿ There is communication of risk positions to relevant stakeholders which includes periodic
reporting, deviation escalation, and knowledge sharing to help in the entire risk management
process.

The Fund has exposure to the following risks arising from its business and mandate
Ÿ Credit risk
Ÿ Liquidity risk
Ÿ Funding risk
Ÿ Counterparty risk
Ÿ Operational risk
Ÿ Political risk
Ÿ Legal risk
Ÿ Environmental & Social risk
Ÿ Strategic risk
Ÿ Fiduciary risk

(b) Credit risk

Credit risk is the risk of financial loss to the Fund if a beneficiary or counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from the Fund's receivables
from loan beneficiaries and investment securities. The BoT have the overall responsibility for Credit
Risk, and it delegated some of its loan approval responsibility to Board Credit & Investment
Committee and Management Credit Committee.

The Fund has exposure to credit risk from the loans it granted to Lagos Residents.
Credit exposure begins from when Fulfilment Partners make approved money available to the

54
beneficiaries. Existing approval grid is shown below.

(i) Credit risk limits

The Fund applies credit risk limits, among other techniques in managing credit risk. This is the
practice of stipulating a maximum amount that the individual or counterparty can obtain as loan.
Internal and regulatory limits are strictly adhered to. Through this, the Fund not only protects itself,
but also in a sense, protects the counterparty from borrowing more than they are capable of paying.

The Fund continues to focus on its concentration and intrinsic risks and further manage them to a
more comfortable level. This is very important due to the serious risk implications that intrinsic and
concentration risk pose to the Fund. A thorough analysis of economic factors, market forecasting and
prediction based on historical evidence is used to mitigate the crystallization of these risks.

The Fund has in place various portfolio concentration limits (which is subject to periodic review).
These limits are closely monitored and reported on from time to time.

The Fund's internal credit approval limits for the various authority levels are as indicated below.
Approval Limit
Loan Type Amount Approving authority
Micro Enterprise Start-up ₦250,000 Management Credit Committee
Micro Enterprise loans ₦500,000 Management Credit Committee
SME loans Up to N2,500,000 Board Credit & Investment Committee
Above
SME loans ₦2,500,000 Board of Trustees

These internal approval limits are set and approved by the Board of Trustees.

The Fund's exposure to credit risk is influenced mainly by loan beneficiaries willingness and ability to
repay their loans as and when due.

The Fund is exposed to credit risk on its cash and cash equivalents, investments, loans and
receivables balances due from its beneficiaries and other counterparties in the public and private
sectors .

The Fund has procedures to monitor its credit risk across segments. Although beneficiaries are free
to repay their outstanding loans before expiration, all loans are categorized as Loans and Advances &
Receivables.
Utilization of the services of portfolio managers whom are educated on the risk appetite of the Fund
and thus ensure that all investments are in low risk grade securities.

The Fund limits its exposure to credit risk by investing only in highly liquid money market
instruments with counterparties that have a good credit rating. The Fund actively monitors credit
ratings and ensures that the Fund make investments in line with the Fund's investment policy as
approved by Board.

Cash and cash equivalents

The Fund held cash and cash equivalents with maturity profile of less than three (3) months, held
with local Funds and assessed to have good credit ratings based on the Fund's policy. The Fund also
carries out a periodic evaluation of its Fulfilment partners by assessing the Financial Health,
Corporate Governance and Capacity.
Loans and advances to beneficiaries and other receivables

55
Loans and advances to beneficiaries and other receivables
The Fund has classified loans to beneficiaries as loans and advances and other receivables. The
Fund's exposure to credit risk is influenced mainly by loan beneficiaries willingness and capacity to
repay obligations as and when due. The Fund ensures that loan application process assesses each
applicant's credit history and financial capability in line with the loan amount. These assets evaluated
for impairment in line with IPSAS 29. In 2020, the Fund had a net write back on impairment of
₦332.59 million (31 Dec 2019: N414.24million).

(iii)Collateral security
All financial assets held by the Fund are normally unsecured. The Fund's comfort on the loans and
advances is the guarantee provided by beneficiaries, credit risk is also reduced from the fact that the
loans are tenored with maturity period of not more than 36 months. Loans are also insured under
Life, theft and Fire Policy.

(iv)Write-off policy
Loans written off shall reduce the Net Asset Value of the fund by the amount written off. Board
approval shall be required for such write-off.

(v)Maximum exposure to credit risk

The carrying amount of the Fund's financial assets, which represents the maximum exposure to
credit risk at the reporting date was as follows:

In thousands of Naira 31-Dec-20 31-Dec-19

₦ ₦
Cash and cash equivalents 4 3,799,940 2,952,699
Loans and advances 5 1,067,389 1,225,565
4,867,329 4,178,264

(iii)Geographical Sectors
All LSETF loans are to beneficiaries who are resident in Lagos.

(iv)Foreign Currency Risk

The Fund did not carry out any foreign currency related transaction during the year which would
have exposed it to any form of related risks.

(v)Credit Quality
The following table breaks down the Fund's main credit exposure at their gross amounts ("Cash and
cash equivalent" at carrying amount), as categorised by performance as at 31 December 2020 and
2019 respectively.

56
 31 December 2020 31 December 2019
Loans and Cash and Loans and
Cash and cash
advances to Total cash advances to Total
equivalents
beneficiaries equivalents beneficiaries
₦ ₦ ₦ ₦ ₦ ₦
Neither past due nor impaired 3,799,940 - 3,799,940 2,952,699 - 2,952,699
Impaired
Individually impaired - - - - - -
Collectively impaired - 3,458,423 3,458,423 - 3,949,224 3,949,224
Gross 3,799,940 3,458,423 7,258,363 2,952,699 3,949,224 6,901,923
Impairment allowance
Specific impairment - - - - - -
Collective impairment - (2,391,034) (2,391,034) - (2,723,659) (2,723,659)
Net 3,799,940 1,067,389 4,867,329 2,952,699 1,225,565 4,178,264

(c) Liquidity risk

Liquidity risk is the potential loss arising from the Fund's inability to meet its obligations as they fall
due without incurring unacceptable cost or losses. Liquidity risk is not viewed in isolation, because
financial risks are not mutually exclusive and liquidity risk is often triggered by consequences of
other risks faced by the Fund. This risk for the Fund would include the inability to manage unplanned
decreases or changes in funding sources. The Fund ensures at all times, it has enough liquidity
enough to cover its six (6) months operation.

(i) Liquidity risk management process

The Fund has a liquidity risk management process that ensures that sufficient liquidity, including a
cushion of unencumbered and high quality liquid assets, are maintained at all times to enable the
Fund withstand a range of stress events, including those that might involve loss or impairment of
funding sources.

The Fund's liquidity risk exposure is monitored and managed by the Finance Unit on a weekly basis.
This process includes:
Ÿ Projecting cash flows and considering the level of liquid assets necessary in relation thereto;
Ÿ Monitoring balance sheet liquidity against operational requirement;
Ÿ Maintaining liquidity and funding contingency plans. These plans identify early indicators of stress
conditions and describe actions to be taken in the event of difficulties arising from systemic or
other crises while minimizing any adverse long-term implications for the Fund.

57
The following are the contractual maturities as at 31 December 2020 of financial liabilities and financial assets:

Nominal
Inflow/ 3months or 3- 12
In thousands of Naira Note Carrying amount (Outflow) less months 1 -2 years 2 - 10 years

Financial assets
Cash and cash equivalents 4 3,799,940 3,800,354 3,800,354 - - -
Loans and advances 5 1,067,389 1,067,389 - 0 - -
Total 4,867,329 4,867,743 3,800,354 - - -

Financial liabilities
Managed funds 10 56,274 (56,274) (56,274) - - -
Unearned income 11 40,980 (40,980) (40,980) - - -
Other liabilities & accruals 12 52,614 (52,614) (52,614) - - -
Total 149,868 (149,868) (149,868) - - -
Liquidity gap 4,717,874 3,650,485 - - -
Cumulative gap 3,650,485 3,650,485 3,650,485 3,650,485

The following are the contractual maturities as at 31 December 2019 of financial liabilities and financial assets:

Nominal
Inflow/ 3months or 3- 12
In thousands of Naira Note Carrying amount (Outflow) less months 1 -2 years 2 - 10 years

Financial assets
Cash and cash equivalents 4 2,952,699 2,953,113 2,953,113 - - -
Loans and advances 5 1,225,565 3,949,224 1,656,928 1,471,321 817,932 3,043
Total 4,178,264 6,902,337 4,610,041 1,471,321 817,932 3,043

Financial liabilities
Managed funds 10 46,274 (46,274) (46,274)
Unearned income 11 55,885 (55,885) (55,885)
Other liabilities & accruals 12 84,034 (84,034) (84,034) - - -
Total 186,193 (186,193) (186,193) - - -
Liquidity gap 6,716,144 4,423,848 1,471,321 817,932 3,043
Cumulative gap 4,423,848 5,895,169 6,713,101 6,716,144

58
(d)Funding risk
Funding risk is the risk that arises from lack of fund or delay in the release of fund by the Lagos State
Government and other donor partners.

(e)Counter Party risk

Counter Party risk is the risk that arises from failure of the Fund's Partners or Stakeholders not
fulfilling their contractual obligation.

(f)Operational risk
Operational risk is the risk that arises from the potential that inadequate information systems,
processes or people will result in unexpected losses. This risk is mitigated by ensuring that there is
adequacy of internal control and information systems, employee integrity, management policies and
operating processes.

(f)Political risk
Political risk is the risk that arises from change in government. This risk might crystalize as a result of
repeal of or modification to the law that established LSETF.

(g)Legal risk
Legal risk is the risk that arises from the potential that unenforceable contracts, lawsuits, or adverse
judgments can disrupt or otherwise negatively affect the operations or condition of the Fund. Legal
risk can also arise from violations of or nonconformance with laws, regulations, prescribed practices,
standards, or ethical standards.

(i)Environmental & Social Risk

Environmental & Social risk is the risk that arises from arising from the Fund's action or inaction,
resulting in; environmental degradation, destruction of natural habitat, reduction of employment,
social unrest, community/labour scuffle, greenhouse gas emission etc.

( j) Strategic risk
Strategic risk is the risk that arises from the pursuit of an unsuccessful plan; making poor decisions,
not supporting a good decision with the adequate resources, or not responding to changes in the
environment. This is the risk that the Fund's strategy may be inappropriate to support long-term
goals. This risk is a function of the compatibility of an organization's strategic goals, the business
strategies developed to achieve those goals, the resources deployed to support achievement of
those goals, and the quality of implementation. Properly managing these risks is not only critical to
the conduct and sustainability of the Fund, but also crucial to its success .

(k) Fiduciary risk

Fiduciary risk is the risk that arises from failure of the Fund in its position as an intervention fund to
achieve the aspiration of the Lagos State Government to create more employment or failure as an
agent/trustee in start-up ideation/incubation activities.

(l) Market risk

Market risk is the risk that changes in market prices such as interest rate will affect the Fund's
income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while
optimizing returns.

(I) Exposure to Currency risk

The Fund is exposed to a minimal level of currency risk (i.e. the potential risk of loss from fluctuating
foreign exchange rates due to exposure to foreign currency). During the financial year, the Naira was
fairly stable. The Fund keeps minimal foreign currency assets as represented by the balance in
Domiciliary account, however the Fund does not have any obligation in foreign currency.

59
(ii)Foreign Currency Risk
The Fund did not carry out any foreign currency related transaction during the year which would
have exposed it to any form of related risks.

(iii)Exposure to interest rate risk

The Fund is exposed to a considerable level of interest rate risk (i.e. the risk that the future cash flows
of a financial instrument will fluctuate because of changes in market interest rates). During the
financial year, interest rate was fairly stable while inflation rate dropped. The Fund, however, has a
significant portion of its loans and advances to customers at a concessionary fixed rate of 5%.

Sensitivity analyses are carried out from time to time to evaluate the impact of rate changes on the
net interest income. The assessed impact has not been significant on the capital or earnings of the
Fund.

Interest rate profile

At the end of the reporting period the interest rate profile of the Fund's interest bearing financial
instruments as reported to the Management of the Fund are as follows:

Financial instruments
In thousands of Naira Notes 31-Dec-20 31-Dec-19
Cash and cash equivalents 4 3,799,940 2,952,699
Total 3,799,940 2,952,699

Fair value sensitivity analysis for fixed rate instruments

The fund does not account for any fixed rate financial assets and liabilities at fair value through profit
or loss or available for sale. Therefore, a change in interest rates at the end of the reporting period
would not affect performance for the year or equity. The table below shows the impact on the Fund's
performance for the year interest rates on the financial instruments had increased or decreased by
100 basis points, with all other variables held constant.

In thousands of Naira 31-Dec-20 31-Dec-19

Increase in interest rate by 100 basis points (+1%) 37,999 29,527

Decrease in interest rate by 100 basis point (-1%) (37,999) (29,527)

60
 OTHER
NATIONAL
DISCLOSURES

61
OTHER NATIONAL DISCLOSURES VALUE ADDED STATEMENTS
As at 31 December 2020

In thousands of Naira 31-Dec-20 % 31-Dec-19 %

Receipts 257,321 (2,078) 201,954 (17)

Bought-in materials and services - Local (269,704) 2,178 (1,421,831) 117

Value added (12,383) 100 (1,219,877) 100

Distribution of value added:

To employees:
Wages, salaries and pensions 473,027 (3,820) 407,683 (33)

Retained in the business:

For the replacement of property and equipment and 93,982 (759) 104,443 (9)
intangible assets (depreciation and amortisation)
To deplete reserves (579,393) 4,679 (1,732,003) 142

Value added (12,383) 100 (1,219,877) 100

62
OTHER NATIONAL DISCLOSURES FINANCIAL SUMMARY
For the year ended 31 December 2020

In thousands of Naira 31 December 2020 31 December 2019 31 December 2018 31 December 2017 31 December 2016

Statements of financial position

Total assets 5,678,968 4,570,984 4,549,409 7,248,783 6,440,674

Total liabilities (187,766) (217,921) (164,344) (248,149) (141,025)
5,491,202 4,353,063 4,385,065 7,000,634 6,299,649

FINANCED BY:
Capital contribution 12,867,533 11,150,000 9,450,000 9,150,000 6,400,000
Deficit from operations (7,376,331) (6,796,937) (5,064,935) (2,149,366) (132,301)
Other reserves - - - - 32
Equity 5,491,202 4,353,063 4,385,065 7,000,634 6,299,649

Statements of financial performance

Revenue 257,321 206,693 472,341 367,085 245,577

Social impact and other programs expenses (964) (1,063,261) (2,390,093) (1,450,806) (5,948)
Recurring expenses (835,750) (875,434) (997,817) (933,344) (371,930)
Gain from available for sale securities - - - - 31,950
Reclassification to the statement of financial
performance on disposal - - - (31,950) -
Deficit for the year (579,393) (1,732,002) (2,915,569) (2,049,015) (100,351)

63
[email protected]
01 700 0969

16 Billings Way, Oregun, Ikeja

@lsetf

www.lsetf.ng

64