business model

Organisation Structure

Overview

Citizens Development Business Finance PLC (CDB) is a registered finance company regulated by the Central Bank of Sri Lanka and listed on the Colombo Stock Exchange. Our business is that of mobilising funds and providing financial accommodations. Our total asset base as at 31st March 2014 was Rs. 33,769 Mn, with recorded revenue of Rs. 6,125 Mn, recorded net interest income of Rs. 2,342 Mn. Shareholders’ funds reached Rs. 3,577 Mn while borrowings stood at Rs. 4,314 Mn as at 31st March 2014. Coupled with an island-wide network of 59 outlets, these figures make CDB the sixth largest licensed finance company in Sri Lanka. The Company currently employs 1,109 people.

The Company’s business strategy is based on financial support for enterprise and industry that will build the nation’s economy and produce cascading, sustainable gains to improve the quality of life of all Sri Lankans. Our range of financial products is diverse and expansive, ranging from loans to foreign currency exchange and foreign remittances, from fixed and savings deposits to pawning. Thriving on the diversity of our clientele, our business model combines rural lending and urban funding.

Our sustainable development practices are those of a responsible corporate steward in the financial services industry, working to enrich both the planet and its people.

Organisation Structure

Report Boundary

Determining Material Matters

Material Aspects and Boundaries

Key to our goal of entrenching integrated sustainability across every facet of business is our focus primarily on those material matters and issues to our stakeholders. Determining these material aspects is an ongoing process, involving the study of all reports submitted for Board or Executive discussion, key business risk factors and identified opportunities, all formal and informal stakeholder feedback, our strategic objectives and integrated sustainability imperatives. The resulting material matters inform content priority for this Report and they are linked to our strategy and actions.

Materiality in financial reporting is the platform upon which stakeholders, predominantly investors, base their economic decisions. An organisation’s financial performance is inextricably linked to the performance of its triple bottom line, which has a permeating impact on all stakeholders. In CDB, determining materiality within the sustainability report is focused on the four main trusses of economic, environmental, social and cultural impacts. Hence, materiality in the sustainability reporting context is determined on significance of the mentioned economic, environmental, social and cultural impacts and influence on assessment and decisions of stakeholders. We have identified the material matters along with the material drivers for each stakeholder.

Our approach of addressing material aspects and boundaries is implemented through a vital process of stakeholder engagement. The very first step towards such aspects is identifying the relevant aspects and their boundaries. The following tabular format exhibits the identified material aspects and their drivers which matter to CDB within its scope.

Factor	Material Matters	Materiality Drivers
Economic	Becoming more customer-centred Economic conditions and financial performance Governance, compliance and ethics Responsible business management, lending and investment practices Effective risk and balance sheet management Integrity of information technology (IT) systems	Building trust with clients Optimise strategic intent, sustainable economic profit and growth Creating sustainable stakeholder value Contributing to a stable economic and financial environment for group operations Minimising non-compliance liability
Environmental	Environmental and social impacts of lending, investments and products Resource and energy consumption Energy saved due to conservation and efficiency improvement Compliance with environmental laws and regulations	Ensuring compliance with existing and developing environmental regulations Contributing to behaviour change for a more sustainable future Reducing environmental impact
Social	Socioeconomic development Responsible access to finance and financial literacy Lending to enable healthcare, housing and education, enterprise development and community upliftment Economic empowerment	Contributing to social stability to support business operations Developing new products, new markets, revenue streams and the customer base Contributing to social upliftment and social welfare
Cultural	Building a resilient corporate culture Embedding talent management Developing staff capacity	Building a unique, innovative and customer centric culture that is core to our competitive advantage Optimising talent by attracting, retaining and developing high performing and capable people

As the first step, we identify the most important and relevant aspects which could impact the organisation and hence, become material aspects for report content. Those aspects are then evaluated based on their significance to CDB’s sustainability context and their significance to stakeholders who are within and outside of the organisation. This leads to categorisation of such impacts as high, moderate and low and studying the degree of significance or the materiality of such aspects towards the performance of the organisation.

The following assessment demonstrates the aspect boundary for each material aspect within and outside of the organisation:

Aspect	Aspect Boundary							Materiality
	Significance as per Sustainability Context	Internal		External
	Significance as per Sustainability Context	CDB	Employees	Customers	Social and Environment	Suppliers & Business Partners	Regulators	To CDB	To Stakeholders	Reported
Economic
Economic Performance	H	∆	∆	∆	∆	∆	∆	H	H	Yes
Environment
Energy	M	∆			∆			M	M	Yes
Effluents and Waste	M	∆			∆			M	M	Yes
Social: Labour Practices and Decent Work
Employment	H	∆	∆			∆		H	M	Yes
Labour/Management Relations	M	∆	∆					M	M	Yes
Training and Education	M	∆	∆					M	M	Yes
Equal Remuneration for Women and Men	M	∆	∆					M	M	Yes
Social: Human Rights
Non-Discrimination	M	∆			∆			M	M	Yes
Child Labour	M	∆			∆			M	M	Yes
Forced or Compulsory Labour	M	∆			∆			M	M	Yes
Social: Society
Local Communities	M	∆			∆			M	M	Yes
Anti-Corruption	M	∆			∆			M	M	Yes
Anti-Competitive Behaviour	M	∆					∆	M	M	Yes
Compliance	M	∆					∆	M	M	Yes
Social: Product Responsibility
Marketing Communications	M	∆		∆				M	M	Yes
Customer Privacy	M	∆		∆				M	M	Yes
Compliance	M	∆					∆	M	M	Yes

H - High M - Moderate L - Low

As displayed, the materiality aspects for CDB has been summarised using the following matrix-based on two options of influence on stakeholder assessments and decisions and significance of economic, environmental and social impacts. The importance of such aspects we wish to achieve shows the accountability of being a corporate citizenship to the economy, environment and society and the importance of the aspects of various stakeholder groups and the influence they could have on stakeholders’ assessment of the engagement with the Company. This will entail us to identify the stakeholders’ interaction and expectation level where the Company could perform a comprehensive assessment for the future.

Operating Environment

Our operating environment consists of the set of external entities, conditions and forces that have the potential to affect what we do and the results we achieve. Analysing the many different elements of the environment is difficult, the more so since many issues are interconnected.

The following PESTEL (political, economic, social, technological, environmental, legal) analysis visualises our operating environment as three concentric rings in which all the foregoing elements are manifest. The innermost ring comprises factors and effects under our direct control. The next ring is the realm of day-to-day influences and impacts upon our own business, which are more or less amendable to exploitation or mitigation. The outermost ring consists of major factors that impact to a greater or lesser degree on all organisations in the environment and are for the most part beyond our control.

Using this methodology, CDB’s operating environment may be analysed as follows:

Environment	Influencing Factor	CDB’s Response
Political	Government tax policy Rural development imperatives	Timely strategies that will continue to capture market share and achieve lending targets. Continue to develop rural markets.
Environmental	Government regulations Carbon emission directives Conservation and cost saving	Awareness programmes for vehicle leasing clients on the need to control carbon emissions. Promote energy saving and resource conservation measures among customers through lending policy. Implement/improve internal conservation measures. Environmental awareness programmes as CSR.
Social	Improve people’s access to financial services Deliver appropriate services Promote financial literacy Encourage thrift	Develop branch network with focus on underserved areas. New products and services (such as Islamic finance). Develop the savings habit among the young, particularly children and students. Awareness programmes.
Technological	Make the most of new technological developments	Long-standing partnership with Commercial Bank merges our ATM network with theirs. Intelligently apply IT to improve operational efficiency. Leverage core banking solution.
Economic	Interest rate movements Inflation Exchange rate movements Monetary policy changes	Obtain the best and most timely economic information Responsive pricing decisions. Modify existing products and features, develop new ones in order to make the most of prevailing conditions.
Legal	Regulatory changes Budgetary credit limits	Follow Central Bank directives for LFCs with respect to capital requirements, audit processes, reporting, etc. Pursue IFRS compliance to be in line with international regulatory standards.

More information on environmental factors influencing operations in 2013/14 and our response to them is given in the Management Discussion and Analysis.

Sustainability Development

Rapid, Sustainable and Inclusive Development

CDB takes up the charge to decrease the adverse impacts on our environment. It is obviously a multi-dimensional effort to balance what is best for the sustainable environment as well as what is best for the business. As consumer awareness and regulatory constraints increase, the focus of ‘right thing to do’ has shifted towards ‘best thing to do’.

Sustainable development ties together concern for the carrying capacity of natural systems with the social and economic challenges faced by the human beings. CDB strongly believes in constructing and nurturing strong, sustainable long-lasting relationships with its stakeholders. We also believe that this can only be achieved by recognising, understanding and respecting interests of all major stakeholders such as customers, employees, Community, Investors, business partners and the regulators and aligning those interests with our organisational growth oriented goals. We have deepened our commitment to operating in a way that meets the highest business standards. This commitment drives us to make a strong positive and sustainable difference towards the community. The commitment to social responsibility starts with the Board of Directors and extends throughout the business. Meeting current business needs while incorporating innovation and long-term thinking into our business models to meet the future needs of our stakeholders has made us a sustainable business.

To CDB, sustainability is an integral component which is not limiting to a paper or a report. We are forced to understand ourselves and the way the world works. We are urged to address the issues and find sustainable workable solutions for these because sustainable development involves more than simply growth. It means we have to change our mindset, the way we think, act and work. This means taking stock of our ecological capital, prompting more equitable income distribution and working on measures that will reduce vulnerability to economic crises. And this is where, CDB unites its corporate values along with the sustainability thinking as a foundation of our game plan.

Statement of Value Added

For CDB, sustainability is about building our businesses to ensure we have a positive impact on the economic and social progress of communities and on the environment, while growing and preserving clients and stakeholders’ wealth based on strong relationships of trust. This commitment to sustainability means integrating social, ethical and environmental considerations into our day-to-day operations. A key element of this is solid corporate governance that ensures sustainable management with long-term vision.

Paradigm Shift to Sustainable Capitalism

Management Approach on Economic, Social and Environmental consideration has become our key theme in managing economy, society and environment. Beyond such effort what we believe is we require the sustainable business community to join the ongoing system level conversations on how to make the whole economy truly sustainable. As we have crowned as one of the most trusted entities and an employer of choice in the sector we have embraced the accountability on building a sustainable surrounding for all the entities existing.

The holistic approach model of CDB shows its responsibility towards naturality, building a sufficient economy and nurturing community along with the accelerator of philosophies, strategies and priorities.

Philosophy	Strategy	Priorities
Stakeholder Engagement for Business Strategy Formulation Shaping Sustainability Responses Communicating Responses and Strategies	Focus on meeting economic, environmental and social sustainability dimensions in accordance with the triple bottom-line approach Expand into the challenging markets of leasing, deposit mobilisation and micro-finance.	To promote, establish, expand and modernise the industrial, agricultural and commercial sectors, thereby contributing to the overall development activities in Sri Lanka. To exceed stakeholder expectations and delivering sustainable products and services, thereby emphasising the need for safe and responsible living. To ensure our operating standards are consistent and equivalent throughout our island-wide branch network, as we believe this will contribute towards positively impacting our environment.

Philosophy

Strategy

Priorities

Stakeholder Engagement for Business Strategy Formulation
Shaping Sustainability Responses
Communicating Responses and Strategies

Focus on meeting economic, environmental and social sustainability dimensions in accordance with the triple bottom-line approach

Expand into the challenging markets of leasing, deposit mobilisation and micro-finance.

To promote, establish, expand and modernise the industrial, agricultural and commercial sectors, thereby contributing to the overall development activities in Sri Lanka.

To exceed stakeholder expectations and delivering sustainable products and services, thereby emphasising the need for safe and responsible living.

To ensure our operating standards are consistent and equivalent throughout our island-wide branch network, as we believe this will contribute towards positively impacting our environment.

Economic Value Addition - Reaching Economic Sustainability

As our shared assets are not sacrificed for short-term profit we are mainly concerned on economic value addition where it enables local economic development, poverty alleviation, social and economic transformation, environmental stewardship and infrastructure development.

The Board of Directors guides CDB’s approach to economic sustainability with a comprehensive corporate policy and procedures. The combination and ongoing relationships among each single unit’s processes discuss on specific goals and resources allocated according to our overall targets. The chapters on Corporate Governance and the Risk Management provide a detailed review on economic sustainability.

The material concerns on formulating and implementing Company’s strategic direction, risk assessment and response, control of operations - internal control system, regulatory framework, legislation and code of conduct, corporate social responsibility and other external factors are deliberated at the monthly Board meetings. The internal audit function ensures integrity of the internal control systems, policies and procedures of the entire operation while the external audit assurance is taken in fulfilling requirements of the Companies Act.

The economic performance is therefore such a vital facet in determining economic sustainability where we have considered it as a material aspect as follows:

	2013/14	2012/13
	Rs.	Rs.
Revenue	6,125,161,547	4,311,850,070
Operating costs	936,602,568	688,836,869
Employee wages and benefits	497,938,442	407,018,893
Payment to providers of capital	3,715,050,534	2,529,859,968
Payment to government	226,757,864	176,094,843
Community investment	3,283,422	3,150,393
Economic Value Generated	745,528,717	506,889,105

Stakeholders

CDB has a broad range of stakeholders with whom it is actively engaged. To the best of our ability, we manage these relationships with the objectives of fulfilling social expectations, minimising reputational risk and influencing the business environment in a positive way. The frequency of engagement with stakeholders varies according to the group and particular issue under consideration.

Stakeholder Overview

Stakeholder Group	Their Concerns	Our Responsibilities
Investors	Dividends and share value Performance and integrity of Board and Management Public goodwill and reputation of the Company	Generate profits and ensure optimal returns on investment Proper oversight and control of Board and management Company Code of Conduct, management oversight and response Public affairs management
Customers	Dealing with CDB is a positive experience Information provided by us is accurate and reliable Customers’ privacy is assured Promises to customers are kept	Protect the privacy of our customers, including data protection, confidentiality, eschewing unsolicited communication and intrusive surveillance Provide a positive customer experience Comply with Company values and Codes of Conduct
Business Partners	Supply chain functions well Supply chain is sustainable Partner wealth maximisation	Work with suppliers to address issues in the supply chain
Employees	Health, safety and well-being	Ensure that we properly safeguard those who work for us and those who may be affected by our operations Promoting and maintaining harmonious relationships Moulding future leaders Recognise exceptional performers Ensuring work life balance by organising copious activities Investment on Human Resource Information System (HRIS)
Government & Regulators	Good corporate governance and business ethics Legal compliance Support for Government policy	Develop and communicate a framework that promotes good governance and ethical behaviour at all levels Ensure compliance at all times Providing timely and accurate information Immediate response to queries made by these authorities Comply with rules and regulation
General public	Social investment	Do our part to improve quality of life for all members of society Investment on citizens Empowering entrepreneurs Addressing rural youth Empowering women Encourage people for saving
Environmental advocates and activists	Environment protection Energy conservation	Use our social investment fund to develop products and services that benefit society Reduce energy consumption and pollution Adopting green policies, practices and approaches to save environment Engage with environmentally friendly green events Emission reduction Waste management through waste minimisation

Prioritising Stakeholders

We promise a positive response by highlighting our commitment towards ensuring sustainability in our business. For our stakeholders, we give below the progress of addressing CDB’s social and environmental impacts in these relationships and promise a long-term commitment to such partnerships.

Prioritising stakeholders is based on the interest of each stakeholder in the business and the extent to which stakeholders can impact the activities of the organisation. Mendelow’s Matrix gives a clear mapping strategy which places stakeholders on the levels of power they have in impacting the organisation and their interest in doing so. It identifies the manner in which the management needs to respond to the stakeholders in different quadrants, which we at CDB use and apply in determining the basis for identification and selection of stakeholders.

High Interest and High Power

CDB identifies customers and investors to have a high influence on our business. They are the most powerful interest holders towards our operations. Any decision by them could have a considerable impact on the operations of the business. We maintain a constant engagement with these stakeholder groups as we strongly believe a strong relationship should be maintained with them at all times.

High Interest and Low Power

Employees, suppliers and business partners, citizens and environmental groups have a high level of interest in the business, even though the power they exercise is low. The strategy of engagement is to keep them informed of the activities, while keeping in touch for any feedback or suggestions they may have with regard to the business.

High Power and Low Interest

Government authorities including the Central Bank of Sri Lanka, Colombo Stock Exchange, Securities and Exchange Commission and Inland Revenue Department exert high power with their decisions in the direction of the business environment we operate in though they do not exercise a high interest. They observe the business’ operations intimately, monitoring compliance, codes of conduct and best practices which prompt us to ensure that we always exceed their expectations by maintaining the requirements.

Low Power and Low Interest

Given our sustainability philosophy and the high engagement we have with all our stakeholder segments including our communities, there is no stakeholder category that is aligned to a low power low interest group. We continue to maintain such interest towards our stakeholders in every aspect of our business and strive to ensure that all our stakeholders remain within that umbrella, where we respond to their expectations and needs and they in turn, become partners in our progress.

Stakeholder Engagement

1. Investors

Why do we need to engage with them?
Investors, who invest in our Company and elect the Board of Directors, are entitled to meaningful information about the Company’s business, policies and practices so that they can make informed decisions and knowledgeably participate in the proxy voting process. Investors motivation for engagement is mainly to gain insight into how CDB allocates resources to generate the expected return. We ensure the long-term corporate strategy will lead to superior financial performance. Early engagement with investors on key issues could lead to a reduced likelihood of unexpected consequences while addressing additional long-term operational strategies. By means of gaining both financial and non-financial excellence, it could increase investor trust.

How do we engage with them?
CDB’s strategic priorities based upon investors are woven around enhancing return on investments and obtaining external recognition through effective and efficient communication of business performance and achievements. We hope to foster more open dialogue with shareholders by offering a variety of avenues for shareholders to communicate with the Board and encouraging shareholders to contact us at any time of the year.

Mode	Frequency
Annual Reports	Annually
Annual General Meeting	Annually
Interim Financial Statements	Quarterly
Media Releases	Available when needed
Corporate Website	Continuous
Announcements to CSE	Available when needed
Investor Forums	Available when needed

2. Customers

Who are our customers?

CDB’s customers are mainly loyal depositors and borrowers. They tend to engage actively with us, forming strong, lasting relationships that facilitate responsible lending and cross-selling. Greater emphasis on transaction-led customer acquisition resulted in an increase in deposit customers in 2013 of 21%, which represents an increase in primary customer relationships.

We are reputed for tailoring solutions to customer needs. Since the financial industry, by and large, provides affordable solutions to economically active and easily accessible customers, CDB differentiates itself as a provider of solutions for customers who fall outside the mainstream.