Corporate governance is the system by which companies are directed and controlled by the management in the best interest of all the stakeholders, thereby ensuring greater transparency and better and timely financial reporting.

The platform on which corporate governance principles are structured is that the Board of Directors is responsible for proper governance, which includes setting out Company's strategic aims, providing the necessary leadership to implement such aims, supervising the management of the business and reporting to the shareholders on their stewardship.

The maintenance of effective corporate governance remains a key priority of the Board of IDLC Finance Limited. To exercise clarity about directors' responsibilities towards the shareholders, corporate governance must be dynamic and remain focused on the business objectives of the Company and create a culture of openness and accountability. Keeping this in mind, clear structure and accountabilities supported by well understood policies and procedures to guide the activities of the Company's management have been instituted.

IDLC considers that its corporate governance practices comply with almost all the aspects of the SEC Notification No. SEC/CMMRRCD/2006-158/Admin/02-08 dated February 20, 2006 and almost all aspects of Bangladesh Bank's DFIM Circular No. 7 dated September 25, 2007. In addition, to establishing high standards of corporate governance, IDLC also considers best governance practices in its activities. The independent role of Board of Directors, separate and independent role of Chairman and Chief Executive Officer, distinct role of Company Secretary, Chief Financial Officer and Chief Compliance Officer, different Board committees allows IDLC to achieve excellence in best corporate governance practices.

This statement outlines the Company's main corporate governance practices as on December 31, 2008.

Board of Directors Composition

The Board of IDLC considers that its membership should comprise of directors with an appropriate mix of skills, experience and personal attributes that allow the directors, individually and the Board, collectively, to discharge their responsibilities and duties, under the law, efficiently and effectively, understand the business of the Company and assess the performance of the management.

The Board of IDLC comprises of ten directors who possess a wide range of skills and experience over a range of professions, businesses and services. All of them are nominated by their respective institutions except for the independent director. Each of our Directors brings in independent judgement and considerable knowledge to perform their roles effectively. The Board of Directors ensures that the activities of the Company are always conducted with adherence to strict and highest possible ethical standards and in the best interests of the stakeholders.

The Directors are appointed by the shareholders in the Annual General Meeting (AGM). Casual vacancies, if any, are filled up by the Board in accordance with the stipulations of the Companies Act, 1994 and Articles of the Company. In addition, one third of the Directors retire from the Board every year in the AGM, but remain eligible for re-election.

Role and Responsibilities of the Board

The Board is committed to the Company seeking to achieve superior financial performance and long term prosperity, while meeting stakeholders' expectations of sound corporate governance practices. The Board determines the corporate governance arrangements for the Company. As with all its business activities, the Board is proactive in respect of corporate governance and puts in place those arrangements which it considers are in the best interest of the Company and its shareholders, and consistent with its responsibilities to other stakeholders.

The Board duly complies with the guidelines issued by Bangladesh Bank regarding the responsibility and accountability of the Board, its Chairman and Chief Executive/Managing Director, vide DFIM Circular No. 7 dated September 25, 2007.

The Board of Directors is in full control of the Company's affairs and is also fully accountable to the shareholders. They firmly believe that the success of the Company largely depends on the credible corporate governance practices adopted by the Company. Taking this into consideration, the Board of Directors of IDLC sets out its strategic focus and oversees the business and related affairs of the Company. The Board also formulates the strategic objectives and policy framework for the Company. In discharging the above responsibilities, the Board caries out, inter alia, the following functions as per the charter of the Board and Bangladesh Bank's DFIM Circular No. 7, dated September 25, 2007:

• Korean Development Leasing Corporation (KDLC), South Korea
• Determine, monitor and evaluate strategies, policies, management performance criteria and business plans
• Periodic and timely reporting to the shareholders on the affairs, progress and performance of the Company
• Ensuring proper decision-making and accountability structure throughout the Company so that the staff down the line is fully accountable to the corporate management
• Monitoring of significant business risks and reviewing how they are managed as per Bangladesh Bank's "Core Risk Guidelines"
• Delegation to Board Committees and management and approval of transactions in excess of delegated level
• Approval of annual budgets including major capital expenditure proposals
• Critical evaluation of all proposals which require Board's approval and/or directives
• Regular review of financial performance and overdue situation
• Appointment and evaluation of the performance of CEO & Managing Director and Deputy Managing Director and General Managers
• Ensuring that the senior management team has the necessary skills and experience to perform their functions, effectively, in the best interests of the Company
• Monitoring the adequacy, appropriateness and operation of internal controls
• Ensure that technology and information systems used in the organisation are sufficient to operate the organisation effectively and maintain competitiveness

Role of the Chairman

The Chairman of the Board is not the Chief Executive of the Company. The role of Chairman and CEO & Managing Director are independent and separate. The Chairman runs the Board while the CEO & Managing Director takes all executive decisions as delegated and empowered by the Board.

Conduct for the Board Members

The Board of Directors of IDLC Finance Limited is committed to the highest standards of conduct in their relationships with its employees, customers, members, shareholders, regulators and the public.

A Director of IDLC always:

• Seeks to use due care in the performance of his/her duties, be loyal to the Company, act in good faith and in a manner such Director reasonably believes to be not opposed to the best interests of the Company
• Avoids i) appropriating corporate business opportunities for themselves that are discovered through the use of Company property or information or their position as Board Member; ii) using Company property or information, or their position as Board Member, for personal gain; and iii) competing with the Company
• Endeavours to avoid having his or her private interests interfere with the interests of the Company
• Ensures that management is causing the Company's assets, proprietary information and resources to be used by the Company and its employees only for legitimate business purposes of the Company
• Maintains the confidentiality of information entrusted to them in carrying out their duties and responsibilities, except where disclosure is approved by the Company or legally mandated or if such information is in the public domain
• Endeavours to deal fairly, and should promote fair dealing by the Company, its employees and agents, with customers, suppliers and employees
• Complies and endeavours to ensure that the management is causing the Company to comply with applicable laws, rules and regulations
• Avoids insider trading with respect to the purchase and sale of the Company's securities and buy or sell securities while in possession of material non-public information about the issuer of that security, whether the issuer is IDLC or another company
• Endeavours to ensure that management is causing the Company to promote ethical behaviour and to encourage employees to report evidence of illegal or unethical behaviour to the CEO & Managing Director of the Company.

Board Meetings

The meetings of the Board of Directors of IDLC are normally held at the Registered and Corporate Head Office of the Company. The meetings are held frequently, at least once in a quarter, to discharge its responsibilities and functions as mentioned above. Meetings are scheduled well in advance and the notice of each Board Meeting is given, in writing, to each Director by the Company Secretary.

The Company Secretary, after approval by the Board's Executive Committee, prepares the detailed agenda for the meeting. The Board papers comprising the agenda, explanatory notes and proposed resolutions are circulated to the directors in advance for their review. The members of the Board have complete access to all information of the Company enabling them to work efficiently. The members of the Board are also free to recommend inclusion of any matter in the agenda for discussions. The Company Secretary and Chief Financial Officer always attends the Board Meeting and other senior management is invited to attend Board Meeting to provide additional inputs to the items being discussed by the Board and make necessary presentations.

There are procedures, at IDLC, for keeping the Board up-to-date with the Company's activities and relevant external developments. These includes senior management presenting significant matters to the Board and it being able to seek further information on any issue relating to performance, strategy, outlook, etc,.

During the year ended on December 31, 2008 a total of seven (7) Board Meetings were held.

Internal Control

The Board is responsible for ensuring that the Company has an adequate and effective control system in place. Although no system of internal financial control can provide absolute assurance against material mis-statement or loss, the Company's internal control systems have been designed to provide the directors with reasonable assurance that assets are safeguarded against unauthorised use by the employees and/or management and/or third parties, transactions are authorised and properly recorded and material error and irregularities are either prevented or detected within a reasonable period of time.

Properly designed management structure, clearly defined responsibilities, delegation of authorities, establishment of accountability at each level and system of periodic reporting and monitoring performance are the key elements of the internal control framework employed in IDLC.

Audit Committee

The Audit Committee comprises of five Directors. The Company Secretary also acts as the Secretary of the Audit Committee. The Committee is headed by a director who has professional background in accounting and finance. The rules of the Audit Committee clearly lay down its authority, responsibility and specific duties.

The Committee is empowered, among other things, to examine any matter relating to the financial affairs of the Company and to review all audit and inspection programs, internal control systems and procedures, accounting policies and adherence to compliance requirements, etc. This ensures that a sound financial reporting system is in place, which is well managed, providing accurate, appropriate and timely information to the Board of Directors and stakeholders.

The Chief Risk & Compliance Officer has direct access to the Committee and it is directly reportable to the Board.

During the year under review, three meeting of the Audit Committee were held.

Functions and responsibilities of the Committee:

• To assist the Board in fulfilling its oversight responsibilities including implementation of the objectives, strategies and overall business plans set by the Board for effective functioning of the Company
• To review the financial reporting process, the system of internal control and management of financial risks and the Company's processes for monitoring compliance with laws and regulations and its own code of business conduct
• To ensure that Company has adequate processes in place to safeguard the assets of the Company against unauthorized use by the employees/third parties and to ensure that expenses incurred by the Company are for the purposes of the Company
• To evaluate whether management is setting the appropriate compliance culture by communicating the importance of internal control and the management of risk, and ensure that all employees have understanding of their roles and responsibilities
• To review the arrangements made by the management for building a suitable Management Information System (MIS) including information technology system and its applications
• To review the corrective measures taken by the management as regard the reports relating to fraud and forgery, deficiency in internal control or other similar issues detected by internal and external auditors and inspectors of the regulatory authorities
• To review the activities and organizational structure of internal audit functions and ensure that no unjustified restrictions or limitations are made
• To do any other functions as the Board may require from time to time.

Executive Committee

A three member Executive Committee headed by a Director is responsible for strategic and operational plans of the business. The matter related to ordinary business operations of the Company and the matters that the Board of Directors, from time to time authorise, are vested in this Committee in accordance with the Statement of General and Operational Policies established and made by the Board of Directors. This Committee assists IDLC in taking prompt decisions and react swiftly to changes in the market-place as they occur. The Rules of the Executive Committee is framed by the Board.

During the year under review, eleven Executive Committee meetings were held.

Credit Evaluation Committee (CEC)

The CEC evaluates all projects/proposals of financing activities of the Company from the risk point of view. The Committee is headed by the CEO & Managing Director and consists of six members. The members of the Committee are CEO & Managing Director, Deputy Managing Director, Head of Credit Risk Management Department, CFO and Head of Corporate Division.

Communications and Relationship with Shareholders

It is the Company's policy that all external communications by the Company will:

• be factual and subject to internal vetting and authorisation before issue
• not omit material information
• be timely and expressed in a clear and objective manner.

IDLC strongly believes that all stakeholders should have access to complete information on its activities, performance and product initiatives. The Company's web site www.idlc.com displays, interalia, the annual report, half yearly report, product offerings, recent announcements, presentations and events update. The Company reports to the shareholders, twice a year, through half yearly report and detailed annual report. Every shareholder has the right to attend the annual general meeting, where they can meet and communicate with the directors and express their views regarding the Company's business, its future prospects and other matters of interest. The shareholders are always encouraged to attend the meeting or, if unable to attend, may appoint proxies. All disclosures required by the Securities and Exchange Commission, Listing Regulations of Dhaka and Chittagong Stock Exchanges and Bangladesh Bank are made adequately and promptly. In addition to ensuring timely compliance, this also enables dissemination of information to all stakeholders and the public.

Preparation and Presentation of Financial Statements and Directors' Responsibility

The Companies Act 1994 requires the directors to prepare financial statements for each accounting year. The Board of Directors accepts the responsibility for preparation of the financial statements, maintaining adequate records for safeguarding the assets of the Company, preventing and detecting fraud and/or other irregularities, selecting suitable accounting policies and apply those policies, consistently, and making reasonable and prudent judgements and estimates where necessary.