Financial Guarantee Contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of the debt instrument. Financial guarantees are initially recognised at fair value on the date that the guarantee was given. Other than where the fair value option is applied subsequent to initial recognition, the Group’s liabilities under such guarantees are measured under IFRS 9 (2018) at the higher of the initial measurement, less amortisation calculated to recognise in profit or loss any fee income earned over the reporting period, and the amount of the loss allowance expected from the guarantee at the reporting date. Any increase in the liability relating to guarantees is recognised in profit or loss. For financial guarantee contracts the cash shortfalls are future payments to reimburse the holder for a credit loss that it incurs less any amounts that the entity would expect to receive from the holder, the receivable or any other party. (e) Recognition of income Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group and the Company recognise revenue when it transfers control over a product or service to a customer. (i) Lending and agency related income The Group and the Company earn income from the financial service they provide to their customers being insurance agency services, card related activities (note (f)(ii)) and card related factoring activities (note (f)(iii)). Income related to lending and agency activities is recognised at an amount that reflects the consideration to which the Group and the Company expect to be entitled in exchange for providing the services . The performance obligations, as well as the timing of their satisfaction, are identified, and determined, at the inception of the contract. The Group’s and the Company’s revenue contracts do not typically include multiple performance obligations. Insurance agency services The Group and the Company acts as an agent and sells insurance policies on behalf of some insurance companies. Revenue is recognised, on a net basis, when the distinct performance obligation has been satisfied by the Group and the Company and the service has been rendered. The distinct performance obligation is satisfied over time based on monthly time increment. (ii) Income related to card activities The Group and the Company provide its customers with credit card processing services (i.e., authorisation and settlement of transactions) where it is entitled to a fee for each transaction. These services represent a single performance obligation comprised of a series of distinct daily services that are substantially the same and have the same pattern of transfer over the contract period. The fees vary based on the number of transactions processed and are structured as either a fixed rate per transaction processed or at a fixed percentage of the underlying cardholder transaction. The variable income is allocated to each distinct day, based on the number and value of transactions processed that day, and the allocated revenue is recognised as the entity performs. Revenue from these fees is recognised at a point in time. (iii) Income related to factoring activities The Group and the Company provide factoring services to its customers and receive fees at a percentage for each transaction agreed with the counterparties. Factoring fees can be with or without recourse. Factoring of assets with full recourse are ones where the risks and rewards of collecting the amount due from the receivables’ (end customer) will remain with the transferor. As such the Group and the Company will bear no credit risk towards the end customer since the transferor has given full guarantee to compensate CIM for all credit losses that are likely to occur in relation to the amount disbursed. However, CIM bears credit risk towards the transferor and this is treated separately and accounted as a loan receivable from the transferor. In a non-recourse factoring arrangement, the transferor does not provide any guarantee about the total receivables’s performance. As such, the Group and the Company obtain credit insurance on the portfolio of receivables prior to factoring them. On factoring, the Group and the Company become the beneficiary of the credit insurance. The Group and the Company do not disburse any amount higher than the credit insurance received. Furthermore, the Group and the Company take credit insurance and then charge those costs to the transferor within its commission receivables. These costs form part of the commission charge to the transferor. 2. ACCOUNTING POLICIES Continued 2.8 Significant accounting policies Continued (d) IFRS 9 – Financial Instruments Continued EXPLANATORY NOTES 30 SEPTEMBER 2023 112 CIM FINANCE ANNUAL REPORT
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