43 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value hierarchy IFRS 13 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Group and the Company consider relevant and observable market prices in its valuations where possible. For financial assets and financial liabilities that have a short-term maturity, the carrying amounts, which are net of impairment, for both Group and Company, represent a reasonable approximation of their fair value. Such instruments include cash and bank balances, deposits with banks, factoring and card receivables, other assets and other liabilities. The fair value of the net investment in leases and other credit agreements, credit facilities, corporate credit facilities (included in loans and advances) and other borrowed funds are estimated using cash flow models discounted at the relevant discount rate taking into consideration credit risk, foreign exchange risk, of default and loss given default estimates. As a result, these balances fall under Level 3 of the fair value hierarchy. Market observable data is used when appropriate and when such data is not available, the Group and the Company use historical experience. The discount rates used represent the market rates. Included in investment securities are bonds allocated as level 2 items in the fair value hierarchy, with the significant input in determining fair value being the applicable interest rates. The technique used to determine the fair value is the discounted cash flow method. Refer to Note 17 for further details regarding financial assets measured at fair value. Except for financial assets and liabilities at fair value through profit or loss, the Group and the Company do not measure its financial assets and financial liabilities at fair value. The table below shows, by class of financial instruments, the comparison of their carrying amounts with their fair values. These fair values are calculated for disclosure purposes only. GROUP Carrying amounts Fair value 30 September 2023 Level 1 Level 2 Level 3 Total MUR m MUR m MUR m MUR m MUR m Financial assets not measured at fair value Net investment in leases and other credit agreements 10,056.6 - - 11,091.7 11,091.7 Loans and advances: Credit facilities 7,367.6 - - 7,734.6 7,734.6 Corporate credit facilities 789.1 - - 736.6 736.6 Investment securities 119.6 - 120.5 - 120.5 18,332.9 - 120.5 19,562.9 19,683.4 Financial assets measured at fair value Investment securities 182.9 - - 182.9 182.9 Financial liabilities not measured at fair value Other borrowed funds 13,212.0 – – 13,212.0 13,212.0 13,212.0 – – 13,212.0 13,212.0 EXPLANATORY NOTES 30 SEPTEMBER 2023 200 CIM FINANCE ANNUAL REPORT
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