Instruction No. 001/2019-CSBF on the Approval of Microfinance Institutions (MFIs)

CENTRAL BANK OF MADAGASCAR BANKING AND FINANCIAL SUPERVISION COMMISSION

INSTRUCTION NO. 001/2019-CSBF ON THE APPROVAL OF MICROFINANCE INSTITUTIONS

The Banking and Financial Supervision Commission (CSBF),

Whereas Law No. 95-030 of February 22, 1996 on the activity and supervision of credit institutions, as amended,

Whereas Law No. 2017-026 of February 8, 2018 on Microfinance,

Whereas Law No. 2016-004 of July 27, 2016, supplemented by Law No. 2016-057 of February 2, 2017, establishing the Statutes of the Central Bank of Madagascar,

Whereas Decree No. 2014-1684 of October 29, 2014 appointing the Governor of the Central Bank of Madagascar,

Whereas Decree No. 2016-151 of March 8, 2016 partially repealing Decree No. 2013-559 of July 23, 2013 and appointing two members of the Banking and Financial Supervision Commission,

Whereas Decree No. 2017-917 of November 3, 2017 appointing a member of the Banking and Financial Supervision Commission,

In application of the provisions of Article 15 of the aforementioned Microfinance Law,

DECIDES

CHAPTER 1 - GENERAL PROVISIONS

Article 1: Purpose This instruction aims to establish the content, procedures for processing applications for approval of microfinance institutions (MFIs), and applications for classification of already approved MFIs, as well as the modalities for related decision-making.

Article 2: Scope of Application The provisions of this instruction apply to applications for approval and classification as "Deposit and Credit MFI" and "Credit MFI" as defined in Article 3 below.

Article 3: Definitions For the purposes of this instruction, the following terms mean:

• collective approval: approval granted to an MFI network;
• individual approval: approval granted to an MFI with legal personality, not affiliated to any network;
• MFI network: the body formed by a head structure and its affiliated MFIs;
• head structure: the body within a network with a distinct legal personality, responsible for the entire network;
• Deposit and Credit MFI: any MFI collecting deposits and granting loans;
• Credit MFI: any MFI granting loans, not authorized to collect deposits.

CHAPTER 2 - APPLICATION FOR APPROVAL

Article 4: Application Submission Procedure The duly authorized representative or the proposed managing director must submit, on behalf of the promoter, to the General Secretariat of the CSBF (SG-CSBF) an application for approval addressed to the President of the CSBF. The file must be presented according to the application letter template provided in Annex 1.1 or Annex 2.1 of this instruction, as applicable, in both paper and electronic versions.

The applicant must pay the application processing fees fixed by Decree of the Ministry in charge of Finance.

A receipt issued by the SG-CSBF attests to the submission of the file.

Article 5: Content of the Application File

1. Individual Approval For an individual approval application, the file must include documents on:

• general information:
  • identity of the authorized representative or proposed managing director;
  • administrative information;
  • shareholding;
  • technical and financial partners;
  • members of current or proposed governance and control bodies;
• project description:
  • microfinance services offered;
  • business plan;
  • envisaged resources;
  • information and management system;
  • service distribution strategy;
  • internal control system;
  • external auditor;
  • preventive restructuring plan.

The information to be provided in each of these documents is presented in Annex 1 of this instruction.

2. Collective Approval For a collective approval application for an MFI network, the file must include documents on:

• general information:
  • identity of the authorized representative or proposed managing director;
  • description of the network;
• head structure:
  • general information;
  • administrative body;
  • control body;
  • managing directors;
  • internal control system;
  • external auditor;
  • communication method within the network;
  • financial solidarity among affiliated MFIs;
  • technical and financial partners;
• each affiliated MFI:
  • administrative body;
  • control body;
  • managing directors;
• project description:
  • microfinance services offered;
  • business plan;
  • envisaged resources;
  • information and management system;
  • service distribution strategy;
  • preventive restructuring plan.

The information to be provided in each of these documents is specified in Annex 2 of this instruction.

The head structure submits the collective approval application for the body formed by itself and its affiliated MFIs. To this end, it:

• prepares its own file;
• collects and conducts a comprehensive analysis of information relating to each affiliated MFI;
• summarizes the required information according to the templates provided in Annex 2.3 of this instruction.

The head structure is required to ensure at all times the accuracy, availability, and completeness of information relating to the network, particularly those required by this instruction.

CHAPTER 3 - EXAMINATION OF THE APPLICATION

Article 6: Examination Procedures The SG-CSBF has a period of six (6) months to examine the approval file. This period runs from the date of the submission receipt provided for in Article 4 of this instruction.

During the file examination, the SG-CSBF may:

• request the production of all additional information deemed useful, without this phase suspending the aforementioned six (6) month period;
• invite the authorized representative or proposed managing director to present the project and answer any potential questions.

Information requests and notifications addressed to the authorized representative or proposed managing director are documented by any method leaving a written record.

A period of one month, from the date of the SG-CSBF's request, is granted to the authorized representative or proposed managing director to provide missing documents and information relative to the requirements of this instruction, as well as the requested additional information.

Article 7: Closing of the File Examination The SG-CSBF shall close the file examination no later than six (6) months after the issuance of the application submission receipt and shall notify the authorized representative.

CHAPTER 4 - DECISION-MAKING

Article 8: Dismissal of the Application When the authorized representative or proposed managing director fails to respond to requests for additional information within the deadline set by the SG-CSBF, the President of the CSBF may dismiss the file.

In the event the promoter intends to maintain the project, they must submit a new application with all elements required by this instruction. However, the President of the CSBF may decide to dismiss the file if it contains the same gaps or inconsistencies observed in the initial application file.

Article 9: Granting of Approval After closing the file examination, the SG-CSBF transmits the file to the CSBF for a decision.

The CSBF may invite the authorized representative or proposed managing director to present the project and answer any potential questions that may clarify its decision-making.

It grants approval based on the result of the file examination by the SG-CSBF and considering any presentation possibly made by the authorized representative or proposed managing director.

The decision specifies the institution's name, its classification, and the microfinance services for which it is authorized to operate.

For MFIs constituted as a network, affiliated MFIs benefit from the effect of the approval decision. The collective approval decision specifies the head structure and the approved affiliated MFIs.

Article 10: Suspensive Conditions The CSBF sets in the approval decision the suspensive conditions and their implementation deadlines.

Suspensive conditions are generally related to incorporation formalities and steps necessary for the institution's establishment. They notably consist of the production of:

• the constitutive or modifying deed of the company;
• final statutes;
• the original certificate of deposit or transfer of funds constituting the capital or endowment;
• the extract from the Trade and Companies Register.

The President of the CSBF notifies the authorized representative or proposed managing director of the lifting of suspensive conditions after verifying their effective fulfillment. The institution is then registered in the register of credit institutions and may commence operations.

If suspensive conditions are not fulfilled by the deadline set in the decision, the authorized representative or proposed managing director may request an extension no later than one (1) month before the deadline expires. The President of the CSBF may grant a new period not exceeding one year for the fulfillment of suspensive conditions.

Failing fulfillment of suspensive conditions within the deadline set by the approval decision, and in the absence of an extension request, the President of the CSBF informs the authorized representative or proposed managing director of the expiration of the approval decision.

In the event the promoter intends to maintain the project, they must submit a new application.

Article 11: Refusal of the Application The refusal of the approval application is pronounced by the CSBF under the conditions provided for in Article 17 of the aforementioned Microfinance Law. The President of the CSBF notifies the authorized representative or proposed managing director of the refusal decision with the related grounds.

In the event the promoter intends to maintain the project, they must submit a new application with the new elements required by this instruction.

CHAPTER 5 - TRANSITIONAL AND FINAL PROVISIONS

Article 12: Transitional Provisions Any entity that submitted an approval application as an MFI before the entry into force of this instruction must bring its file into compliance with this instruction within three (3) months from its entry into force. This period may be extended by the President of the CSBF upon a justified request by the authorized representative or proposed managing director.

Any entity covered by Article 2 of the aforementioned Microfinance Law that submitted a file to the CSBF must comply with the provisions of the decree setting the conditions for exercising its operations.

Article 13: Classification Any MFI already approved before the entry into force of this instruction must submit a classification application as a "Deposit and Credit MFI" or "Credit MFI", as applicable, within three (3) months from the aforementioned date. The file must include the information listed in Annex 3 of this instruction.

The provisions of Articles 6, 7, 9, and 10 of this instruction apply to this classification application.

Article 14: Entry into Force This instruction enters into force upon its notification to the Professional Association of MFIs and its publication on the website of the Central Bank of Madagascar.

It repeals all prior contrary provisions, notably those of Instruction No. 002/2007-CSBF of May 11, 2007 on the license of level 1 microfinance institutions, as well as those of Instruction No. 003/2007-CSBF of May 11, 2007 on the approval of level 2 and 3 microfinance institutions.

Done in Antananarivo, on March 1, 2019 For the Banking and Financial Supervision Commission The President, Alain H. RASOLOFONDRAIBE Governor of the Central Bank of Madagascar

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ANNEXE 1

LIST OF DOCUMENTS AND INFORMATION TO BE PROVIDED FOR AN INDIVIDUAL APPROVAL APPLICATION AS AN MFI

N.B: All documents must be provided in French, presented in order and according to the references below

CATEGORY	REQUIRED DOCUMENTS AND INFORMATION	Y/N	Remarks
I. GENERAL INFORMATION
1. Authorized Representative¹	1.1. Approval application duly signed by the authorized representative or proposed managing director, conforming to the template in Annex 1.1, with proof of mandate conforming to the template in Annex 1.2 <br> 1.2. If the representative is a natural person: <br> - certified copy of a valid ID <br> - criminal record extract dated less than three (3) months ago
2. Administrative Information
2.1. If the entity is not yet incorporated	2.1.1. Proposed name <br> 2.1.2. Draft statutes and internal regulations <br> 2.1.3. Draft shareholders' agreement, if applicable <br> 2.1.4. Target organizational chart
2.2. If the entity is already incorporated²	2.2.1. Corporate name and acronym, legal form, registered office address, incorporation date <br> 2.2.2. Identity of members of corporate bodies <br> 2.2.3. Trade and Companies Register <br> 2.2.4. Certified financial statements for the last three fiscal years or since incorporation <br> 2.2.5. Statutes and internal regulations <br> 2.2.6. Shareholders' agreement, if applicable <br> 2.2.7. Organizational chart
2.3. If the entity belongs to a group	2.3.1. Group description <br> 2.3.2. Group organizational chart and capital links <br> 2.3.3. Description of activities and share capital amount for each group entity <br> 2.3.4. Group consolidated financial statements and financial statements of each group entity qualifying as a credit institution or electronic money institution
3. Shareholding
3.1. Share capital structure	3.1.1. Summary table of shareholding indicating shareholders, participation amounts, number of shares, and voting rights

¹ Consulting firm or natural person possessing technical competence to present the file as the CSBF's interlocutor ² Entities registered with MFB or another entity intending to exercise microfinance activities

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CATEGORY	REQUIRED DOCUMENTS AND INFORMATION	Y/N	Remarks
3.2. Information concerning shareholders expected to hold more than 5% of share capital
3.2.1. If natural person	1. Letter conforming to the template in Annex 1.3 <br> 2. Certified copy of a valid ID <br> 3. Updated, dated, and signed CV <br> 4. Criminal record extract dated less than three (3) months ago or equivalent certificate issued by the competent judicial authority of the country of origin, accompanied by proof of the signing authority's power³ <br> 5. Share of capital in % and voting rights held <br> 6. Financial situation justifying the origin of funds <br> 7. Legal and financial modalities for share payment <br> 8. Banking relationships in Madagascar: seniority and certificates issued by banks <br> 9. Professional, collective, administrative, or judicial procedures with significant consequences over the past ten years
3.2.2. If legal entity	1. Letter conforming to the template in Annex 1.3 <br> 2. Corporate name and acronym, legal form, registered office address, statutes <br> 3. Identity of members of corporate bodies <br> 4. Detailed description of activities <br> 5. Amount and distribution of share capital <br> 6. Certified financial statements for the last three fiscal years <br> 7. Indication, if applicable, if the operation is subject to specific formalities in the country of origin. Justification by the competent authority of the completion of these formalities <br> 8. Authorization from the banking supervisory authority of the country of origin for credit institutions <br> 9. Legal and financial modalities for share payment <br> 10. Banking relationships in Madagascar: seniority and certificates issued by banks <br> 11. Professional, collective, administrative, or judicial procedures with significant consequences over the past ten years
3.2.3. In case of legal entity belonging to a group	1. Group description <br> 2. Group organizational chart and capital links <br> 3. Description of activities and share capital amount for each group entity <br> 4. Group consolidated financial statements and financial statements of each group entity qualifying as a credit institution or electronic money institution <br> 5. Share of capital in % and voting rights held, legal and financial modalities for taking the participation <br> 6. Procedure for controlling group entities by the parent company

³ If other than a judicial authority

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CATEGORY	REQUIRED DOCUMENTS AND INFORMATION	Y/N	Remarks
4. Technical Partners	4.1. Presentation of technical and financial partners <br> 4.2. Description of the partnership <br> 4.3. Draft partnership agreement or letter of intent from the technical partner
5. Members of governance and control structures	5.1. List of proposed members of governance and control structures <br> 5.2. Documents and information required by the instruction on MFI governance and control
II. PROJECT DESCRIPTION
1. Microfinance services	1.1. Types, nature, characteristics, and tariff conditions of envisaged microfinance services and transaction volume over 5 years <br> 1.2. Ancillary services <br> 1.3. Description of the target clientele and markets, projected developments over 5 years <br> 1.4. Contracts and partnerships with other financial institutions regarding the distribution of digital financial services and micro-insurance products
2. Envisaged resources	2.1. Human resources <br> - detailed organizational chart <br> - evolution of staff headcount and personnel costs by category over five (5) years, indicating nationality (expatriates or nationals) <br> 2.2. Financial resources <br> - details of financial resources with justification of fund origin <br> - identity of funders, amount, duration, and conditions of grants <br> - letter of intent from the funder <br> 2.3. Business plan, including five (5) year projected financial statements conforming to the PCEC, demonstrating: <br> - realistic financial projections supported by economic and financial market analyses <br> - compliance with prudential and management ratios required by the related instruction
3. Information and management system (IMS)	3.1. Draft license contract for the transactional and accounting software used and related user manuals <br> 3.2. Any information on technological infrastructure, particularly the communication mode between headquarters and branches, and devices guaranteeing information integrity during processing and transmission, particularly to the SG-CSBF

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CATEGORY	REQUIRED DOCUMENTS AND INFORMATION	Y/N	Remarks
4. Consumer protection	4.1. Code of conduct for client relations taking into account the provisions of the related Microfinance Law <br> 4.2. Procedure manual for handling consumers including the complaint management mechanism <br> 4.3. Program and modalities for employee and distribution agent training on consumer protection
5. Distribution network	5.1. Characteristics of the distribution network⁴ and projected implementation over 5 years <br> 5.2. Projected number of distribution agents the institution intends to use <br> 5.3. Draft standard mandate contract for distribution agents, if any <br> 5.4. Modalities for managing the distribution network envisaged, particularly the selection, monitoring, and control of operations carried out by distribution agents <br> 5.5. Program and modalities for distribution agent training
6. Preventive restructuring plan	Preventive restructuring plan in application of Article 93 of the Microfinance Law and including the following elements: <br> - measures likely to be taken by the institution in case of failure <br> - conditions and procedures to ensure rapid implementation of these measures <br> - triggering events for implementing these measures

⁴ Internal distribution network within the institution with its own agents or external distribution network with mandated distribution agents

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ANNEXE 1.1

Model of application letter for approval as a microfinance institution (Individual Approval)

Mr. President,

In my capacity as........................................................................¹, I have the honor to request from the Banking and Financial Supervision Commission (CSBF) approval as a "deposit and credit microfinance institution" or "credit microfinance institution".

I am therefore submitting the attached file, prepared in accordance with Instruction No. 001/2019 - CSBF of March 1, 2019 on the approval of microfinance institutions.

I certify the accuracy of this information and declare that, to my knowledge, there are no other important facts that the CSBF should be informed of.

I undertake to notify the CSBF without delay of any change in circumstances that would significantly modify the information provided.

Please accept, Mr. President, the assurance of my high consideration.

Legalized signature (and possibly, stamp)

¹ Indicate the signatory's capacity: authorized representative or proposed managing director (attach certified proof of this authorization conforming to the template in Annex 1.2)

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ANNEXE 1.2

Model of proof of signature authority

Mr. President,

We, the undersigned, ......................................................................................................................................................................¹

Acting in our capacities as shareholders of ....................................................................................................², principals,

Hereby grant power of attorney, by the present document, to ....................................................................................................³, born on .................................... and residing at ...................................., acting as our representative to represent us and in accordance with our interests.

Through this proxy, the representative has the right to submit, follow, and sign all documents relating to the approval application for....................................................................² as a "deposit and credit microfinance institution"