Circular No. 11/M/19 on the Sanctions Matrix for Microfinance Institutions, Umbrella Structures, and Financial Bodies under Regulation No. 001/2018

BANQUE DE LA REPUBLIQUE DU BURUNDI LE GOUVERNEUR Circulaire n° 11/M/19 relative à la matrice des sanctions applicables aux institutions de microfinance, Structures Faîtières, et Organes Financiers édictée en vertu du Règlement n° 001/2018 relatif aux activités de microfinance

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Article 1 : Object and Scope This circular aims to specify the sanctions applicable to microfinance institutions, umbrella structures, financial bodies, and community financial groups.

Article 2 : Compliance with Legal and Regulatory Provisions Microfinance institutions, umbrella structures, financial bodies, and community financial groups are required to strictly comply with the legal and regulatory provisions governing their activities.

Article 3 : Types of Sanctions When a microfinance institution, umbrella structure, financial body, or community financial group violates a legal or regulatory provision related to its approval conditions or activities, breaches a convention signed with the Central Bank, fails to comply with an injunction or ignores a warning, resorts to unsafe or unreliable practices, obstructs or refuses to submit to supervision, or has a situation endangering depositors' interests, the Central Bank may impose sanctions against it pursuant to Article 99 of Regulation No. 001/2018 on microfinance activities. The sanctions are of two types, namely monetary sanctions and administrative sanctions.

Article 4 : Categorization of Infractions Infractions are subdivided into the following categories:

• Infractions related to operating conditions;
• Infractions related to approval and/or registration conditions;
• Infractions related to compliance with obligations imposed on microfinance institutions, umbrella structures, and financial bodies;
• Infractions related to the transmission of information to the Central Bank;
• Infractions related to governance;
• Infractions related to prudential standards;
• Infractions related to internal control;
• Miscellaneous infractions.

Article 5 : Graduated Application of Sanctions To ensure a graduated application of sanctions and to give microfinance institutions, umbrella structures, financial bodies, and community financial groups the opportunity to implement appropriate corrective measures, the Central Bank follows the following procedure:

• Upon detecting an infraction or breach, the Central Bank sends a letter to the concerned institution recommending that it regularize the situation;
• In case of a breach or infraction requiring immediate regularization and where the provided explanation is deemed unsatisfactory, the Central Bank issues an injunction with a deadline beyond which a sanction may be imposed;
• In case of a breach or infraction requiring complex corrective measures, the Central Bank may grant the institution a deadline for their implementation. Otherwise, the Central Bank issues an injunction with a deadline beyond which a sanction may be imposed. In case of infractions or breaches involving a Manager, Administrator, member of the Supervisory Board, shareholder, or Statutory Auditor, the same procedure applies.

Article 6 : Sanctions for Cases Deemed Serious Notwithstanding the procedure described in Article 5, for cases deemed serious, the Central Bank may directly apply the sanctions provided for in the matrix, following a request for explanations where the response is unsatisfactory.

Article 7 : Payment Method for Penalties In case of penalties or monetary sanctions, the corresponding amounts are immediately settled by automatic debit from the microfinance institution's account held at the Central Bank.

Article 8 : Entry into Force This circular enters into force on the day of its publication in the Official Bulletin of Burundi and on the website of the Bank of the Republic of Burundi.

Done at Bujumbura, on 10/10/2019 Sé Jean CIZA Governor

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1, Avenue du Gouvernement - B.P. 705 BUJUMBURA Tél.: (257) 22 20 4000 ; (257)22 22 2744 Fax : (257) 22 22 3128 - Courriel : brb@brb.bi

BANQUE DE LA REPUBLIQUE DU BURUNDI ANNEX to Circular No. 11/M/19 on the sanctions matrix applicable to microfinance institutions, umbrella structures, financial bodies, and community financial groups issued pursuant to Regulation No. 001/2018 on microfinance activities

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I. Infractions Related to Operating Conditions

Ref. to Legal/Regulatory Provisions	Sanctions
1. Non-placement of guarantee deposits in a specific account opened at an institution authorized to collect deposits by Category 2 Microfinance Institutions. Art. 3 of the Regulation on microfinance activities	- Monetary sanction of 10% of guarantee funds not placed in a specific account at authorized financial institutions, not exceeding 5% of minimum capital.

• Disciplinary sanctions against Managers. | | 2. Collection of deposits by Category 2 Microfinance Institutions. Art. 3 of the Regulation on microfinance activities | - Monetary sanction of 10% of collected funds, not exceeding 5% of minimum capital.
• Disciplinary sanctions against Managers. | | 3. Granting of digital credits without prior authorization from the Central Bank. Art. 4 of the Regulation on microfinance activities | - Monetary sanction of 1,000,000 BIF.
• Suspension of the operation.
• Disciplinary sanctions against Managers. | | 4. Exceeding Central Bank standards in providing non-financial services to clients or members. Art. 6 of the Regulation on microfinance activities | Monetary sanction of 10% of the excess amount, not exceeding 5% of minimum capital. | | 5. Non-compliance with conditions set by the Central Bank in outsourcing part of activities and operations to subcontractors or agents. Art. 7 of the Regulation on microfinance activities | Monetary sanction of 1,000,000 BIF. | | 6. Exercise of ancillary activities without prior authorization from the Central Bank. Art. 9 of the Regulation on microfinance activities | - Monetary sanction of 10% of the amount of transactions carried out, not exceeding 5% of minimum capital.
• Disciplinary sanctions against Managers. | | 7. Exercise of an activity as an umbrella structure without prior approval by the Central Bank. Art. 67 of the Regulation on microfinance activities | Monetary sanction of 1,000,000 BIF for each microfinance institution approved and grouped within the umbrella structure. | | 8. Exercise of microfinance activity without prior approval by the Central Bank. Art. 12 & 71 of Law No. 1/17 of Aug 22, 2017 governing banking activities | - Order immediate cessation of activities.
• Place the unapproved entity into forced liquidation. | | 9. Failure to display the approval act. Art. 19 of the Regulation on microfinance activities | Monetary sanction of 1,000,000 BIF. | | 10. Exercise of prohibited operations. Art. 12 of the Regulation on microfinance activities | - Monetary sanction of 10% of the total value of the prohibited operation, not exceeding 5% of minimum capital.
• Suspension of the activity.
• Disciplinary sanctions against Managers. | | 11. Non-compliance with minimum regulatory capital. Art. 27 of the Regulation on microfinance activities & Art. 7 of Circular No. 01 on approval of institutions... | - Suspension of all benefits for Managers and staff until prior authorization from the Central Bank.
• Cancellation of subscriptions and transfer of unpaid shares or partnership interests to other shareholders or members. | | 12. Non-compliance with the deadline for cash capital release. Art. 27 of the Regulation on microfinance activities & Art. 7 of Circular No. 01... | - Suspension of all benefits for Managers and staff until prior authorization from the Central Bank.
• Cancellation of subscriptions and transfer of unpaid shares or partnership interests to other shareholders or members. | | 13. Exceeding shareholdings beyond the 25% limits. Art. 28 of the Regulation on microfinance activities | - Monetary sanction of 10% of the excess amount, not exceeding 5% of minimum capital.
• Withdrawal of voting rights attached to its shares.
• Withdrawal of rights to sit and be represented at Board of Directors and General Assembly meetings until relevant regulatory provisions are respected. | | 14. Net assets no longer exceed liabilities owed to third parties by at least the minimum capital or credit fund amount. Art. 29 of the Regulation on microfinance activities | - Limit management and administrative powers of management bodies.
• Disciplinary sanctions against Managers. | | 15. Holding a current account at the Central Bank with a balance below two percent (2%) of deposit outstanding. Art. 30 of the Regulation on microfinance activities | - Monetary sanction of 5% of the balance required to reach the 2% deposit outstanding balance, not exceeding 5% of minimum capital.
• Disciplinary sanctions against Managers. | | 16. Delay in payment of annual supervision fees and other fees. Art. 31 of the Regulation on microfinance activities & Arts. 2 & 3 of Circular No. 05/M/18... | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of minimum capital.
• Disciplinary sanctions against Managers. | | 17. Non-compliance with the term of office of the Statutory Auditor. Art. 89 of the Regulation on microfinance activities & Art. 7 of Circular No. 10/M/18... | - Revocation of the Statutory Auditor.
• Monetary sanction of 500,000 BIF against the institution. | | 18. Delay in requesting renewal of the Statutory Auditor's term. Art. 89 of the Regulation on microfinance activities & Art. 7 of Circular No. 10/M/18... | - Revocation of the Statutory Auditor.
• Monetary sanction of 500,000 BIF against the institution. | | 19. Drafting of a note to management by the Statutory Auditor that does not take into account required elements. Point I/5 of Annex to Circular No. 10/M/18... | Disciplinary sanctions against the Statutory Auditor. |

II. Infractions Related to Approval and Registration Conditions

Ref. to Legal/Regulatory Provisions	Sanctions
1. Exercise of functions as Administrator, Supervisory Board member, or Manager without prior approval by the Central Bank. Arts. 2 & 3 of Circular No. 03/M/18...	- Monetary sanction of 1,000,000 BIF.

• Disciplinary sanctions against the Chairman of the Board of Directors. | | 2. Change of information and elements provided during the approval application without prior authorization from the Central Bank. Art. 20 of the Regulation on microfinance activities | - Monetary sanction of 1,000,000 BIF.
• Cancellation of the new elements. | | 3. Discovery of false information provided to the Central Bank during the approval application. Art. 22 of the Regulation on microfinance activities | - Monetary sanction of 5,000,000 BIF.
• Disciplinary sanctions against Managers. | | 4. Modification of legal form and/or category of microfinance institution without prior authorization from the Central Bank. Art. 21 of the Regulation on microfinance activities & Art. 3 of Circular No. 02/M/18... | - Non-recognition of the new entity.
• Disciplinary sanctions against the Chairman of the Board of Directors and Managers. | | 5. Absence of a second Manager approved by the Central Bank. Art. 25 of the Regulation on microfinance activities | Disciplinary sanctions against the Chairman of the Board of Directors. | | 6. Number of members in a savings and credit cooperative less than 300. Art. 48 of the Regulation on microfinance activities | Disciplinary sanctions against Managers. | | 7. Remuneration of partnership interests in a savings and credit cooperative other than additional partnership interests. Art. 51 of the Regulation on microfinance activities | - Disciplinary sanctions against Managers.
• Monetary sanction of 5% of remuneration paid, not exceeding 5% of minimum capital. |

III. Infractions Related to Obligations

Ref. to Legal/Regulatory Provisions	Sanctions
1. Non-compliance with two-thirds (2/3) of non-executive Administrators (including independent Administrators) in the Board of Directors composition. Art. 34 of the Regulation on microfinance activities	Disciplinary sanctions against the Chairman of the Board of Directors.
2. Exceeding a three-month period of vacancy for the General Manager or Managing Director position. Art. 37 of the Regulation on microfinance activities & Art. 15 of Circular No. 04/M/18...	Disciplinary sanctions against the Chairman of the Board of Directors.
3. Non-compliance with the declining balance amortization method for credits related to rural finance. Art. 43 of the Regulation on microfinance activities	- Monetary sanction of 1% of the amount granted, not exceeding 5% of minimum capital.

• Disciplinary sanctions against Managers. | | 4. Non-compliance with procedures for allocating net surpluses. Art. 47 of the Regulation on microfinance activities | - Disciplinary sanctions against Managers.
• Monetary sanction of 5% of the amount to be allocated, not exceeding 5% of minimum capital. | | 5. Delay in transmission to the Central Bank of the annual inspection program by the umbrella structure. Art. 76 of the Regulation on microfinance activities | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of share capital.
• Disciplinary sanctions against Managers. | | 6. Delay in transmission to the Central Bank of the consolidated report including findings from each controlled affiliated institution and ad hoc recommendations. Art. 76 of the Regulation on microfinance activities | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of share capital.
• Disciplinary sanctions against Managers. | | 7. Non-transmission to the Central Bank of the annual internal control forecast program. Art. 14 of Circular No. 12/M/18... | Disciplinary sanctions against Managers. | | 8. Delay in transmission of financial statements. Art. 86 of the Regulation on microfinance activities & Art. 4 of Circular No. 09/M/18... & Art. 6 of Circular No. 10/M/18... | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of share capital.
• Disciplinary sanctions against the Statutory Auditor.
• Disciplinary sanctions against Managers. | | 9. Delay in transmission of the Statutory Auditor's report. Art. 86 of the Regulation on microfinance activities & Art. 4 of Circular No. 09/M/18... & Art. 6 of Circular No. 10/M/18... | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of share capital.
• Disciplinary sanctions against the Statutory Auditor.
• Disciplinary sanctions against Managers. | | 10. Transmission of incomplete financial statements. Arts. 5 & 6 of Circular No. 09/M/18... | Monetary sanction of 10,000 BIF per day, until transmission of missing elements, calculated from notification of infractions by the Central Bank. | | 11. Delay in transmission to the Central Bank of minutes of Ordinary General Assembly deliberations. Art. 87 of the Regulation on microfinance activities | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of share capital.
• Disciplinary sanctions against the Chairman of the Board of Directors. | | 12. Exercise of the function of Statutory Auditor without prior approval by the Central Bank. Art. 3 of Circular No. 10/M/18... | - Monetary sanction of 1,000,000 BIF against the institution.
• Revocation of the Statutory Auditor.
• Disciplinary sanctions against the Chairman of the Board of Directors. | | 13. Failure by the Statutory Auditor to communicate to the Central Bank information or events likely to adversely affect the institution's solvency. Art. 90 of the Regulation on microfinance activities & Art. 5 of Circular No. 10/M/18... & Point II/3 of Annex to Circular No. 10/M/18... | - Prohibition for the Statutory Auditor to continue control operations of the microfinance institution;
• Prohibition for the Statutory Auditor to exercise statutory audit functions for microfinance institutions for at least three financial years;
• Permanent prohibition for the Statutory Auditor to exercise this role in regulated establishments. | | 14. Granting benefits to the Statutory Auditor other than fees. Art. 90 of the Regulation on microfinance activities | - Withdrawal of approval of the Statutory Auditor.
• Disciplinary sanctions against Managers. | | 15. Non-notification to the Central Bank of the suspension, revocation, and resignation of the Statutory Auditor. Art. 91 of the Regulation on microfinance activities | Disciplinary sanctions against Managers. | | 16. Obstruction to a Central Bank supervision mission. Art. 95 of the Regulation on microfinance activities | - Disciplinary sanctions against Managers.
• Monetary sanction of 5,000,000 BIF. | | 17. Delay in transmission of the annual report on the internal control system. Art. 20 of Circular No. 12/M/18... | - Monetary sanction per day of delay: • 20,000 BIF per day of delay during the first fifteen days; • 30,000 BIF per day of delay during the following fifteen days; • 50,000 BIF per day of delay during subsequent days, not exceeding 5% of share capital.
• Disciplinary sanctions against Managers. | | 18. Exceeding the usury rate in setting the effective global rate. Art. 104 of the Regulation on microfinance activities | (Text cuts off in source) |