Regulatory Alerts2007-12-07
Instruction No. 007/2007-CSBF of December 7, 2007 Establishing the Operating and Control Structures of Microfinance Institutions
The Banking and Financial Supervision Commission (CSBF) issued this instruction to establish mandatory minimum operating and control structures for all microfinance institutions, requiring them to implement defined governance bodies including general assemblies, boards of directors, executive management, credit committees, internal audit functions, and statutory auditors. The regulation specifies distinct eligibility criteria for board members and executives, mandates tiered compliance timelines based on MFI classification (Level 1, 2, and 3), and enforces strict internal control, risk prevention, and reporting obligations aligned with anti-money laundering and counter-terrorist financing standards. All existing institutions must achieve full structural compliance within one year of receiving their official classification, ensuring robust governance and operational transparency across the sector.
Instruction No. 007/2007-CSBF of December 7, 2007 Establishing the Operating and Control Structures of Microfinance Institutions
The Banking and Financial Supervision Commission (CSBF), Having regard to Law No. 95-030 of February 22, 1996 on the activity and supervision of credit institutions, as amended; Having regard to Law No. 2005-016 of September 29, 2005 on the activity and supervision of microfinance institutions; Pursuant to Articles 30, 47, 52, and 72 of Law No. 2005-016 of September 29, 2005; H E R E B Y D E C I D E
CHAPTER ONE: GENERAL PROVISIONS Article 1: This instruction aims to establish the minimum operating and control structures of microfinance institutions (MFIs) to promote sound governance within them. Without prejudice to general legal rules resulting from the adopted legal form, MFIs of all levels must include in their bylaws the minimum rules defined by this instruction.
Section 1: Operating Structure Article 2: MFIs are required to establish the minimum operating structure consisting of: • a general assembly of members/shareholders, • a board of directors, • an executive management composed of at least two executives. The mutualist MFIs must additionally be equipped with a credit committee. This minimum structure is required at the level of the central body and each affiliated MFI.
Article 3: The general assembly of members/shareholders is the supreme decision-making body of each MFI. It may be classified as ordinary or extraordinary: • The ordinary general assembly of members/shareholders is convened at least once a year within three months following the close of each fiscal year. It convenes upon notice by the board of directors via letter published in a legal announcements journal or by any means ensuring the widest dissemination and publication in all operational locations at least fifteen days prior to the meeting date. It is competent, inter alia, to approve accounts, deliberate on fiscal year results and their allocation, and, where applicable, renew members of the board of directors, the control body, and the credit committee. At least half of the members must be present or represented at the first call for meeting. • The extraordinary general assembly may be convened by the board of directors, the control body, the statutory auditor(s), or by members according to rules defined within the institution. It is competent to decide on changes to the bylaws, modify the amount of shares or equity participations, or pronounce the early dissolution of the MFI. For mutualist networks, representativeness rules for holding a general assembly are permitted at the Union and/or Federation level.
Article 4: The board of directors is vested with the broadest powers, within the limits of the corporate purpose and subject to powers delegated by the general assembly, to act in all circumstances on behalf of the institution. The board of directors is composed of members elected by the general assembly. Without prejudice to general legal provisions, the duties of the board of directors include: • defining general policies for the development and sustainability of the MFI; • appointing executive management; • supervising the implementation of the MFI’s strategy by executive management and the management acts attributed to them by legal, regulatory, and statutory provisions; • ensuring compliance with institutional regulations and procedures; • monitoring the activities of other bodies, particularly the control body and the credit committee; • authorizing the signing of all agreements and contracts with strategic partners and validating all contracts with third parties other than members; • representing the MFI vis-à-vis third parties; • validating the audit report, the statutory auditor’s report, and the executive management’s governance report; • validating the annual governance report submitted by executive management and presenting it to the general assembly, with a copy communicated to the General Secretariat of the CSBF as an annex to the annual financial statements.
Article 5: Executive management consists of persons responsible for the day-to-day administration of the institution. Acting under delegation from the board of directors to whom they report, executive management is responsible for: • developing commercial policy to be submitted to the credit committee for validation; • administrative, accounting, and financial management, including the preparation of forecast budgets and cash flow plans; • representation vis-à-vis supervisory authorities; • monitoring liquidity status, particularly cash on hand and bank balances; • seeking non-bank refinancing sources to propose to the board of directors; • monitoring borrower status, participating in credit application processing and the disbursement process; • implementing procedures related to the reporting of suspicious transactions under anti-money laundering (AML) and counter-terrorist financing (CFT) regulations; • securing assets and personnel; • preparing the institutional management report, • and for mutualist institutions, training members of the board of directors, control body, and credit committee. Executive management must number at least two (2) to be able to replace one another in case of absence, and must be permanent residents within the institution’s operational jurisdiction. For mutualist networks, executive management of affiliated basic institutions are appointed by their boards of directors. They report to them as well as to the executive management of the central body.
Article 6: The credit committee, mandatory for mutualist MFIs, is formed by members elected by the general assembly. It is responsible inter alia for: • validating the commercial policy established by executive management; • deciding on credit disbursements, in compliance with the aforementioned commercial policy, according to a delegation of authority grid defined by procedures; • defining the credit recovery policy for granted loans and ensuring its monitoring; • conducting studies on the efficiency of the MFI’s credit and recovery policy; • jointly validating any credit disbursement with the board of directors when the applicant is a member of the committee or board; • formulating its opinion on the monthly report regarding credit portfolio management prepared by executive management, prior to submission of said report to the board of directors.
Section 2: Control Structure Article 7: MFIs are required to establish the minimum control structure consisting of: • an internal audit function, • one or two statutory auditors. The mutualist MFIs must additionally be equipped with a control body. With express approval from the CSBF, the control body may perform statutory auditor functions. This minimum structure is required at the level of the central body and each affiliated MFI, except for statutory auditor(s) who act for the entire network.
Article 8: MFIs must establish an internal audit function responsible for supervising risk prevention and control mechanisms, verifying the effectiveness and coherence of internal control, detecting weaknesses to propose corrective measures. This function must be independent, possess comprehensive competence, be equipped with necessary resources, have clear objectives, and operate permanently. The internal audit function may be provided by a structure whose size and operating mode depend on the institution’s characteristics. It is composed of technicians, generally referred to as “inspectors-auditors” or similar titles. Internal audit must communicate all identified anomalies and irregularities to executive management, along with related recommendations.
Article 9: Statutory auditors are appointed by the general assembly upon proposal of the board of directors. Notwithstanding general legal provisions, statutory auditors of MFIs must, in addition to certifying accounts, verify compliance with prudential standards and the internal control system as well as AML/CFT mechanisms. They may convene an extraordinary general assembly of members/shareholders. Two statutory auditors are mandatory when the MFI’s total balance sheet exceeds the threshold established by CSBF instruction. The appointment or change of a statutory auditor must be notified to the General Secretariat of the CSBF within one month prior to its effective date, with the same information required for such a mission during approval.
Article 10: The control body, mandatory for mutualist MFIs, is formed by members elected by the general assembly. In performing its duties, this body may rely on the internal audit function. The control body is responsible inter alia for: • verifying practices regarding sound governance; • reporting all frauds and misappropriation of corporate assets; • validating the internal audit function report, the statutory auditor’s report, and the executive management’s governance report; • validating the annual internal control report prepared by the internal audit function; • verifying the existence of suspicious transaction controls, under AML/CFT regulations, and their reporting; • establishing a periodic (at least annual) work plan and control program; • reporting directly to the CSBF for significant events, without waiting for the next periodic declaration, with a copy to the board of directors.
Section 3: Eligibility Conditions for Operating and Control Structures Article 11: Any member of the board of directors, control body, and credit committee of an MFI must permanently satisfy the following eligibility conditions: • be at least 21 years of age; • not be subject to prohibitions under banking legislation; • practice or have practiced, in productive sectors or administration, a profession that does not impair their honorability; • have demonstrated satisfactory stability in the jurisdiction, having resided permanently there for at least 1 year, and good integration into the local community; • have obtained a discharge (clearance) if the person is a former member of the board of directors, control body, or credit committee; • not hold incompatible positions within the same institution, as per Article 45, paragraph 2, of Law No. 2005-016; • not be a member of the board of directors, control body, or credit committee nor be an employee of another credit institution; • have been a member of the MFI for more than one fiscal year for mutualist MFIs, except for newly established institutions; • not have a familial relationship up to the second degree with other members of the board of directors, control body, or credit committee of a mutualist MFI if it has more than 20 members/shareholders. The members of corporate bodies are required: • to maintain professional secrecy; • to exercise active solidarity in conducting business affairs; • to respect their commitments and always act in the best interest of the MFI; • to ensure decision compliance with the institution’s mission. For mutualist institutions, members of the board of directors, control body, and credit committee are elected for a three (3) year term, renewable once. During the general assembly deliberating on the third fiscal year, at least two-thirds of the aforementioned members must be renewed. After obtaining discharge, these members may assume other elective functions within another operating structure of the institution.
Article 12: Executive management must demonstrate a minimum level of competence in exercising their functions. They must satisfy at least the following criteria: • be at least 21 years of age; • not be subject to the prohibition under banking legislation; • be able to provide a certificate of good conduct if they have previously worked or served as executives in other credit institutions; • attest to academic training and/or successful experience in one or more of the following non-exhaustive fields: management, accounting, finance; • be employees of the institution; • in the case of a mutualist institution, not have served as technical assistants to the institution for more than six months.
CHAPTER TWO: SPECIFIC PROVISIONS Section 1: On the Operating Structure of Level 1 MFIs (IMF1) Article 13: At least two (2) members of the board of directors, control body, or credit committee of Level 1 MFIs must attest to competence and/or prior successful experience in their respective fields. The composition of the board of directors, and the control body and credit committee for Level 1 mutualist MFIs, must contain a minimum level of competence to ensure their assigned duties are fulfilled through effective governance.
Article 14: The credit portfolio management of Level 1 MFIs must include one credit agent for every 500 beneficiaries or members/shareholders. The credit agents’ main duties include: • processing credit application files; • implementing authorized credits, under the responsibility of executive management; • post-disbursement monitoring, file management, guarantee tracking; • and loan recovery. The credit agents must: • attest to competence in financial analysis, holding academic training and/or successful experience in a similar position; • provide a clean criminal record; • have no familial relationship up to the second degree with members of the board of directors, control body, and credit committee. Level 1 MFIs must communicate in the annex of their periodic declarations the number of beneficiaries/members/shareholders and the number of credit agents.
On the Internal Control System of Level 1 MFIs Article 15: The internal control system of Level 1 MFIs must have at minimum the following objectives: • prevent or at least reduce fraud and abuse risks; • protect assets, including mutualist deposits; • increase the likelihood of achieving objectives; • guarantee operational security; • produce reliable and up-to-date information; • and enable prevention against money laundering and terrorist financing.
Article 16: The internal control system to be implemented is based on an in-house self-control system within the MFI, comprising inter alia: • the existence of objectives, policies, limits, compliance monitoring, and performance tracking; • a formalized organizational chart indicating the duties and responsibilities of each position; • segregation of incompatible tasks between expense commitment, disbursement, and accounting, as well as between credit file processing, release of granted amounts or receipt of repayments, and accounting; • the existence and regular updating of procedure manuals for sensitive operations such as cash, deposits, credits, accounting, and investments; • prevention and reporting of suspicious transactions under AML/CFT regulations; • the existence of written documentation on delegation of authority grids; • restricted access and security of assets and information. Its implementation requires the existence: • of accounting, even if simplified, enabling periodic active and passive statements, presentation of operating results with indicated expenses and revenues; • of a system ensuring cash security; • of an information system enabling at least reliable data on financial status, savings, and credits.
Article 17: Depending on the size of the Level 1 MFI, the internal audit function may be provided by a single person or a dedicated structure. It must be attached to the highest level of the organizational hierarchy. It acts and reports to the internal control body for mutualist institutions. Internal audit must submit an annual report on the control system, annexed to end-of-fiscal-year financial statements, to the General Secretariat of the CSBF.
Section 3: On the Operating Structure of Level 2 and 3 MFIs (IMF2 et IMF3) Article 18: Level 2 and 3 MFIs must comply with CSBF instructions on procedures and information obligations in case of changes to operating and control bodies.
Section 4: On the Control System of Level 2 and 3 MFIs Article 19: Level 2 and 3 MFIs must demonstrate the existence: • of an internal control system respecting all CSBF instructions regarding credit institution internal control; • of a prevention and reporting system for suspicious transactions under AML/CFT regulations.
CHAPTER THREE: TRANSITIONAL AND FINAL PROVISIONS Article 20: The already approved MFIs that do not yet possess the operating and control structures described above have a period of 1 year, after obtaining their classification, to comply with this instruction. This instruction enters into force upon notification.