Instruction No. Q 19 GR/07 on Financial Cooperatives

ISLAMIC REPUBLIC OF MAURITANIA CENTRAL BANK OF MAURITANIA THE GOVERNOR Nouakchott, [Date]

Instruction No. Q 19 GR/07 Regarding the Specific Organization of Financial Cooperatives

The Governor of the Central Bank of Mauritania, Having regard to Ordinance No. 2007-004 of January 12, 2007 establishing the Central Bank of Mauritania, Having regard to Ordinance No. 2007-005 of January 12, 2007 regulating Microfinance Institutions, Having regard to Decree No. 019-2007 of January 7, 2007 appointing the Governor of the Central Bank of Mauritania, Decides:

SECTION I: CONSTITUTION AND SHARE CAPITAL

Article 1: Constitution The establishment of a financial cooperative requires holding an inaugural General Assembly, which shall in particular rule on the object, name, and registered office of the financial cooperative. The inaugural General Assembly must also establish the list of subscribers to the share capital, approve the draft articles of association, and proceed to elect the members of the governing bodies. The founding members must sign, during the inaugural Assembly, a declaration stating the name of the financial cooperative, its registered office, the common bond, the names, professions, and domiciles of the signatories, and, where applicable, the name of the Union or Federation to which the financial cooperative will be affiliated.

Article 2: The founding declaration referred to in the preceding article must be signed by at least twenty persons capable of contracting, and filed with the Trade and Companies Register within the jurisdiction where the financial cooperative has its registered office. The Declaration must be accompanied by the articles of association of the financial cooperative.

Article 3: The articles of association of the financial cooperative shall in particular define:

1. The object, name, registered office, and geographical area of operation;
2. The common bond;
3. The rights and obligations of members;
4. The lifespan of the financial cooperative;
5. The nominal value as well as the conditions for acquiring, transferring, and redeeming shares;
6. The conditions and procedures for membership admission, suspension, resignation, or exclusion;
7. The conditions for members' access to the financial cooperative's services;
8. Members' liability towards third parties;
9. The governing bodies, their roles, composition, and operating procedures;
10. The minimum and maximum number of members in the governing bodies, their powers, term length, and conditions for renewal or dismissal;
11. Financial management rules and standards as well as the distribution of annual surpluses, subject to Articles 27 and 54 of Ordinance 2007-005;
12. The supervision of the financial cooperative.

Article 4: Any amendment to the articles of association must be adopted by an Extraordinary General Assembly by a decision taken by a two-thirds majority of the votes cast by present members.

Article 5: Share Capital. The share capital of a financial cooperative consists of shares, the nominal value of which is determined by the articles of association. The share capital varies according to changes in the value and number of shares, as well as the number of members.

Article 6: Shares. Shares must be fully paid up. They are registered and non-negotiable; they may only be transferred in accordance with the provisions of the articles of association. Shares are subject to seizure, except for the minimum required to obtain membership status, and provided that such seizure does not lead to the dissolution of the financial cooperative. Shares may receive a dividend drawn from the net profit of the fiscal year, limited to 10% of the nominal amount for the first share subscribed, and within the limit set by the articles of association for additional shares subscribed by members.

SECTION II: MEMBERS, GOVERNING BODIES, EXECUTIVES, AND MANAGEMENT

Article 7: Executives shall include members of the Board of Directors, the Supervisory Council, the Credit Committee, and the Manager or General Director.

§ 1: Members Article 8: A member may withdraw, provided they are not a borrower or endorser of a loan. Article 9: The Board of Directors may exclude any member who fails to comply with the principles of cooperation as defined in Ordinance 2007-005, this Instruction, the articles of association, or the internal regulations of the financial cooperative, or who jeopardizes the proper functioning of the financial cooperative. The decision to exclude a member may be appealed before the General Assembly.

§ 2: Governing Bodies Article 10: A financial cooperative must be equipped with the following governing bodies:

1. The General Assembly;
2. The Board of Directors;
3. The Supervisory Council;
4. The Credit Committee. The articles of association and internal regulations of the financial cooperative specify the operating rules for its governing bodies. The articles may provide for specialized commissions with limited powers, subject to prerogatives reserved for the governing bodies. The articles set the procedures for creating these bodies, their composition, term length, and scope of powers.

§ 3: General Assembly Article 11: The General Assembly is the supreme body of the financial cooperative. It consists of all members duly convened in accordance with the Articles. Article 12: The General Assembly has, in particular, jurisdiction to:

1. Ensure proper administration and functioning of the financial cooperative;
2. Amend the articles of association and internal regulations;
3. Modify the registered office and common bond;
4. Approve reports from other bodies;
5. Elect and dismiss members of the financial cooperative's governing bodies;
6. Decide on the allocation of annual surpluses;
7. Create reserves and any structure deemed useful for achieving the cooperative's object;
8. Address all other questions regarding the organization and functioning of the financial cooperative, respecting the powers of other bodies;
9. Adopt the credit regulations and financial regulations of the network regarding the general assembly of the umbrella structure, or the credit and financial regulations of the cooperative itself regarding the general assembly of a non-affiliated cooperative;
10. Decide on transferring the registered office outside the same city. Article 13: Excluding provisions related to amendments to the articles of association, election of governing body members, transfer of the registered office outside the same city, approval of accounts, and allocation of results, the General Assembly may delegate certain powers to any other body of the financial cooperative. Article 14: Members shall meet in an Ordinary General Assembly at least once a year, within six (6) months following the close of each fiscal year, in particular to:
11. Adopt the annual activity report;
12. Examine and approve the year's accounts;
13. Grant discharge to members of the management bodies;
14. Elect governing body members;
15. Appoint an auditor, where applicable. Article 15: Members may meet in an Extraordinary General Assembly convened at the initiative of:
16. The Board of Directors of the financial cooperative;
17. At least one-third of the members;
18. The Board of Directors of the umbrella structure to which the financial cooperative is affiliated;
19. The Supervisory Council of the financial cooperative;
20. The Central Bank. Only matters listed in the notice of convening may be deliberated upon by the Extraordinary General Assembly.

§ 4: Board of Directors Article 16: The Board of Directors of a financial cooperative shall consist of at least five directors. The articles may provide for an odd number higher than five, not exceeding nine. The Manager or General Director, as applicable, attends Board of Directors meetings with advisory voice and also assumes the secretariat. Article 17: The Board of Directors exercises, within the limits of the articles and internal regulations, powers generally or specifically delegated by the General Assembly. To this end, it must in particular:

1. Define the resource management policy of the financial cooperative;
2. Ensure compliance with legal, regulatory, and statutory provisions;
3. Facilitate the work of inspectors and any control missions dispatched by the Central Bank, the Union, or the Federation, as applicable;
4. Promote through all useful measures, the economic, social, and cooperative education of members;
5. Rule on appeal against decisions of the Credit Committee regarding a member;
6. Propose solutions for amicable dispute resolution;
7. Implement decisions of the General Assembly;
8. Periodically report on their mandate to the General Assembly. Article 18: The Board of Directors meets in the forms provided by the articles and internal regulations. Article 19: A majority of directors constitutes a quorum for the Board of Directors. Decisions are taken by a majority of present directors.

§ 5: Supervisory Council Article 20: The Supervisory Council is composed of three to five members elected by the General Assembly. Article 21: The Supervisory Council is responsible for overseeing the operations of the financial cooperative. It has access to all documents and may obtain any information it requires. Article 22: The Supervisory Council is in particular responsible for:

1. Verifying the assets and commitments of the financial cooperative;
2. Controlling operations resulting from Credit Committee decisions;
3. Submitting recommendations to the Board of Directors;
4. Ensuring that financial cooperative operations are periodically audited;
5. Convening an Extraordinary General Assembly if it considers that the Board of Directors is slow to take necessary measures;
6. Ensuring compliance with applicable ethical rules for the financial cooperative. The Supervisory Council may be assisted in its functions by any resource person it appoints, at the expense of the financial cooperative.

§ 6: Credit Committee Article 23: The Credit Committee is composed of at least three members. Article 24: A majority of members constitutes a quorum for the Credit Committee. The Manager of the financial cooperative automatically provides secretariat services and attends meetings with advisory voice. Article 25: The Credit Committee is responsible for managing credit distribution and repayment in accordance with defined policies and procedures. The Board of Directors may empower the Manager to grant loans under conditions set in the delegation instrument and within credit regulation limits. Credit Committee decisions are taken unanimously. Any member of the financial cooperative may appeal a Credit Committee decision to the Board of Directors.

§ 7: Common Provisions for Governing Bodies Article 26: The term of office for members of the Board of Directors, Supervisory Council, and Credit Committee is three years, renewable annually by one-third of the members. The articles set renewal procedures. No person may simultaneously serve as a member of a management body and the Supervisory Council. Article 27: Within basic financial cooperatives, functions exercised by members within governing bodies cannot be subject to fixed remuneration, attendance fees, or flat-rate per diems. Actual expenses incurred by governing body members in exercising their functions may be reimbursed under conditions set by the General Assembly. Beyond such reimbursements, governing body members may, when expressly provided for in the articles, receive an annual performance-based interest in the financial cooperative or network, not exceeding 25% of the net profit of the preceding fiscal year. The articles or internal regulations specify the distribution of profits among elected members. The remuneration decision is taken in accordance with the network's financial regulations or the cooperative's financial regulations for non-affiliated Category A MFIs. Article 28: Governing body members exercise their mandate until the election of their successors. Any vacancy within a body is filled for the unexpired term by a member co-opted by the body itself, pending the next General Assembly which confirms or invalidates the co-option. Article 29: The Supervisory Council and Credit Committee transmit, at the end of the cooperative's fiscal year, their activity reports to the Board of Directors and present them at the Annual General Assembly.

§ 8: Executives Article 30: No person may serve as an executive of a financial cooperative if they hold management positions in a competing institution with wholly or partially the same corporate object. Article 31: No person may serve as an executive in multiple financial cooperatives, whether or not affiliated to the same network. Likewise, no person may be a member of multiple bodies simultaneously. Article 32: Executives cannot obtain loans or other services provided by the financial cooperative on more favorable terms than those enjoyed by other members. The same applies to employees or any other interested or related persons under ethical rules. Article 33: Executives are financially liable, individually or jointly, for faults committed in the exercise of their functions. Article 34: A member of a body may resign from their functions in the forms and conditions set by the articles. A member of a body may be suspended or dismissed by the General Assembly or Board of Directors for serious fault, notably violation of legal, regulatory, or statutory provisions. The dismissed member loses the right to exercise any function within the financial cooperative or network. Article 35: A person who loses executive status in a financial cooperative due to serious misconduct or gross fault cannot be elected as an executive of a financial cooperative. The same applies to any employee of a financial cooperative.

§ 9: Management and General Direction Article 36: The Manager is responsible for the day-to-day management of the financial cooperative. The scope of their powers is fixed by the articles of association. They exercise their functions under the authority of the Board of Directors. However, within a network, they are subject to the functional authority of the Board of Directors of the cooperative they belong to, and to the hierarchical authority of the network's General Management. Article 37: Category A MFI networks appoint a General Director, who may be an employee and cannot be a member of the Board of Directors. The General Director is an executive under financial regulations. The articles set nomination and dismissal procedures, as well as the scope of powers. However, the General Director is always responsible for:

• human resource management within the network;
• representing the network jointly with the Chairman of the Board of Directors;
• implementing Board of Directors decisions;
• certifying and signing the accounts of the umbrella structure and consolidated network accounts;
• ensuring compliance with regulations applicable to the network vis-à-vis the Central Bank;
• formulating strategic decisions under Board of Directors directives. The General Director may delegate certain powers to network employees.

SECTION III: STRUCTURE OF MUTUALIST MFIs ORGANIZED IN NETWORKS

Article 38: The signing of the articles of associations for unions and federations entails, for affiliates, an obligation to comply with decisions taken at the higher level within powers conferred by laws, regulations, and statutory provisions. Every network must adopt an internal regulation, a credit/operations regulation, and a financial regulation. The internal regulation essentially specifies the operating rules for governing bodies and non-financial relations between network members. The network's operations regulation, adopted by the competent central body instance, defines product policies offered by basic institutions to clients, procedures to follow, and conditions under which basic institutions can conduct operations, particularly authorized delegation levels within the network. It may be specified and supplemented by application texts issued by the General Director or Board of Directors of the umbrella body, in accordance with power distribution defined by articles and internal regulations. The network's financial regulation, adopted by the competent central body instance, specifies, in compliance with current laws and regulations, financial flows within the network, including:

• asset and liability management rules for network members, particularly treasury management rules, financing rules;
• financial solidarity rules within the network. The financial regulation specifically provides for and organizes the network's guarantee and support fund. It may be specified and supplemented by application texts issued by the General Director or Board of Directors of the umbrella body, in accordance with power distribution defined by articles and internal regulations. Umbrella bodies ensure compliance by their affiliates with prudential, management, and financial transparency standards provided for the profession. They implement financial solidarity within the network, notably through the development and guarantee fund. Article 39: When several member entities of a network are entrusted by law with the same mission, they must determine by regulation which entity shall exercise this attribution. Article 40: Any dispute between members of the same Category A MFI network may be submitted, for conciliation by one of the disputing parties, to the Central Bank of Mauritania, which rules as amiable composer.

SECTION IV: MISCELLANEOUS PROVISIONS

Article 41: The financial cooperative must keep and preserve at its registered office books or registers, the contents and access conditions of which are determined by internal regulations and the Central Bank. Article 42: A member may consult documents filed in the register or obtain extracts or copies in cases and under conditions set by internal regulations. Article 43: This Instruction annuls and replaces all contrary or overlapping provisions, and enters into force as of its signature date.