Region

Jurisdiction

Regulator

2020-09-29

Regulations for Rural Community Finance Institutions

The Central Bank of Liberia promulgated Regulation No. CBL/RSD/006/2019 to govern the establishment, licensing, and operational standards of rural community finance institutions (RCFIs). The directive classifies RCFIs into Tier 2a and Tier 2b categories based on minimum capital requirements of one million and fifty thousand dollars, respectively, while mandating community-driven ownership, defined permissible activities, and adherence to prudential, corporate governance, and AML/CFT standards. Additionally, the regulations prescribe detailed licensing procedures, capital and liquidity limits, reporting obligations, and enforcement mechanisms to ensure institutional safety, soundness, and sustainable financial service delivery across Liberia.

Liberia

Central Bank of Liberia

THE LIBERIA OFFICIAL GAZETTE PUBLISHED BY AUTHORITY VOL. XX WEDNESDAY, JANUARY 8, 2020 NO.10 EXTRAORDINARY

The Government of the Republic of Liberia announces that the Central Bank of Liberia (CBL), pursuant to its mandate under the Central Bank of Liberia Act of 1999 and its authority under the Financial Institution Act of 1999, and specifically consistent with Section 55 of the said Central Bank of Liberia Act of 1999 and Section 39 of the Financial Institution Act of 1999, has issued it Regulations No. CBL/RSD/006/2020 on January 8, 2020, herein under:

CONCERNING REGULATIONS FOR RURAL COMMUNITY FINANCE INSTITUTION

BY ORDER OF THE PRESIDENT

GBEHZONGAR M. FINDLEY MINISTER OF FOREIGN AFFAIRS

MINISTRY OF FOREIGN AFFAIRS MONROVIA, LIBERIA

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

Contents PART I Preliminary .................................................................................................................................... 4

INTRODUCTION .................................................................................................................................... 4
INTERPRETATIONS ............................................................................................................................... 4
OBJECTIVES .......................................................................................................................................... 5
SCOPE ................................................................................................................................................... 5 PART II Regulatory Requirements ............................................................................................................ 5
CATEGORIZATION OF RCFIS ................................................................................................................. 5
BASIC CRITERIA ..................................................................................................................................... 6
PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES ............................................................................... 6
LICENSING ............................................................................................................................................. 9 8.1 Application Procedure ....................................................................................................................... 9 8.2 Granting of Provisional License ......................................................................................................... 10 8.3 Conditions for the Granting of Provisional License ............................................................................ 10 8.4 Granting of Final License ................................................................................................................... 11 8.5 Reasons for Revocation of License .................................................................................................... 11 8.6 Renewal of License ............................................................................................................................ 12 8.7 Display of License and Interest Rates ................................................................................................ 12
CREDIT RISK MANAGEMENT ................................................................................................................ 12 9.1. Credit Policy ..................................................................................................................................... 12 9.2. Credit Requirements ........................................................................................................................ 13
LIMITS ON LOANS AND ADVANCES TO DIRECTORS, OFFICERS AND EMPLOYEES OR RELATED PARTIES ........................................................................................................................................................... 14 10.1. Provision for Loans and Advances .................................................................................................. 14 10.2. Income Accrual ................................................................................................................................ 15
LIQUIDITY REQUIREMENTS ................................................................................................................ 16
CAPITAL REQUIREMENTS/SUBSCRIPTION .......................................................................................... 16
PAYMENT OF DIVIDENDS ................................................................................................................... 17
TRANSFERS TO STATUTORY RESERVE ................................................................................................ 17
ACCOUNTING ...................................................................................................................................... 17
INTERNAL AND EXTERNAL AUDIT ....................................................................................................... 18
SOURCES OF FUNDS ............................................................................................................................ 18 2

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

CORPORATE GOVERNANCE ................................................................................................................ 18 18.3 Tenure for Unit Manager and Other Board Members ..................................................................... 19 18.4 Dealing with Conflicts of Interest .................................................................................................... 19 18.5 Minimum Governance Standards ..................................................................................................... 20 18.6 Roles and Responsibilities of the Board .......................................................................................... 20
RISK MANAGEMENT SYSTEM ............................................................................................................. 21
AML/CFT REQUIREMENTS .................................................................................................................. 21
CONSUMER PROTECTION ................................................................................................................... 22
OTHER REQUIREMENTS ...................................................................................................................... 22
REPORTING TO THE CENTRAL BANK OF LIBERIA ................................................................................. 23
PENALTIES FOR LATE OR FALSE/INACCURATE RETURNS OR OTHER INFORMATION ............................ 24
EXAMINATION BY THE CENTRAL BANK ............................................................................................... 25 PART III—WINDING UP, REMEDIAL MEASURES AND ADMINISTRATIVE SANCTIONS ............................... 26 WINDING UP OF RCFIS ............................................................................................................................. 26
REMEDIAL MEASURES & ADMINISTRATIVE SANCTIONS ..................................................................... 26
FORBEARANCE .................................................................................................................................... 26
PUBLICATION OF LICENSED RCFIs ....................................................................................................... 26
AMENDMENT ...................................................................................................................................... 27
EFFECTIVE DATE .................................................................................................................................. 27 3

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

PART I Preliminary

INTRODUCTION

1.1 Pursuant to Sections 3 and 39 of the New Financial Institutions Act of 1999, the CBL hereby promulgates and issues these regulations to regulate the establishment, operations and business of rural community finance institutions (RCFIs).

1.2 These Regulations shall be cited as Amended Regulations for Rural Community Finance Institutions, Regulation No. CBL/RSD/006/2019.

INTERPRETATIONS

In these regulations, unless otherwise required:

Applicant means shareholder (s) or promoter of a proposed rural community finance institution for which an application for a license to establish an RCFI has been submitted.

Board of Directors shall mean to the body of authority in the rural community finance institution responsible for the strategic governance and oversight of an RCFI, which is accountable to the shareholders of the institution.

Central Bank means the Central Bank of Liberia (CBL).

Conflict of Interest means a situation in which a director, manager or staff of the RCFI is in a position to derive personal benefits from actions or decisions made in their official capacity.

Country means Republic of Liberia.

Extension of Microcredit means extension of unsecured loans, lines of credit, purchase and/or discount of accounts receivable (factoring) with or without recourse and financial and operating leasing to microfinance clients up to the maximum amount as permitted by the Prudential Regulations on Asset Classification, Provisions for Loan Losses & Suspension of Interest on Non-Performing Loans & Advances;

Fit-and-Proper: A person is considered to be fit and proper if she or he has good character, is competent, honest, is financially sound, reputable, reliable and discharges or is likely to discharge his/her responsibilities fairly. 4

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

New FIA means the New Financial Institutions Act of 1999.

Unit Manager means a person who is appointed or authorized to oversee the day-to-day activities of a RCFI.

Related Party to an RCFI includes:

i) Any officer or director of the RCFI or any person who alone or together with one or more others has the authority to enter into commitments on behalf of the RCFI;

ii) Any person who is related to such officer or director by marriage, consanguinity to the second degree, or business interest.

Rural community finance institution means a deposit-taking financial institution privately owned and managed by residents in a rural community licensed by the Central Bank to meet specific financial needs of the community.

OBJECTIVES

3.1 These regulations are aimed at achieving the below objectives:- i) To promote the safety and soundness of the RCFIs, ensure efficiency and sustainability of their operations, and protect public funds/deposits entrusted to and managed by them; ii) To ensure professionalism and integrity in the provision of financial services by the RCFIs; and iii) To prescribe minimum requirements for the establishment and management of RCFIs.

SCOPE

4.1 This regulation shall apply to all rural community finance institutions operating in Liberia.

PART II Regulatory Requirements

CATEGORIZATION OF RCFIS

5.1 RCFIs are categorized into Tier 2a and Tier 2b based on their minimum capital requirements. 5

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

5.2 Tier 2a category shall apply to RCFIs with paid-up capital equal or greater than US$1,000,000 (or its equivalent in Liberian Dollars).

5.3 Tier 2b category shall apply to RCFIs with an initial minimum paid-up capital of US$50,000, but not exceeding US$1,000,000 (or its equivalent in Liberian Dollars).

BASIC CRITERIA

6.1 The following shall constitute the basic requirements for establishing a rural community finance institution:

The establishment and promotion of RCFI shall be wholly community-driven. a) The RCFI shall be owned, controlled and managed to a large extent by residents and/or citizens of the community in which it operates. b) The RCFI shall be registered as a limited liability company with constitution and by-laws approved by a majority of its shareholders. c) The RCFI membership shall be open to all members of the local community in keeping with the constitution and by-laws. d) The RCFI shall be established outside of Monrovia, with focus on the rural communities. e) The RCFI shall operate as a stand-alone entity, subject to the provisions set forth in these regulations and other regulations, guidelines and directives that may be issued by the Central Bank from time to time. f) The RCFI shall have a suitable premise (by title, rent or leasehold) for the conduct of its activities.

6.2 It shall be required to submit a proposed operational and policy manual as well as a business plan for three years to the CBL as part of the licensing requirements.

PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES

7.1.1 A Tier 2a rural community finance institution shall be permitted to carry on the below business activities: 6

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

a. Extend microcredits; and b. Take deposits from the community in which they operate, subject to the required prudential regulations;

7.2 A Tier 2a rural community finance institution may offer following additional services upon fulfilment of the licensing conditions for such services where applicable:

a. Mobile money agent services; b. Banking agent services; c. Encash/ discount checks; d. Foreign exchange services; e. Domestic money transfer (payments) services; f. Provide financial advice to its clients and conduct financial education activities, g. Provide social support programs and activities as approved by government or an agency of government; and h. Perform any other financial services as may be approved by the Central Bank.

7.3.1 A Tier 2b rural community finance institution shall be permitted to carry on the below business activities:

a. Extend microcredits; b. Offer products to encourage capital formation through savings.

7.4 A Tier 2b rural community finance institution may offer the following additional services upon fulfilment of the licensing conditions for such services where applicable:

a. Mobile money agent services; b. Banking agent services; c. Encash / discount checks; d. Provide financial advice to its clients and conduct financial education activities; e. Provide social support programs and activities as approved by government or an agency of government; and f. Perform any other financial services as may be approved by the Central Bank.

7.5 Unless specifically provided otherwise in a grant or a loan agreement for specific funds, RCFI may invest funds not immediately required for its use in the following classes of assets, subject to the relevant prudential requirements: 7

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

i. Securities issued by or guaranteed by the Government of Liberia with maturity up to 180 days; ii. Deposits with licensed commercial banks with maturity up to 180 days; iii. Real estate for own use provided that the total value of the real estate does not exceed 25% of the net worth of the RCFI.

7.6 There shall be an individual savings limit based on category of the RCFI and the size of their assets: i. Tier 2b RCFIs shall have a limit of 14,000.00 US Dollars (or its equivalent in Liberian dollars) ii. Tier 2a RCFIs shall have a limit of 2% of their total assets as per its latest audited financial statements.

7.7 The amounts and percentage above shall be calculated based on the latest audited financial statements of the RCFIs certified without reserves and less than two years old.

7.8 A RCFI shall not extend or grant loan to a single borrower or a group of related borrowers in excess of 5% of its net worth. The loan to a cooperative or micro-enterprise shall not exceed 7% of the RCFIs net worth. The amounts and percentage above shall be calculated based on the latest audited financial statements of the RCFIs certified without reserves and less than two years old.

7.9 No RCFI shall: a. Offer mortgage finance; b. Act as a surety for the obligations of the shareholders / members of the RCFI or third parties; c. Grant credit facility or enter into any other credit transaction against the security of its own shares; d. Provide collateral for its management, employees or third parties; e. Engage in international commercial papers or corporate finance; f. Engage in any business or activity other than those for which it was licensed; g. Engage in direct money transfer business outside of Liberia, except through a licensed commercial bank; 8

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

h. Engage in any other unauthorized business activity for which it didn't receive prior approval from the Central Bank or a letter of no objection.

LICENSING

8.1 Application Procedure

8.1.1 No one shall operate a RCFI without a license from the CBL. The CBL shall issue a final license to an applicant to operate as a RCFI that has satisfactorily met all requirements or may issue a provisional license to an applicant that has not met all of the licensing requirements. The provisional license shall be subject to the terms and conditions specified below.

8.1.2 Anyone seeking to engage in the operations of a rural community finance institution shall comply with the requirements as stated under Section 4(1) of the New FIA of 1999 and/or with the following requirements:

I. Submit a Letter of Application to the Executive Governor of the Central Bank of Liberia for the establishment of an RCFI; II. The Letter of Application shall state the specific category it is applying for (Tier 2a or Tier 2b) be accompanied by information regarding the legal structure, ownership, and management structure of the proposed RCFI; III. Submit a duly completed application form with a non-refundable application fee of USD 100.00 or its equivalence in Liberian dollars; IV. Submit a certified copy of the incorporation documents; V. Submit a statement of proposed location and address in rural Liberia; VI. Provide evidence of the ability or capacity to raise the minimum capital requirement; VII. Provide names and profiles of the proposed members of the Board of Directors, initial shareholders including their addresses and telephone numbers (if applicable), and management; and VIII. Provide any other information as may be required by the Central Bank.

8.1.3 Information regarding the legal structure of the proposed RCFI shall comprise the following: I. Name of the proposed RCFI (corporate name to be used for carrying on the business). Such name shall not closely resemble the name of an existing 9

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

financial institution as would be likely, in the opinion of the Central Bank of Liberia, to mislead the public; II. Purpose of the institution, nature or type of business and services to be rendered as herewith provided in these regulations by the Central Bank; and III. The capital structure of the proposed RCFI showing the proposed amount of paid-in capital and source(s) of capital.

8.1.4 The proposed RCFI shall: I. Provide information on the suitability of its proposed premises; II. Indicate whether facilities and equipment will be leased or purchased; III. Provide plan for computerization (including hardware, software, and maintenance); and IV. Provide information about the capability of the proposed system to produce all required reports to the CBL in an accurate and timely manner.

8.2 Granting of Provisional License

8.2.1 Upon compliance of the applicants with all requirements, the Central Bank shall grant a provisional license to the applicant for the purpose of completing and fulfilling all outstanding licensing requirements within a period of six (6) months. Failure to complete all outstanding requirements within this timeframe shall lead to the automatic cancellation of the Provisional License, and the applicant shall be required to start the application anew if it so wishes.

8.2.2 The Central Bank shall refuse to grant a final license or reject an application if the application does not fully comply with all conditions and shall inform the applicant formally of its decision and the reason(s) thereof. This notification shall also comprise the remedial actions upon which the applicant may re-submit the application.

8.3 Conditions for the Granting of Provisional License

8.3.1 A Provisional License shall be issued to organizers or promoters who satisfy the requirements under section 7 above, subject to the conditions provided below: a. Deposit the minimum capital as required by the CBL in an Escrow Account in a commercial bank in Liberia. b. Commit to ensure compliance with the minimum capital requirements at all times. 10

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

c. Undertake to submit other information as may be required by the Central Bank of Liberia. d. During the provisional period, the applicant shall not provide any services to the public and may use the official name of the proposed RCFI with the inscription (In-Organization).

8.4 Granting of Final License

8.4.1 The Central Bank of Liberia shall issue a license to an applicant RCFI to carry out the operations of rural community financial services if: a. The applicant has complied with all the applicable requirements stated in this regulation, plus the raising of a minimum capital requirement for its category and payment of a license fee of US$5,000 (or such other amount as may be determined from time to time by the Central Bank,) before obtaining a final license; and b. The Central Bank of Liberia has conducted a pre-opening inspection and an assessment of the premises of the proposed RCFI to ensure that all requirements including adequacy of procedures and detailed information on the development and maintenance of security program for the proposed premises and facilities are complied with.

8.4.2 The Central Bank shall, where an application is approved, grant a license within sixty (60) working days from the date of receipt of a complete application and fulfilling of all licensing requirements.

8.5 Reasons for Revocation of License

8.5.1 The Central Bank reserves the right to revoke the license of any rural community finance institution for any but not limited to the following reasons: a) The RCFI does not adhere to and/or contravenes the conditions of the license or directives, guidelines and regulations of the Central Bank; b) The RCFI refuses to carry out the activities for which it was licensed; c) It is established that the RCFI made a false or incorrect statement in its application for license, without which the CBL would have rejected the application; d) The RCFI has failed to commence business within six months from the 11

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

date of the issuance of the final license; e) The RCFI is found to be involved in money laundering, terrorist financing activities or any other financial crimes; f) The interests of the customers or potential customers are threatened by the manner in which the RCFI is conducting or proposes to conduct its activity; g) Failure by the RCFI to pay fees for the renewal of its license; and h) The RCFI becomes insolvent and fails to augment its capital within a specified timeframe as provided by the CBL.

8.6 Renewal of License

8.6.1 The license for an RCFI shall be renewed annually with a fee of USD 150.00, once the CBL is satisfied that the licensee has conducted its business in a satisfactory manner.

8.7 Display of License and Interest Rates

8.7.1 A RCFI shall display at a conspicuous location on its premises the license obtained from the CBL and interest rates as well as fees and charges relating to all of its products and services.

CREDIT RISK MANAGEMENT

9.0.1 All RCFIs shall be required to maintain sound and acceptable policies and practices to prudently manage and control their credit portfolio and exposure to credit risks. The credit risk management should provide, at minimum, a credit policy and credit review process.

9.0.2 Every Tier 2a RCFIs shall have a credit risk department or credit officer which should ensure that its operations conform to its internal credit policy, rules and regulations. In the case of a Tier 2b RCFI, they shall at a minimum have a credit officer. All RCFIs shall always ensure that the credit policy are adhered to.

9.1 Credit Policy 9.1.1 The credit policy should be clearly documented, should contain as minimum, the following: 12

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

a) General Areas of Credit which include types of loans and advances and borrowers, sectors, etc. b) Delegation of Authority indicating appropriate levels for credit approvals, portfolio concentration limits, provisions or write-offs. c) Procedure for evaluation, grant, documentation and Collection of credits. d) Requirements for Credit File. A credit file should be maintained in such manner as to facilitate proper review of the credit to permit assessment of the borrowers' repayment prospects. It should contain, at a minimum, the identification of the borrower (name, type of business, connected parties, etc.), evidence of the authority to borrow, financial statements, purpose and terms of credit, details of collateral, credit authorization, repayment history and internal credit reviews.

9.2 Credit Requirements

9.2.1. An RCFI shall grant microcredit subject to the following requirements: a. The purpose of the loan must be within those allowed under the operations of the RCFI; and b. The applicant has met all conditions in keeping with the credit policies of the RCFI.

9.2.2. An RCFI may use the following as collaterals/securities: a. Savings and other accounts maintained with the RCFI, by either the borrower or her/his guarantors; b. Personal guarantees of other shareholders, either as individual guarantee or as joint and several liability of a group of persons; c. Farmland; however, where farmland is offered, local directors must certify that the borrower has the legal right to the land; d. Agrarian Receipts; e. Accounts receivables; f. Inventories; g. Warehouse receipts; and h. Conventional collaterals/securities such as residential and commercial real estates, vehicles for which ownership documents can be provided, and other movable property and equipment.

9.2.3. RCFIs shall to the extent possible use Credit Reference System and the 13

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

Collateral Registry to determine any prior security interests, as well as establish their security interests over movable assets pledged as collateral.

9.2.4. Loans may be granted for the purposes of agricultural production, food processing, farming, trade, manufacturing, and transportation. Loans may also be granted for purposes such as health and education. The purpose of the loan must be stated in the loan application form and the contract of the loan.

9.2.5. An RCFI shall not extend or grant loan to a single borrower or a group of related borrowers in excess of 5% of its net worth.

9.2.6. The loan to a single group, association, cooperative, institution or enterprise for on-lending to its members shall not exceed 7% of the RCFI's net worth.

9.2.7. An RCFI shall be permitted to define more restrictive terms and conditions than those above.

LIMITS ON LOANS AND ADVANCES TO DIRECTORS, OFFICERS AND EMPLOYEES OR RELATED PARTIES

10.0.1 A director or any related party of a RCFI may be granted a loan or credit facility provided that the total indebtedness of the director or any related person to the RCFI does not exceed 5% of the net worth of the RCFI.

10.0.2 An officer or employee of an RCFI may be granted a loan or credit facility provided that the total indebtedness of the officer or employee to the RCFI does not exceed three months remuneration of the employee or officer.

10.0.3 No RCFI shall: i) Grant unsecured loans and advances to any of its directors or their close relations whether such advances are obtained by its directors or their close relations jointly or severally; ii) Have aggregate outstanding loans and advances to its directors in excess of 25% of the RCFI's net worth.

10.1. Provision for Loans and Advances

10.1.1 Each RCFI shall review at least once every thirty days, its loans and advances and other investments and make appropriate provisions for loan losses or asset 14

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

deterioration as specified below: a. When scheduled to be paid in monthly or longer installments, loans and advances shall be classified as follows:

b. When scheduled to be paid in installments of less than one month or for one single payment (bullet loans), the below classification shall be applied:

10.1.2 Once loans and advances are classified as Substandard, Doubtful or Loss, they shall be placed on a non-accrual status. Loans and advances classified as Substandard, Doubtful or Loss, shall be renewed, rolled over or returned to accrual status on a case-by-case basis, to allow greater flexibility in loan restructuring.

10.2. Income Accrual

Accrual of interest for microfinance credit accommodations shall be suspended 31 days after a customer falls behind in principal or interest amortization payment when the loan is scheduled to be paid in monthly or longer installments. Accrual of interest for microfinance credit accommodations shall be suspended 16 days after a customer falls behind in principal or interest amortization payment when scheduled to be paid in installments of less than one month or on one single payment. At these times, the loan is considered to be non-accrual and it should be reported to the CBL. Interest suspended shall be reversed only after the loan is returned to a performing status. 15

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

LIQUIDITY REQUIREMENTS

11.1 Every RCFI must maintain at all times, minimum liquid assets which shall not be less than 15% of total deposit liabilities. 50% of the required liquid assets shall be cash reserves. i. Liquid asset means: a. Legal tender in Liberia; b. Balances in current account with other financial institutions; c. Treasury instruments in Liberia; d. Such other assets as may be specified by the CBL.

ii) Cash reserves shall be maintained by way of cash holding in vaults and tills of the RCFI.

CAPITAL REQUIREMENTS/SUBSCRIPTION

12.1 The minimum paid-up capital for an RCFI are categorized into Tier 2a and Tier 2b as stated in Section 5.0 above. These amounts shall be subscribed by the members or shareholders of the RCFI and may be subject to review by the Central Bank from time to time.

12.2 The maximum number of shares per member or connected members shall not exceed 5% and 20% of the total share subscription for individuals and non-financial institutions, respectively.

12.3 The aggregate share of any financial institution in a rural community finance institution shall not exceed 15% of the total share subscription.

12.4 Each RCFI shall at all times maintain an unimpaired capital, net worth or shareholders' funds of not less than minimum capital requirement or its equivalence in Liberian dollars.

12.6 The minimum Capital Adequacy Ratio for each RCFI shall be 10%.

12.6 The Capital Adequacy Ratio shall be measured as a percentage of the capital base of the RCFI to its risk weighted assets.

12.7 The below risk weights shall apply for the computation of Capital Adequacy Ratio: i. Cash and balances at other financial institutions (20%) ii. Fixed Assets (50%) 16

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

iii. Fully Secured Personal Loans (75%) iv. Fully Secured Agricultural Loans (50%) v. Fully Secured Commercial/Business Loans (50%) vi. All other Loans and advances (100%)

The method of calculation/computation of the CAR shall be prescribed by the Central Bank.

13 PAYMENT OF DIVIDENDS

13.1.1 A rural community finance institution shall make payment of dividends if it has satisfied the below conditions which are subject to verification by the CBL: a. The institution has completely recovered all of its capitalized expenditure and accumulated or un-provided losses (for this purpose, capitalized expenditure includes preliminary expenses and share-selling commissions incurred by the RCFI and any other items of expenditure not represented by tangible assets); b. Capital adequacy ratio and minimum capital have been met; c. All mature obligations have been met; d. The transfers to the statutory reserve as required by sub-section 14.1 below have been made; and e. The financial statements of the RCFI have been audited.

13.2 No RCFI shall pay any dividends without the prior written approval of the CBL.

14 TRANSFERS TO STATUTORY RESERVE

14.1 In keeping with Part III, section 14-16 of the New FIA of 1999, an RCFI shall maintain a statutory reserve account and transfer (either the 15% or 25% of its profits as prescribed by Section 15 of the FIA) to its statutory reserve account before any dividend is declared or any profit transferred.

ACCOUNTING

15.1 The board and management of an RCFI shall ensure that proper accounting records and systems are maintained at all times and adequate internal control policies and operational procedures are put in place to effectively and efficiently run the institution.

15.2.1 The management shall ensure that business records and books are kept in accordance 17

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

with acceptable accounting standards, principles and practices.

15.3 Each RCFI shall display in its banking hall quarterly interim statements of its financial position, comprehensive income and changes in owners' equity.

15.4 The financial statements shall be duly signed by the Chairman of the Board and the Unit Manager of the RCFI, reviewed and approved by the CBL and posted in the banking hall not later than 30 days after the end of a given quarter.

16 INTERNAL AND EXTERNAL AUDIT

16.1 In keeping with Section 21 of the New FIA of 1999, every Tier 2a and 2b RCFI shall appoint an external auditing firm to conduct a full review of its financial condition, internal controls and risk management system for each year end. For each annual audit, the appointment of the external auditor shall require the prior approval of the Central Bank, before the commencement of any such audit.

16.2 The appointment of an auditor shall satisfy the minimum requirements stated in the Regulations Concerning Corporate Governance for Financial Institutions and Audit of Banks and the Publication of Financial Statements.

16.3 Every RCFI shall have an Internal Audit system (unit, section or department) which should ensure that its operations conform to the law as well as, to its internal rules and regulations. Every fraud or attempted fraud must be promptly reported to the Regulation and Supervision Department of the Central Bank.

17 SOURCES OF FUNDS

17.1 The sources of funds of an RCFI shall consist of the following: a. A fit-and-proper person who wants to become a shareholder and hails from or resides within the county in which the RCFI operates; b. Deposits by customers; c. Grants/donations from individuals, financial institutions, non-governmental organizations, the Government of Liberia, Central Bank and other international organizations.

18.0 CORPORATE GOVERNANCE

18.1 Composition of Board and Eligibility of Directors 18.1.1 The RCFI shall constitute a Board of Directors which is ultimately responsible 18

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

for the sound and proper functioning of the institution. The maximum number of directors shall be seven (7) and a minimum number of five (5), of which the majority including the chairperson shall be resident in the county in which the RCFI operates.

18.1.2 At least two of the directors shall have financial/business knowledge.

18.1.3 It shall be the responsibility of the Chairperson of the Board of Directors to communicate to the CBL the resignation and/or removal of any of its members within five working days and the reason(s) for the resignation and/or removal.

18.1.4 Every director and member of the management team must go through the "fit and proper" person's test of the CBL before being permitted to assume the post or position with the institution.

18.2 Appointment and Approval of Directors and Senior Officers

An RCFI shall obtain a written approval from the CBL before appointing any manager or director pursuant to section 74 of the New FIA of 1999.

18.3 Tenure for Unit Manager and Other Board Members

18.3.1 The Unit Manager of an RCFI shall not serve in this position for more than ten consecutive years.

18.3.2 Non-executive directors shall not remain on the Board of an RCFI continuously for more than a period of two terms of three (3) years each.

18.4 Dealing with Conflicts of Interest

18.4.1 Any director or officer of an RCFI who holds an office or possesses any property, whether directly or indirectly, whereby, such duties or interest might create conflict with the person's assigned position as a director or officer shall declare to the full Board, the nature, character and extent of such interest.

18.4.2 Any director or officer who has a conflict of interest shall completely recuse herself/himself from all deliberations, actions or decisions relating to such matter.

18.4.3 Failure to declare such conflict of interest or participation in deliberations, 19

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actions or decisions relating to such matter shall lead to the termination of the person's engagement with the RCFI.

18.5 Minimum Governance Standards

18.5.1 Minimum governance standards of an RCFI shall include: The management team at minimum shall comprise of a Unit manager, and one other senior management officer, such as accountant, credit and operations officers.

18.6 Roles and Responsibilities of the Board

18.6.1 The board shall receive on a timely basis, sufficient information from the management of the RCFI to enable the board assesses the performance of management, the quality of performance of the RCFI, compliance with prudential standards of the CBL, customer satisfaction, and service quality.

18.6.2 Board meetings shall be held at least once in every quarter of the financial year and each board member is required to attend at least 75% of the board meetings and actively participate in the meetings. The board shall ensure that adequate records are kept for all of its meetings. The books and records of such meetings are the sole property of the respective RCFI.

18.6.3 The board must be strong, independent and actively involved in performing its oversight function of the RCFI. The board shall be responsible for the overall governance and strategic direction of the RCFI and must be ready to question, scrutinize and monitor in a proactive manner, management's performance.

18.6.4 All board members shall, upon termination of their role as director, return all documents in their possession to the RCFI within ten days after the end of their assignment. Directors are personally liable for all books and records kept in their possession and custody.

18.6.5 The officers, directors, and board members owe a fiduciary duty to the RCFI to operate the institution with reasonable judgement and prudence, and in the best interests of the RCFI.

18.6.6 Licensed RCFIs shall notify the CBL of any proposed changes in the membership of its Board, the Unit Manager or Officers 30 days in advance, with the reasons for such change. If such a change occurs for a sudden 20

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

reason, the RCFI shall notify the CBL within five days of such occurrence, and the reasons for such change.

19.0 RISK MANAGEMENT SYSTEM

19.1 The RCFI shall: a. Have effective risk management processes in place; namely processes for risk identification, measurement, mitigation, monitoring and control; b. Have policies for controlling the following: i. Liquidity, interest rate, and maturity risks (asset and liability management); ii. Credit risk; iii. Operational risk; and iv. All other risks to which the institution shall be exposed.

20.0 AML/CFT REQUIREMENTS

20.1 All RCFIs shall comply with the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) provisions as specified below in these regulations; and the national AML/CFT laws.

20.2 Requirements for RCFIs compliance to AML/CFT include, but are not limited to, the following: a. RCFIs shall conduct adequate due diligence on its customers during the account opening process and obtain and maintain documentary records for each client or customer to verify by reliable and independent source documents (such as a passport, a driver's license, voter's registration card, national identification documents or may be identified by three persons including a local government official from within the community): i. Full Name of the person ii. Date and place of birth iii. Address (to identify whether the person is a true resident of the community) iv. Contact details (i.e. cellphone, email, place of work or immediate relative contact etc...) 21

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

a. Monitor transactions to detect suspicious activities; b. Report Suspicious Transactions promptly to the Central Bank of Liberia; c. Maintain CDD/KYC documents, records, correspondence and files for 5 years from the date of termination of the relationship with the customer; d. Designate a staff to be responsible for the implementation of, and ongoing compliance with AML/CFT obligations of the RCFI. Such staff shall have ready access to all books and records of the RCFI; and e. Provide AML/CFT training to all employees on an annual basis; and f. Conduct due diligence on existing and prospective shareholders.

21.0 CONSUMER PROTECTION

21.1 Each RCFI shall establish a help/Consumer desk and Consumer Protection Policy to address issues relating to customers. Notwithstanding, for matters that cannot be handled by the RCFI, the RCFI shall refer the customer to the Consumer Protection Unit of the CBL for redress.

21.2 RCFIs are required to adhere to consumer protection standards defined in the applicable Central Bank's regulations, including but not limited to:

consumer protection and market conduct;
rules on determination and display of interest rates and charges, and computation of lending rates; and
any other applicable consumer protection rules as may be decided from time to time by Central Bank.

22.0 OTHER REQUIREMENTS

22.1 An RCFI shall on a quarterly basis notify the CBL of any changes in its shareholding;

22.2 An RCFI shall submit to the CBL the signature specimen of all staff with the assigned function of signing returns to be submitted to the CBL; and

22.3 Clearing of cheques shall be done through financial institutions that are members 22

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

of the Clearing House at the CBL.

23.0 REPORTING TO THE CENTRAL BANK OF LIBERIA

23.1 Every RCFI shall be required to submit to the Central Bank at such intervals and in such form, returns, documents, statistics and such other information as the Central Bank may specify from time to time.

23.2 Notwithstanding the general requirements stated above: Every Tier 2a RCFI shall submit to the Regulation & Supervision Department of the Central Bank of Liberia the following reports in a format and at different intervals as may be specified by the Central Bank: a. Weekly Returns on Liquidity The weekly Returns shall be submitted not later than the Wednesday following the week of reporting. b. Monthly Returns (financial statements) I. A monthly return detailing its lending rates in a form prescribed by the Central Bank; II. A monthly report on frauds and forgeries affecting the institution and any default in meeting any obligation to lenders or investors; where no frauds/forgeries and defaults occurred during the quarter, a Nil return shall be forwarded; III. A monthly schedule of loans/investments, showing the provisions made for losses or deterioration in the quality of its loans; and IV. A monthly schedule of all investments, including details of the counterparty, the term to maturity, the purchase price and the current market value where appropriate. All monthly returns shall be submitted not later than ten days after the month of reporting. c. Quarterly Returns (Institutional Profile) All quarterly returns shall be submitted not later than fifteen days after the 23

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

quarter of reporting.

23.3 Every Tier 2b RCFI shall submit to the Regulation & Supervision Department of the Central Bank of Liberia the following reports in a format and at different intervals as may be specified by the Central Bank: a. Monthly Returns (financial statements) All monthly returns shall be submitted not later than ten days after the month of reporting. b. Quarterly Returns (Institutional Profile). All quarterly returns shall be submitted not later than fifteen days after the quarter of reporting.

23.4 All RCFIs shall submit Annual external audit reports. The reports shall be submitted to the Central Bank within three months after the end of a financial year.

23.5 All reports shall be duly prepared in accordance with International Accounting Standards.

23.6 The Central Bank may from time to time review and update such requirements.

24.0 PENALTIES FOR LATE OR FALSE/INACCURATE RETURNS OR OTHER INFORMATION 24.1. A RCFI which fails to submit a report required under these Regulations commits an offence and shall be liable to a penalty of USD 50.00 (or its equivalent in Liberian Dollars) for each day of such non-compliance.

24.2. In addition, the Central Bank may impose administrative penalties and enforcement actions as provided under the New FIA.

24.3. Persistent failure/refusal to render returns in the prescribed format and on time shall be a ground for the suspension and/or revocation of license.

24.4. Where the Central Bank considers it necessary, it may appoint a certified accounting firm to prepare proper books of account or render accurate returns, as the case may be, for the RCFI concerned and the cost of preparing the account or rendering the returns shall be borne by the RCFI. 24

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

24.5. If any director or officer of a RCFI fails to take all reasonable steps to ensure that proper books of accounts are kept with respect to all transactions of the RCFI or at its head office and/or branches, the Central Bank may impose on such director or officer a fine not exceeding L$ 75,000.00. If any default in this respect is caused by the willful act of any director or officer of the RCFI, the Central Bank may impose on him a fine not exceeding L$75,000.00 or cause the removal of such director or officer in order to protect the integrity of the institution. In addition, the Central Bank may impose on the RCFI such other penalties as it may deem appropriate.

24.6. If any return/information is not supplied accurately or is misleading/false, the RCFI shall pay a fine of L$75,000.00 in respect of each day during which such violation occur. The Central Bank may revoke the license of such RCFI for refusal to correct the default or failure to pay the fine or failure to submit the report.

25.0 EXAMINATION BY THE CENTRAL BANK

25.1 In keeping with section 22 of the New FIA of 1999, the Central Bank shall carry out comprehensive on-site examinations of the RCFIs at least once a year. 25

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

PART III—WINDING UP, REMEDIAL MEASURES AND ADMINISTRATIVE SANCTIONS WINDING UP OF RCFIS

25.2 An RCFI shall be permitted to voluntarily wind up its operations subject to prior approval by CBL.

25.3 CBL may decide to wind up an RCFI when its license has been revoked by CBL, or the RCFI is declared insolvent.

26.0 REMEDIAL MEASURES & ADMINISTRATIVE SANCTIONS

26.1 If in the opinion of the Central Bank an RCFI is conducting its business in an unlawful or unsound manner or that its capital is impaired or that it is otherwise in an unsound condition, the Central Bank shall have recourse to its enforcement powers and act according to it powers in New FIA, in particular Section 24, 40, 47 and other relevant provisions of New FIA.

26.2 The Central Bank, in accordance with Section 39 of the new FIA of 1999, may remove from office a chairperson, director, manager or any officer of an RCFI if it deems it necessary, in the interest of the public or the institution to do so.

26.3 The Central Bank may impose any or all of the following administrative sanctions with regard to an RCFI that is not in compliance with these Regulations: a. Dissolution of the Board; b. Removal of members of a Board and/or Senior Management; and c. Any other supervisory sanctions as may be deemed necessary.

27.0 FORBEARANCE

All rural community finance institutions established prior to the promulgation of these regulations must comply with all of the provisions in these regulations within one year from the effective date stated in Section 30 below.

28.0 PUBLICATION OF LICENSED RCFIs

The Central Bank shall develop a list of licensed RCFIs to be published on its website, and once every year in the Official Gazette and at least one newspaper of wide circulation in Liberia or other forms of publications as the Central Bank deems appropriate. 26

Regulation No. CBL/RSD/006/2019 For Rural Community Finance Institutions

29.0 AMENDMENT

The Central Bank reserves the right to amend or revise these regulations from time to time.

EFFECTIVE DATE

These regulations shall take effect immediately upon publication in the Official Gazette and shall remain in force until otherwise advised by the Central Bank of Liberia.

Issued this ...... day of ............. in the City of Monrovia, Republic of Liberia.

BY ORDER OF THE PRESIDENT REPUBLIC OF LIBERIA

MINISTRY OF FOREIGN AFFAIRS MONROVIA, LIBERIA 27