Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (03) of 2016

Concerning the Licensing of Specialized Lending Institutions in Palestine

Based on the provisions of Article (6) of Legislative Decree No. (9) of 2010 concerning Banks, and based on the provisions of Decision No. (132) of 2011 on the Licensing and Supervision of Specialized Lending Institutions, and in accordance with the powers delegated to us, and in pursuit of the public interest, we have issued the following Instructions:

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Article (1)

Definitions

The following words and phrases shall have the meanings specified below in these Instructions unless the context indicates otherwise:

• Authority: The Palestine Monetary Authority.
• Governor: The Governor of the Palestine Monetary Authority.
• Specialized Lending Institution: A legal or corporate entity whose business is lending or financing, registered and licensed in Palestine in accordance with the provisions of Decision No. (132) of 2011 on the Licensing and Supervision of Specialized Lending Institutions.
• Board of Directors: The Board of Directors of the Specialized Lending Institution.
• Founders: Natural or legal persons who have submitted an application to the Authority for a license to establish a specialized lending institution.
• Officials: All persons holding the position of General Manager or Regional Manager, their deputies and assistants, and persons bearing similar responsibilities regardless of their functional contribution to the specialized lending institution.

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Article (2)

Scope of Application

The provisions of these Instructions shall apply to specialized lending institutions operating in Palestine in accordance with the provisions of Decision No. (132) of 2011 on the Licensing and Supervision of Specialized Lending Institutions.

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Article (3)

Branches

A specialized lending institution may open branches only in accordance with the provisions of Decision No. (132) of 2011 on the Licensing and Supervision of Specialized Lending Institutions and these Instructions.

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Article (4)

Permitted Activities

A specialized lending institution may engage in the following:

1. Providing loans.
2. Providing financing in accordance with Islamic Sharia principles, subject to prior approval from the Authority.
3. Issuing internal transfers for its clients solely for financing purposes, and accepting them conditional upon their use for settling existing loans or financing for the client.
4. Issuing external transfers for its clients solely for financing purposes, and accepting them provided they have been executed through a bank licensed to operate in Palestine.
5. Accepting collateral against granted loans or financing in accordance with the Authority's instructions.
6. Opening accounts and investing funds with banks operating in Palestine in the name of the institution.
7. Opening accounts and investing funds with banks outside Palestine in accordance with instructions determined by the Authority.
8. Accepting loan repayment installments at the premises of the specialized lending institution in accordance with instructions determined by the Authority.
9. Accepting grants, donations, and assistance from local or foreign institutions, provided that the terms of such grants, donations, and assistance align with the institution's objectives and do not conflict with Islamic Sharia principles if provided to companies engaged in Islamic financing.
10. That the volume of lending and financing shall not exceed total capital, and that prior written approval from the Authority must be obtained if additional facilities are desired.
11. Dealing in and owning currencies for the exclusive use of the specialized lending institution, not exceeding 20% of equity.

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Article (5)

Prohibited Activities

A specialized lending institution is prohibited from engaging in any of the following activities:

1. Providing other banking activities and operations other than lending or financing.
2. Establishing investment funds for trading on behalf of others.
3. Operating as a financial brokerage company in the Palestine Exchange or in global financial markets.
4. Investing and trading in securities on behalf of the institution unless prior approval is obtained from the Authority.
5. Owning, selling, investing, leasing, and renting real estate and immovable property, including reclaiming owned or leased land, except those owned exclusively for the specialized lending institution's purposes or any property that vests in the institution due to debt default in accordance with the provisions of Article (4) paragraphs (11 and 12) of these Instructions.
6. Any activities not expressly mentioned in Article (4) of these Instructions.

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Article (6)

Licensing of a New Specialized Lending Institution

Founders must submit a license application as follows:

1. The founders shall submit an application to the Authority to license them as a specialized lending institution in accordance with Annex No. (1).
2. Pay an application fee as follows:

• a. Private Profit-Making Joint Stock Company: USD 500.
• b. Private Non-Profit Joint Stock Company: USD 100.
• c. Public Joint Stock Company: USD 1,000.

Attach the following documents and papers:

a. A list of the full names of the founders, the amount of each contribution, their nationality, and place of residence. b. The curricula vitae of the founders and persons expected to be appointed to senior management positions in the specialized lending institution. c. A certificate of good conduct for the founders and persons expected to be appointed to senior management positions in the institution, issued within the last year. d. The memorandum and articles of association of the proposed company. e. The proposed administrative and organizational structure of the institution, job descriptions, financial and administrative authorities, and work procedures. f. Internal control and evaluation procedures. g. A statement of founders' shares and the number of shares intended to be offered to the public in case the company is a public joint stock company, their classes, par value, and associated voting rights. h. Capital structure, showing paid-up capital and equity, which must not be less than the following minimum limits:

• 1. Private "Profit-Making" Joint Stock Company: Paid-up capital must not be less than USD 5 million.
• 2. Private "Non-Profit" Joint Stock Company: Paid-up capital or equity must not be less than USD 5 million.
• 3. Public Joint Stock Company: Paid-up capital must not be less than USD 10 million.

• i. A future business plan and economic feasibility study including expected estimated budgets for the first three years of the institution's operation and the assumptions adopted therein, added to the expansion plan and future estimates for the institution for the next three years, which shall include:

• 1. An estimated profit and loss statement.

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Article (7)

Licensing Procedures

1. The Authority shall review the application and respond in writing to the applicant within (30) days from the date of receipt regarding the completeness of the application, with the response specifying the deficiencies that must be provided to the Authority to adjudicate the application.
2. The applicant must complete the deficiencies within three months from the date of the response, otherwise the application shall be deemed withdrawn.
3. The Authority shall make a decision on the applicant within (30) days from the date of application completion, and shall notify the applicants of its decision in writing via registered mail or any other suitable method, indicating initial approval or rejection, with reasons explained in case of rejection.
4. In case of initial approval, the Authority shall grant the applicant a period of six months from the date of initial approval to complete the procedures and requirements for obtaining final approval, and the Authority has the right to extend the period by another six months in cases of necessity and as required, after which the approval shall be automatically revoked.

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Article (8)

Procedures and Requirements for Obtaining Final Approval

Applicants must do the following:

1. Invite the Authority for an initial inspection of the proposed premises to obtain its approval, in preparation for equipping it according to the Authority's requirements set forth in the Management Equipment Form attached to these Instructions.
2. The founders' committee shall submit documents proving the actual payment of their shares in the capital structure approved by the Authority, and the accounts into which the amounts were deposited.
3. Appoint a statutory auditor to prepare and audit the annual and semi-annual financial statements of the institution in accordance with the Authority's specific requirements.
4. The founders' committee shall submit a statement of establishment expenses paid by an external auditor approved by the Authority, indicating the completion percentage of estimated expenses according to the feasibility study.
5. Complete the company registration procedures in accordance with the Companies Law and other relevant laws in force in Palestine.
6. Nominate persons to hold the positions of General Manager, deputies, assistants, and directors of departments and branches in the institution, accompanied by their curricula vitae and academic and professional certificates, for the purpose of obtaining the Authority's approval for their appointment.
7. Submit a suitable internal control and audit system, the final organizational and administrative structure, job descriptions, financial and administrative authorities, and work procedures for all departments of the institution.
8. Provide a financial and accounting system capable of covering all institutional operations and meeting the Authority's specific requirements.
9. Deposit a cash deposit in an account with the Authority as follows:

• Private Non-Profit Joint Stock Company: USD 20,000.
• Private Profit-Making Joint Stock Company: USD 50,000.
• Public Joint Stock Company: USD 100,000.

The Authority may use the deposit in cases where the specialized lending institution fails to pay the required fees, commissions, and fines, provided that the institution subsequently commits to paying the deposit value up to the required limit; otherwise, the Authority may take appropriate measures to ensure the institution's compliance with the system and instructions, including applying the provisions of Chapters Seven and Eight of Decision No. (132) of 2011 concerning the licensing and supervision of specialized lending institutions.

10. Comply with the relevant laws, regulations, instructions, and legislation in force in Palestine.
11. Invite the Authority to complete the readiness inspection procedures, in preparation for granting it final approval to commence its activities.
12. Based on the readiness report, written final approval shall be granted.
13. Pay annual and fixed fees, as follows:

Legal Form	Headquarters	Branch
Private Profit-Making Joint Stock Co.	1. Fixed Fee: USD 4,000<br>2. Annual Fee: USD 2,500	1. Annual Fee: USD 1,000
Private Non-Profit Joint Stock Co.	1. Fixed Fee: USD 1,000<br>2. Annual Fee: USD 500	1. Annual Fee: USD 300
Public Joint Stock Company	1. Fixed Fee: USD 8,000<br>2. Annual Fee: USD 5,000	1. Annual Fee: USD 2,000

14. An institution that meets all conditions and requirements of the Authority shall be granted a license to operate for an unlimited period.

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Article (9)

Commencement of Operations

1. After applicants are granted final approval, the specialized lending institution must commence its operations within a maximum period of (60) days from the date of granting this approval.

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