Law Regulating Decentralized Financial Systems of the UMOA

COLLECTION OF LEGAL AND REGULATORY TEXTS GOVERNING THE DECENTRALIZED FINANCIAL SYSTEMS OF THE UMOA Avenue Abdoulaye Fadiga BP 3108 - Dakar - Senegal www.bceao.int December 2011 Edition couve texte legaux:Mise en page 1 8/12/11 15:34 Page 1

COLLECTION OF LEGAL AND REGULATORY TEXTS GOVERNING THE DECENTRALIZED FINANCIAL SYSTEMS OF THE UMOA

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• Law regulating decentralized financial systems

• Implementing decree for the law regulating decentralized financial systems

• Instruction No. 025-02-2009 establishing a specific accounting framework for the decentralized financial systems of the West African Monetary Union

• Instruction No. 026-02-2009 on the conditions for implementing the chart of accounts provided for by the specific accounting framework for the decentralized financial systems of the West African Monetary Union

• Instruction No. 030-02-2009 setting out the procedures for preparing and retaining the financial statements of the decentralized financial systems of the West African Monetary Union

• Instruction No. 004-06-2010 on the withdrawal of recognition for savings and credit associations in operation in the member states of the West African Monetary Union (UMOA)

• Instruction No. 005-06-2010 determining the constituent elements of the application file for the approval of decentralized financial systems in the member states of the West African Monetary Union (UMOA)

• Instruction No. 006-06-2010 on statutory audits within the decentralized financial systems of the member states of the West African Monetary Union (UMOA)

• Instruction No. 007-06-2010 on the procedures for supervising and sanctioning decentralized financial systems by the Central Bank of the States of West Africa and the Banking Commission of the West African Monetary Union (UMOA) 5 51 68 69 71 73 76 83 88

• Instruction No. 010-08-2010 on prudential rules applicable to the decentralized financial systems of the member states of the West African Monetary Union (UMOA)

• Instruction No. 016-12-2010 on the financing of fixed assets and shareholdings by decentralized financial systems

• Instruction No. 017-12-2010 on the organization of internal control within decentralized financial systems

• Instruction No. 018-12-2010 on the obligation for decentralized financial systems to produce an annual report

• Instruction No. 019-12-2010 on the establishment of a security or solidarity fund within networks of mutualist or cooperative savings and credit institutions

• Instruction No. 020-12-2010 on periodic indicators to be transmitted by decentralized financial systems to the Minister in charge of Finance, the Central Bank and the Banking Commission of the West African Monetary Union (UMOA)

• Instruction No. 021-12-2010 determining the category of decentralized financial systems authorized to apply the simplified version of the accounting framework

• Decision No. 061-03-2011 on the eligibility criteria for bank credits granted to decentralized financial systems in support of BCEAO refinancing

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LAW REGULATING DECENTRALIZED FINANCIAL SYSTEMS

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TABLE OF CONTENTS TITLE I: DEFINITIONS ....................................................... 9 TITLE II: SCOPE OF APPLICATION OF THE REGULATION OF DECENTRALIZED FINANCIAL SYSTEMS ........ 11 Chapter 1: Scope ......................................................... 11 Chapter 2: Operations of decentralized financial systems ............................ ....... 11 Chapter 3: Provisions relating to approval and withdrawal of approval .................................................... 13 TITLE III: COMMON PROVISIONS FOR DECENTRALIZED FINANCIAL SYSTEMS ............................. 17 Chapter 1: Organization .................................................... 17 Chapter 2: Operation ...................................................... 19 Chapter 3: Internal control ................................................ 22 Chapter 4: External supervision and control ......................... 24 Chapter 5: Accounting and information to monetary authorities ......................................25 Chapter 6: Administrative measures .................................... 28 Chapter 7: Provisional administration and liquidation ................ 28 Chapter 8: Protection of depositors .................................. 30 TITLE IV: OFFENCES AND SANCTIONS .............................. 31

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• 8- TITLE V: PROVISIONS SPECIFIC TO MUTUALIST OR COOPERATIVE SAVINGS AND CREDIT INSTITUTIONS ..................................... 34 Chapter 1: General provisions ...................................... 34 Chapter 2: Organization and operation .......................... 35 Chapter 3: Affiliation, disaffiliation, merger, demerger, dissolution and liquidation ..................................... 36 Chapter 4: Types of grouping ..................................... 38 Chapter 5: Common provisions for unions, federations and confederations .............................. 40 Chapter 6: Fiscal incentives ............................................ 42 Chapter 7: Financial bodies ............................................ 42 TITLE VI: SPECIFIC PROVISIONS FOR OTHER DECENTRALIZED FINANCIAL SYSTEMS .............. 43 TITLE VII: PROVISIONS RELATING TO COLLECTIVE INSOLVENCY PROCEDURES ............. 44 TITLE VIII: TRANSITIONAL AND FINAL PROVISIONS ........... 48

• 9- TITLE I: DEFINITIONS Article 1: For the purposes of this Law, the following terms shall mean: 1°) "Agency": a structure without legal personality dependent on the registered office of a decentralized financial system and endowed with management autonomy according to the modalities provided for in the bylaws of the decentralized financial system; 2°) "Association": a group of persons meeting the definition given by the relevant national law; 3°) "Professional Association": a grouping of all decentralized financial systems in a member State, charged, among other things, with promoting and defending the collective interests of its members; 4°) "Central Bank": Central Bank of the States of West Africa; 5°) "Banking Commission": Banking Commission of the West African Monetary Union; 6°) "Confederation": an institution resulting from the grouping of federations and, exceptionally, unions pursuant to this Law; 7°) "Federation": an institution resulting from the grouping of unions and, exceptionally, basic institutions pursuant to this Law; 8°) "Counter": a permanent or temporary structure attached to an agency or the registered office and providing only routine services; 9°) "Basic Institution": an institution mainly composed of natural persons and subject to mutualist or cooperative rules of action; 10°) "Mutualist or Cooperative Savings and Credit Institution": a group of persons, endowed with legal personality, non-profit-making and with variable capital, founded on the principles of union, solidarity and mutual assistance and mainly aimed at collecting savings from its members and granting them credit; 11°) "Ministry": Ministry in charge of Finance; 12°) "Minister": Minister in charge of Finance; 13°) "OHADA": Organisation for the Harmonisation of Business Law in Africa; 14°) "Financial Body": a structure created by a network, endowed with legal personality, having the status of a bank or financial institution, whose main purpose is to centralize and manage the surplus resources of network members; 15°) "Regulations": internal rules of the institution; 16°) "Network": a set of institutions affiliated with the same union, federation or confederation; 17°) "Financial Services": operations (deposit collection, lending, commitment by signature) carried out by decentralized financial systems within the framework of the approval granted by the Minister; 18°) "Company": a group of persons meeting the definition given by the OHADA Uniform Act relating to commercial companies and economic interest groups; 19°) "Bylaws": institution's bylaws; 20°) "Ministerial Monitoring Structure": structure in charge of decentralized financial systems within the Ministry in charge of Finance; 21°) "Decentralized Financial System": an institution whose main purpose is to offer financial services to persons who generally do not have access to the operations of banks and financial institutions as defined by the law on banking regulation and authorized under this Law to provide these services; 22°) "UMOA": West African Monetary Union; 23°) "Union": an institution resulting from the grouping of basic institutions.

1 : Member State where the law or ordinance is promulgated. 2 : Name of the law on cooperatives and mutuals of the member State where it is promulgated.

• 11 - TITLE II: SCOPE OF APPLICATION OF THE REGULATION OF DECENTRALIZED FINANCIAL SYSTEMS Chapter 1: Scope Article 2: This Law applies to institutions, structures or organizations exercising their activity on the territory of ( )1, regardless of their legal status, the location of their registered office or principal establishment, and the nationality of the owners of their share capital, if applicable, or of their management. These institutions, structures or organizations are designated under the name "Decentralized Financial Systems". Article 3: Unless otherwise provided by this Law, the law ( )2 on cooperatives and mutuals does not apply to decentralized financial systems. Chapter 2: Operations of decentralized financial systems Article 4: The operations that decentralized financial systems may carry out are: 1°) deposit collection Deposits are considered to be funds, other than mandatory contributions and subscriptions, collected by the decentralized financial system from its members or clients with the right to dispose of them within the framework of its activity, subject to the obligation to refund them to depositors upon request according to agreed terms.

• 12 - 2°) lending operations A lending operation is considered to be any act by which a decentralized financial system makes funds available to a member or client for a fee, subject to the latter's obligation to repay them at the agreed maturity. The maximum loan amount per single signature is fixed, as necessary, by an instruction from the Central Bank. 3°) commitment by signature operations A commitment by signature operation is considered to be any act by which a decentralized financial system provides, in the interest of a member or client, an aval, a guarantee or another form of security. Article 5: Operations carried out by decentralized financial systems in the capacity of financial intermediaries are conducted on national territory. The provision in the preceding paragraph does not apply to confederations grouping federations from more than one UMOA member State. Article 6: Decentralized financial systems are classified into two categories, according to the nature of the operations they are authorized to perform: • institutions that collect deposits and grant loans to their members or third parties; • institutions that grant loans without carrying out deposit collection activities. Decentralized financial systems of one category cannot exercise the activities of another category without the prior authorization of the Minister, granted as in the case of approval. Decentralized financial systems that intend to exercise activities or professions governed by specific provisions must request the required authorizations and submit to the regulations applicable to the envisaged operations, subject to any contrary provisions of this Law. Chapter 3: Provisions relating to approval and withdrawal of approval Article 7: Decentralized financial systems must be approved by the Minister prior to commencing their activity. Article 8: Approval applications are addressed to the Minister and submitted to the ministerial monitoring structure, which processes them. An instruction from the Central Bank determines the constituent elements of the approval file. The ministerial monitoring structure obtains all information regarding the quality of the promoters and, where applicable, their guarantors, as well as the honorability and experience of the persons called upon to direct, administer or manage the decentralized financial system and its agencies. Upon receipt of the complete file, the ministerial monitoring structure has a period of three (3) months to process it and transmit it to the Central Bank with its observations and its proposal for the follow-up to be given to the approval application. The Central Bank has a period of two (2) months to examine the file and communicate its opinion to the ministerial monitoring structure. Any request for additional information from the ministerial monitoring structure or the Central Bank, duly justified, suspends these time limits. In the case of a confederation grouping federations from more than one UMOA country, approval applications are addressed to the Minister of the State where the confederation is headquartered. The Minister may, during the processing, request information from the Ministers of the States where the affiliated federations are located, within the three (3) months period allocated to the ministerial monitoring structure.

• 13 - Referring to the Ministers of States other than that of the confederation's headquarters suspends the counting of the six (6) months period required for the approval procedure. Their observations and eventual comments are communicated, within a period of one (1) week, to the Minister of the State where the confederation is headquartered. The file is then transmitted to the Central Bank for a conforming opinion following the procedure described above. Article 9: Approval is pronounced by the Minister's order after a conforming opinion from the Central Bank and, in the case of a financial body, after a conforming opinion from the Banking Commission. Approval is deemed to have been refused if it is not pronounced within a period of six (6) months from receipt of the application by the ministerial monitoring structure, unless a contrary opinion is given to the applicant. The modalities and conditions of approval are determined by decree. Article 10: Withdrawal of approval is pronounced by the Minister's order as in the case of approval and, in the case of a financial body, after a conforming opinion from the Banking Commission. It must be justified and occur in the cases specified by decree. Withdrawal of approval results in the deregistration of the concerned decentralized financial system from the institutions register and the cessation of its activities within the period set by the withdrawal decision. Article 11: Applications for withdrawal of approval are addressed to the Minister and submitted to the ministerial monitoring structure. They must include, among other things, the liquidation plan, the depositor repayment plan, the staff compensation plan, and the strategy for handling the decentralized financial system's receivables. Article 12: The Minister has a period of thirty (30) calendar days to take and notify the decentralized financial systems of the regulatory acts required by the decisions and conforming opinions of the Central Bank and the Banking Commission.

• 14 - However, the withdrawal of approval decision must be notified to the interested parties within a period of seven (7) calendar days. The aforementioned time limits run from the date of receipt by the Minister of said decisions and conforming opinions. In the absence of appropriate acts taken by the Minister by the end of the time limits allocated in the first and second paragraphs: • the decisions of the Central Bank or the Banking Commission are automatically enforceable and notified by them to the institutions; • the content of the conforming opinions is notified to the interested parties by the Central Bank or the Banking Commission and becomes enforceable. Article 13: The procedures for withdrawal of approval are determined by decree. Article 14: The Minister proceeds with the publication of the approval decision in the Official Journal and in a legal announcements newspaper or according to any other form of publicity within a period of one (1) month. The decision is registered at the registry of the competent court at the expense and diligence of the decentralized financial system. Approval results in the registration of the decentralized financial system on the register of decentralized financial systems kept by the Minister. The register is established and maintained up to date by the ministerial monitoring structure, which assigns a registration number to each decentralized financial system. The list of decentralized financial systems and the modifications to which it is subject, including deregistrations, are published in the Official Journal at the diligence of the Ministry. Article 15: Decentralized financial systems must be constituted as public limited companies, limited liability companies, cooperative or mutualist societies, or associations.

• 15 - 3 : Member State where the law or ordinance is promulgated.

• 16 - Decentralized financial systems may exceptionally take the form of other legal entities. An instruction from the Central Bank determines, if necessary, the legal forms concerned by this derogation. Decentralized financial systems must have their registered office on national territory, subject to the provisions referred to in Article 5, paragraph 2. Article 16: The following operations relating to decentralized financial systems having their registered office in ( )3 are subject to the prior authorization of the Minister: • any modification of the legal form, corporate name or trading name; • any transfer of the registered office outside the State where the approval was granted; • any merger or demerger; • any early dissolution; • any acquisition or disposal of shareholdings that would have the effect of bringing the participation of the same person, directly or through an intermediary, or of the same group of persons acting in concert, first beyond the blocking minority, then beyond the majority of voting rights in the decentralized financial system, or lowering this participation below these thresholds. Blocking minority is considered to be the number of votes capable of obstructing a modification of the bylaws of the decentralized financial system. The following are notably considered as intermediary persons with respect to the same legal or natural person: • legal entities in which this person holds the majority of voting rights, • companies in which the companies referred to in the preceding paragraph hold the majority of voting rights, or in which their participation, added to that of the natural or legal person in question, holds the majority of voting rights, • subsidiaries of subsidiaries as defined in the preceding paragraph. Prior authorization is granted as in the case of approval. Article 17: Affiliation and disaffiliation operations are subject to the authorization of the Minister. The creation of an agency or counter must be notified to the Minister and the Central Bank within a period of thirty (30) calendar days, subject to the sanctions provided for in Article 71. TITLE III: COMMON PROVISIONS FOR DECENTRALIZED FINANCIAL SYSTEMS Chapter 1: Organization Article 18: The supervisory authority for decentralized financial systems is the Minister. Article 19: Every decentralized financial system is designated by a corporate name which is mentioned in its bylaws. It cannot take the name of another already approved decentralized financial system. The use of the term "bank" or "financial institution" is prohibited. Article 20: Decentralized financial systems are required, subject to the sanctions provided for in Article 74, to include in their signs, advertising panels or otherwise, their corporate name followed by the references: • of the text governing them; • of the approval;

• of the registration on the register of decentralized financial systems, in the category where they were authorized. Article 21: The corporate name as well as the approval references must also appear on all acts and documents emanating from the decentralized financial system and intended for third parties, notably letters, invoices, announcements and various publications. It must be preceded or immediately followed, in legible characters, by the indication of the legal form of the decentralized financial system, the address of its registered office and the mention of its registration on the register of decentralized financial systems. Article 22: It is prohibited for any entity other than a decentralized financial system governed by this Law to use a corporate name, trading name, advertising or, in general, expressions leading to the belief that it is authorized to operate as a decentralized financial system or to create confusion on this subject. Article 23: Decentralized financial systems are required, within three (3) months following their registration on the register of decentralized financial systems, to join the Professional Association of Decentralized Financial Systems. The failure to comply with this provision exposes decentralized financial systems to disciplinary sanctions provided for in Article 71 of this Law. Article 24: The Professional Association of Decentralized Financial Systems pursues, among other things, the following objectives: • promote and defend the collective interests of its members; • foster cooperation among its members; • provide training for its members; • organize and manage services of common interest for its members;

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• inform the public about its activities or initiatives taken or undertaken within the framework of its mission. The bylaws of the Professional Association of Decentralized Financial Systems are subject to the approval of the Minister, after opinion from the Central Bank. Chapter 2: Operation Article 25: Within a decentralized financial system, management and control functions are exercised by distinct bodies. Article 26: Subject to the specific provisions of this Law and the texts adopted for its implementation, the bylaws of decentralized financial systems determine in particular the purpose and duration of the institution, the location of the registered office, the