Regulatory Alerts2022-01-01
Instruction No. 2022-08/IMF on the Granting of Loans by Microfinance Institutions
The Central Bank of Djibouti issued Instruction No. 2022-08/IMF to mandate that all microfinance institutions establish formal credit policies, standardized granting procedures, and robust risk assessment frameworks. The directive requires MFIs to conduct monthly portfolio quality reviews, explicitly document loan refinancings and consolidations in credit files, and retain all related records for a minimum of ten years. Furthermore, it standardizes the accounting treatment for non-performing loans, mandates off-book tracking after provisioning, and restricts provision account adjustments to risk-based reversals or increases.
CENTRAL BANK OF DJIBOUTI
INSTRUCTION NO. 2022-08/IMF
ON THE GRANTING OF LOANS BY MICROFINANCE INSTITUTIONS
The Governor of the Central Bank of Djibouti,
Having regard to Law No. 118/AN/11/6th L of 22 January 2011 amending the statutes of the Central Bank of Djibouti;
Having regard to Law No. 179/AN/07/5th L of 16 May 2007 regulating microfinance activities in the territory of the Republic of Djibouti;
Having regard to Law No. 117/AN/11/6th L of 25 May 2011 regulating financial cooperatives;
Having regard to the Commercial Code, Book 3 on Company Law;
Having regard to Law No. 119/AN/11/6th L of 22 January 2011 concerning the establishment and supervision of credit institutions and financial auxiliaries;
Having regard to Decree No. 2018-171/PRE of 08 May 2018 appointing the Governor of the Central Bank of Djibouti.
Orders:
Article 1: Every Microfinance Institution (MFI) must establish a credit policy and a credit granting procedures manual.
Article 2: A microfinance institution must, when granting a loan, agree in writing with its borrower on the terms of that loan.
Article 3: An MFI must, at least at the end of each month, analyze the evolution of the quality of its exposures. This review must, in particular, enable it to determine appropriate levels of provisions for non-performing loans.
Article 4: In selecting its credit operations, the MFI must take into account their profitability, ensuring that the forecast analysis of costs and revenues is as comprehensive as possible, and also examining the purpose of the requested loan, as well as the borrower's repayment source and repayment capacity.
Article 5: Credit or exposure decision-making procedures, particularly when organized through the delegation of authority in loan granting, must be clearly formalized and adapted to the characteristics of the MFI, in particular its size, organization, and the nature of its activities.
Article 6: The MFI must explicitly include in the credit file all refinancings as well as any consolidation of non-performing loans.
Information contained in the credit file must be retained for a period of at least ten years following the final repayment or definitive cancellation of the loan to which they relate.
The credit file must be readily accessible to the internal control manager, as well as to the statutory auditor or external auditor of this MFI, its supervisory authority, and the Central Bank.
Article 7: After interest ceases to be recognized following the provisioning of non-performing loans, an off-book tracking of these loans is conducted. If a regularization occurs subsequently in the repayment, the collected principal and interest are then recognized as exceptional income.
Article 8: Provision accounts created to cover unpaid receivables must not be charged with any entries other than eventual reversals or an increase in established provisions. Provision reductions or cancellations justified by a new risk assessment must be routed through the income account "reversal on provisions".
Article 9: This Instruction enters into force upon its signature.
Done in Djibouti, on 14 March 2022
The Governor