Regulatory Alerts2005-09-29
Law No. 2005-016 of September 29, 2005 on the Activity and Supervision of Microfinance Institutions
The Presidency of the Republic, through Law No. 2005-016, classifies microfinance institutions into three levels based on authorized operations and risk profiles, mandating either a licence or agrément from the Banking and Financial Supervision Commission. The legislation establishes core mutualism principles—including free membership, one-vote-one-member equality, and restricted profit distribution—while defining distinct operational, governance, and prudential standards for each classification tier. It further mandates permanent structural compliance, clear authorization procedures, and specific grouping mechanisms for unions and federations to ensure financial stability and depositor protection across the microfinance sector.
LOI N° 2005-016 du 29 septembre 2005 relative à l’activité et au contrôle des institutions de microfinance REPOBLIKAN’I MADAGASIKARA Tanindrazana - Fahafahana - Fahamarinana
PRESIDENCE DE LA REPUBLIQUE AVANT-PROJET TITRE PREMIER DISPOSITIONS GENERALES
CHAPITRE PREMIER - DOMAINE D’APPLICATION
Article 1: This law applies to microfinance institutions as defined in Article 4 below, without prejudice to the application of certain provisions not contrary to Law No. 95-030 of February 22, 1996 on the activity and supervision of credit institutions hereinafter referred to as the "banking law". Article 2: All public or private entities that perform, in a punctual manner, non-refundable fund management operations for beneficiaries due to humanitarian or social action reasons are not subject to this law. CHAPITRE II - DEFINITIONS
Article 3: Microfinance activity is defined as the habitual provision of proximity financial services to natural or legal persons who generally do not have access to the traditional banking system. These are savings and credit services necessary to promote or support income-generating activities, enabling this population category to improve their standard of living, achieve better social integration, and access sustainable human development. Article 4: "Microfinance institutions", abbreviated as MFIs, are legal entities that habitually carry out the microfinance activities defined in Articles 5, 6, and 7 below, such as granting microcredits, collecting savings, and related services. Microfinance institutions may be mutualist or non-mutualist. Mutualist MFIs are those that adhere to the general principles of mutualism set out in Title II of this law. Non-mutualist MFIs are those that do not meet these principles. • Article 5: A credit operation consists of any act by which a microfinance institution provides or promises to provide funds to a third party, natural or legal person, or assumes, in the interest of that third party, a commitment by signature such as an aval, guarantee, or security. Credit leasing is assimilated to a credit operation. Article 6: Savings are considered the funds received by mutualist microfinance institutions from their members, in the form of deposits, other than capital contributions, membership fees, and subscriptions, with the right to dispose of them within their activities, subject to restitution. The following are not considered "savings": • - amounts of money necessary to obtain credits called "mandatory deposits"; • - amounts received as security for the repayment of allocated credits called "guarantee deposits", which are deposited by clients with the microfinance institution only after the credit granting decision; • - amounts of money made available to the microfinance institution for the purpose of granting credits. Article 7: "Related services to microfinance" consist of: • - internal transfer operations, on behalf of clients, carried out within the same microfinance institution or within a mutualist network defined in Article 8 below; • - safe deposit box rental; • - consulting and training services; • - fund transfers, not denominated in foreign currencies, with credit institutions authorized to perform these operations in Madagascar. Article 8: For the purposes of this law, the following terms are understood as: • - "surveillance", the monitoring of level 1 microfinance institutions (or MFI 1) defined in Article 14, based on the validation of control exercised by these institutions over their own operations and the examination of information collected from them. This surveillance does not include verification of compliance with prudential standards; • - "supervision", the monitoring and control by the supervisory authority for credit institutions, currently the Banking and Financial Supervision Commission (CSBF), of level 2 (or MFI 2) and level 3 (or MFI 3) microfinance institutions defined respectively in Articles 15 and 16 below. It aims to prevent and manage risks related to the intermediation profession and preserve the integrity of the financial sector, with the goal of protecting depositors. Supervision is based on verifying compliance with management rules and prudential standards; • - "licence", the prior authorization granted by the supervisory authority for credit institutions to MFI 1s based on a declaration of existence. The notion of "licence" refers to microfinance institutions that do not collect savings or limit the collection thereof to their members for mutualist microfinance institutions. • - "agrément", the prior authorization granted by the supervisory authority for credit institutions to an MFI 2 or MFI 3 to exercise, on a habitual basis, microfinance activities in accordance with its level. • - "management rules", the set of management principles, procedures, and measures aimed at ensuring the smooth operation of transactions, the regularity of their accounting registration, as well as their control; • - "prudential standards", the rules aimed at ensuring the protection of depositors and preserving the financial solidity of the microfinance institution; • - "available own funds", those fixed by instruction of the supervisory authority for credit institutions. The available own funds of a microfinance institution represent a guarantee of its solvency towards depositors and more generally third parties; • - "risks" or "intermediation risks", the failures inherent to the exercise of banking operations, including microfinance financial services; • - "minimum capital", in addition to share capital requirements, the minimum level of capital required from microfinance institutions due to their status as credit establishments. The representativeness rule for minimum capital defined by the banking law requires that the assets of a microfinance institution effectively exceed at all times, by an amount at least equal to the minimum capital, the liabilities it owes to third parties; • - "mutualist network" or "network", the whole formed by basic mutualist microfinance institutions endowed with legal personality and by grouping structures such as unions and federations; • - "counter", or "cash desk" or "branch", a service point of a microfinance institution, without legal personality distinct from the microfinance institution, and carrying out operations with the institution's clients; • - "basic mutualist microfinance institution" (or basic MFI), a mutualist microfinance institution endowed with legal personality and carrying out microfinance operations for the benefit of its members; • - "central body", the grouping structure that ensures for the network the technical, administrative, and possibly financial functions defined below in Articles 41 and 44 and entrusted to a federation or union of mutualist microfinance institutions; • - "union", a mutualist microfinance institution grouping basic mutualist microfinance institutions; • - "Federation", a mutualist microfinance institution grouping unions and, exceptionally, with the express authorization of the supervisory authority for credit institutions, basic mutualist microfinance institutions endowed with legal personality. TITLE II – GENERAL PRINCIPLES OF MUTUALISM
Article 9: This title applies to mutualist microfinance institutions and notably to unions and federations of mutualist microfinance institutions. Article 10: A "mutualist microfinance institution" is qualified as a legal entity founded on the principles of cooperation, solidarity, and mutual assistance and primarily aimed at collecting savings from its members and/or granting credit to them. Mutualist microfinance institutions must respect the general principles of mutualism, including: a) free membership except for restrictions provided in the statutes; b) no limitation on the number of members; c) equality of rights and obligations of each member at the basic MFI level, with each member having one vote regardless of the number of shares held; d) prohibition of proxy voting except in exceptional cases and within limits provided by the statutes; e) limitation of financial services to members only. Article 11: Any distribution of the operating surplus of basic MFIs is prohibited, except if it concerns rebates after approval of annual accounts. The rebate results from a readjustment of debtor or creditor interest rates and is calculated on the operations carried out by the microfinance institution with its members. Unless otherwise provided in the statutes, the distribution of rebates results from a decision by the Ordinary General Assembly upon proposal of the Deliberative Body. Article 12: A member who withdraws or is subject to an exclusion decision is entitled only to the reimbursement of their contribution, possibly reduced in proportion to losses incurred. Any capital gain, if it exists, remains with the microfinance institution. A member's resignation can only take effect after the settlement of operations contracted with the institution. In the case of a guarantee given by the institution on behalf of members, resignation is not enforceable against third parties before the settlement of all guarantee operations passed prior to resignation. Any death of a member leads to the settlement of their balance of claims and debts with respect to the institution. Title III – ORGANIZATION AND OPERATION OF MICROFINANCE INSTITUTIONS
Chapter I – CLASSIFICATION AND FORMS OF MICROFINANCE INSTITUTIONS
Article 13: Mutualist or non-mutualist microfinance institutions are classified into three levels according to the operations authorized to them, their operating and control structure, the importance of risks related to microfinance activity, management rules and/or prudential standards required. Article 14: MFI 1s, of mutualist or non-mutualist character, grant short-term microcredits within the limit of the threshold set by instruction of the supervisory authority for credit institutions. They cannot collect public deposits. They can provide consulting and training services to their clients. They operate according to a simplified operating and control structure with a control mechanism. Article 15: MFI 2s, of mutualist or non-mutualist character, grant short and medium-term credits within the limits set by instruction of the supervisory authority for credit institutions. Mutualist MFI 2s cannot collect public deposits. Non-mutualist MFI 2s can receive funds from the public when constituted as a fixed-capital company with multiple shareholders. MFI 2s, of mutualist or non-mutualist character, can perform all related microfinance operations provided in Article 6 above. They are equipped with internal and external control mechanisms. They must comply with management rules and prudential standards defined by the supervisory authority for credit institutions corresponding to their classification level. Article 16: MFI 3s, of mutualist or non-mutualist character, grant short, medium, and long-term credits within the limits set by the supervisory authority for credit institutions. Mutualist MFI 3s cannot collect public deposits. Non-mutualist MFI 3s can receive funds from the public when constituted as a fixed-capital company with multiple shareholders. MFI 3s can perform all related microfinance operations provided in Article 7 above. MFI 3s operate with a developed operating and control structure. MFI 3s are required to comply with management rules and corresponding prudential standards for their classification level defined by the supervisory authority for credit institutions. Article 17: The levels of authorized credit and deposit amounts are specified for each level of microfinance institution by instruction of the supervisory authority for credit institutions. Article 18: The different corporate forms that microfinance institutions may take are fixed, according to their level, by decree. In the absence of specific provisions provided by this Law and said decree, common law rules relating to the legal form remain applicable. CHAPITRE II - CONDITIONS FOR EXERCISING MICROFINANCE ACTIVITIES
Article 19: In accordance with the provisions of Article 16 of the banking law, the exercise of any microfinance activity defined in Article 3 of this Law is subject to one of the following prior authorizations from the supervisory authority for credit institutions: • - "licence" issued for MFI 1s; • - "agrément" issued for MFI 2s and MFI 3s. Article 20: The authorization to exercise microfinance activities determines the classification level of the institution and the corresponding authorized financial services. The authorization is published in the Official Journal of the Republic of Madagascar by the Ministry in charge of Finance at the request of the supervisory authority for credit institutions, and optionally in a national newspaper at the institution's expense. This publication must be carried out within three months from obtaining the authorization. The authorization must be made known to the public by posting on all premises of the institution. All commercial correspondence and other publications of the microfinance institution must mention the nature and reference of the authorization granted by the supervisory authority for credit institutions. MFIs are required to register in the Trade and Companies Register according to modalities specified by decree. Article 21: Applications for authorization to exercise microfinance activities are submitted in duplicate directly to the supervisory authority for credit institutions. The content of the authorization application file as well as the procedures to follow are specified by instruction of the supervisory authority for credit institutions without prejudice to the provisions of Article 27 of this law. Article 22: The supervisory authority for credit institutions has a one-month period after the closure of file processing notified to the founder by said supervisory authority to rule on the authorization application. Article 23: Microfinance institutions may be reclassified by the supervisory authority for credit institutions when modifications to their structure or economic and financial situation justify it. Article 24: The authorization to exercise may be individual or collective. Article 25: The individual authorization to exercise is granted to a microfinance institution endowed with legal personality. Article 26: The collective authorization to exercise is granted to a network of mutualist microfinance institutions possessing grouping structures, such as unions and/or federations of unions and affiliated institutions endowed with legal personality. The authorization is valid for the grouping structure and for each of the affiliated basic mutualist microfinance institutions. One of the grouping structures is designated by the network's affiliated institutions to ensure the functions of the central body of the network defined in Article 8 above. Within the framework of a collective authorization to exercise, the grouping structure may gather institutions that have obtained a collective or individual authorization. Article 27: The loss of affiliated institution status entails the withdrawal of its authorization. To continue its activities, the concerned institution must apply for a new authorization under the conditions set by this law and its subsequent regulations. In the absence of a new authorization, it must enter into amicable liquidation in accordance with its statutes. If the general assembly does not appoint a liquidator, the supervisory authority for credit institutions does so, either ex officio or at the request of any interested party. Any new affiliation to a network that has obtained authorization to exercise must previously be subject to a new authorization request from the supervisory authority for credit institutions, presented jointly by the affiliated institution and the network. This affiliation entitles the institution to the advantages and obligations of the network. Any modification in the composition of the network must be notified to the supervisory authority for credit institutions by the central body of the institution. Article 28: Any collective authorization application submitted by a union or federation must include, in addition to the documents prescribed in Article 18 of the banking law and the related instruction of the supervisory authority for credit institutions, a statute and minutes of the constitutive general assembly of each affiliated institution, all in duplicate. CHAPITRE III – OPERATION OF MICROFINANCE INSTITUTIONS
SECTION I – COMMON RULES
Article 29: Microfinance institutions are mandatorily constituted as legal entities. Natural persons cannot exercise microfinance activities. Article 30: Microfinance institutions must permanently demonstrate the existence of an operating and control structure consistent with their classification level. The minimum structure is specified by instruction of the supervisory authority for credit institutions. Article 31: In addition to provisions inherent to the adopted legal form, the statutes determine the object and duration of the microfinance institution, the registered office, the operation of different bodies and their attributions, notably those of ordinary and extraordinary general assemblies, and causes for dissolution. For mutualist microfinance institutions, the statutes also mention the conditions for admission, resignation, or exclusion, and the rights and obligations of members. Article 32: An ordinary general assembly must be convened once a year within three months from the close of the financial year to approve accounts, decide on result allocation, and proceed, if necessary, to the renewal of administrative bodies. The rules for convening the ordinary general assembly, for quorum and decision-making, are fixed by the statutes. Article 33: The extraordinary general assembly of microfinance institutions is solely competent to decide on the increase in the amount of social shares, modifications to be made to the statutes, and early dissolution, upon proposal of the Deliberative Body. To deliberate validly, it must be composed of more than half of the members. In the absence of this quorum, a second General Assembly is convened within fifteen days and may deliberate validly regardless of the number of members present or represented. A member cannot receive proxy to represent more than two members. Any decision is taken by an absolute majority of the votes of present or represented members. Article 34: Under conditions defined by the statutes or upon delegation of powers granted by the ordinary general assembly, the Deliberative Body exercises administrative acts. The latter may subdelegate part of its powers. The Deliberative Body represents the mutualist microfinance institution towards third parties. Upon deliberation of the General Assembly, the Deliberative Body may revise debtor and creditor interest rates, without retroactive effect. Article 35: Microfinance institutions are subject to management rules and, as applicable, prudential standards adapted to their operations, to guarantee notably their liquidity, solvency, and development of activities. The supervisory authority for credit institutions fixes by instruction the management rules and prudential standards for MFI 2s and MFI 3s. Article 36: MFI 1s are not subject to a minimum capital requirement. MFI 2s and 3s must possess, before commencing their activities, an amount of paid-up capital or endowment fixed by decree. Art. 37: A microfinance institution may contract with other credit institutions that are not MFIs, with the Central Bank, and, upon authorization of the supervisory authority for credit institutions, with other organizations or MFIs, loans intended to refinance its credit operations. Section II – SPECIFIC PROVISIONS FOR MUTUALIST MICROFINANCE INSTITUTIONS