Banque de la République d’Haïti CIRCULAR

CIR.: BRH/IMF/2026/3

TO MICROFINANCE INSTITUTIONS

Pursuant to Article 36 of the Decree of June 5, 2020, governing the organization and operation of Microfinance Institutions (MFIs), MFIs are required to comply with the following provisions regarding minimum capital requirements for risk coverage.

1. Definitions

The following definitions apply to this circular:

a) Undistributed profits: cumulative results not distributed in previous fiscal years.

b) Equity: funds originating from capital subscriptions by the institution's shareholders, partners, or members, increased or decreased by the institution's retained operational results.

c) Regulatory capital: sum of core equity and supplementary equity.

d) Investment grant: financial aid granted definitively to the institution by a public or private, local or international entity. There is no repayment obligation. This grant is used to finance investments (e.g., purchase of a vehicle, equipment, etc.).

e) Share premium: issuance or merger premiums actually received, corresponding to the difference between the share sale price and their nominal value.

2. Minimum Capital Requirements

Every MFI must hold equity sufficient to adequately cover the risks to which it is exposed. To this end, the MFI must at all times comply with the following capital adequacy standards.

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2.1. Regulatory Capital Ratio

Microfinance companies are required to maintain at all times a minimum ratio of 13% between their regulatory capital (numerator) and the total of their assets, excluding items excluded under section 2.3, plus the credit equivalent of their off-balance sheet commitments (denominator):

[ \text{RFP} = \frac{\text{Regulatory Capital}}{\text{Assets} + \text{Credit Equivalent of Off-Balance Sheet Commitments}} \geq 13% ]

Microcredit enterprises are required to maintain at all times a minimum ratio of 6% between their regulatory capital (numerator) and the total of their assets, excluding items excluded under section 2.3, plus the credit equivalent of their off-balance sheet commitments (denominator):

[ \text{RFP} = \frac{\text{Regulatory Capital}}{\text{Assets} + \text{Credit Equivalent of Off-Balance Sheet Commitments}} \geq 6% ]

The minimum requirements must be applied by MFIs on an individual basis and, where applicable, on a consolidated basis.

2.2. Regulatory Capital Components in the RFP Numerator

Regulatory capital consists of the sum of core equity and supplementary equity.

Core equity aims to ensure the ongoing operation of the microfinance institution. It is composed of the highest quality elements due to their permanence and the absence of costs and charges charged to earnings.

Supplementary equity consists of financial instruments that contribute to the overall strengthening of a financial institution's financial capacity.

The BRH may refuse or limit the inclusion by a microfinance institution of certain of the following elements in its equity when it considers that the characteristics of these elements do not ensure their permanence, despite their significant contribution to meeting the standards set forth in section 2.1.

2.2.1. Core Equity

Core equity includes the following elements:

• share capital, consisting of ordinary shares, or the associative endowment fund in the case of an association;
• share premium;
• legal reserve;
• undistributed profits from the audited accounts of previous fiscal years approved by the general meeting of shareholders or members;
• profits from the most recent closed fiscal year may be included prior to their approval by the general meeting, subject to the following conditions:
  • they are determined after deducting all foreseeable costs and dividends;
  • they are subject to an unqualified opinion from an approved independent audit firm;
• non-refundable and unrestricted funds, in the nature of grants or donations, received from public or private donors and definitively acquired.

Note that a positive result for the current fiscal year cannot be included in equity.

Items to be Deducted from Core Equity:

• unpaid share capital;
• treasury shares (self-held shares) valued at their book value;
• carried forward losses from previous fiscal years;
• pending losses awaiting approval;
• negative result of the current fiscal year;
• holdings in other regulated entities outside the consolidation perimeter;
• intangible assets including goodwill or trade name, as well as, where applicable, the excess of the right-of-use asset for leased property over the corresponding lease liability, recognized respectively on the asset and liability sides of the balance sheet, in accordance with generally recognized accounting principles and standards, notably IFRS 16 on lease contracts.

2.2.2. Supplementary Equity

Supplementary equity includes the following elements:

• financial instruments meeting all of the following criteria:

  • initial maturity of at least 5 years, with a progressive reduction in the inclusion percentage over the last 5 years;
  • issued and fully paid;
  • not held, not financed, and not guaranteed by the institution or its group;
  • subordinated to all other liability items except those included in core equity;
  • no possibility of early redemption, or only after 5 years, in which case solely at the issuer's initiative and with prior BRH approval;
  • absence of contractual clauses creating a strong incentive for early redemption;
  • absence of clauses increasing the interest or dividend amount on these instruments in case of an adverse development in the institution's or its group's situation;

• issuance premiums for the instruments referred to in the first point of this list;

• minority interests in the form of the instruments referred to in the first point of this list;

• general reserve for loan losses (provisions for current and non-performing loans as stipulated by the circular on credit risk management for MFIs);

• provisions for expected credit losses on loans and other assets in stages 1 and 2, established in accordance with the IFRS 9 standard on financial instruments;

• investment grants.

Discount and Deduction of Supplementary Equity

Financial instruments admitted to supplementary equity are subject to a linear annual discount (amortization) over the five years preceding the repayment or redemption maturity. Consequently, the balances of financial instruments admitted to supplementary equity must be amortized according to the following criteria:

Remaining Maturity	Inclusion Rate in Equity
5 years and more	100 %
4 years to less than 5 years	80 %
3 years to less than 4 years	60 %
2 years to less than 3 years	40 %
1 year to less than 2 years	20 %
Less than one year	0 %

Self-held supplementary equity or equity held in other non-consolidated financial institutions is deducted, at their book value, from supplementary equity.

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2.2.3. Limits on Core Equity

For microfinance companies, core equity must at all times be at least equal to 9.75% of the total of their assets, excluding items excluded under section 2.3, plus the credit equivalent of their off-balance sheet commitments.

For microcredit enterprises, this limit is 4.5%.

2.3. Asset and Off-Balance Sheet Items to be Considered in the RFP Denominator

All asset items appearing on the MFI balance sheet, except for BRH deposits and asset items deducted from equity, must be included in the denominator. Amounts must be net of amortizations or provisions, where applicable.

Regarding off-balance sheet items, their nominal value does not always reflect the counterparty risk value. To estimate potential commitments, the nominal value of each considered item is multiplied by a conversion factor to obtain a credit equivalent amount. The resulting amount is then treated as a balance sheet item.

Off-balance sheet items include in particular guarantees, credit commitments, derivative instruments, and other contractual agreements.

2.3.1. Conversion Factors for Off-Balance Sheet Items

100% Credit Equivalent Conversion Factor

• direct credit substitutes (general debt guarantees and guarantee-type instruments, acceptances);
• irrevocable indeterminate-term credit commitments (“Evergreen commitments”);
• irrevocable commitments (contractual obligations) to purchase asset items;
• credit derivatives;
• the unpaid portion of shares and partially paid securities;
• asset repurchase transactions other than those issued by the State and the central bank;
• other items also presenting high risk.

50% Credit Equivalent Conversion Factor

• off-balance sheet commercial credits, namely granted or confirmed documentary credits;
• transaction-related guarantee commitments;

20% Credit Equivalent Conversion Factor

• short-term automatically liquidating commitments related to commercial transactions, including commercial letters of credit and documentary credits secured by underlying goods;
• unused facilities, including commitments to lend, purchase securities, or grant guarantees or acceptance credits with an initial maturity of no more than one year, which cannot be cancelled unconditionally at any time without notice or which do not provide for cancellation in case of deterioration in credit quality.

0% Credit Equivalent Conversion Factor

• unused facilities, including commitments to lend, purchase securities, or grant guarantees or acceptance credits that are unconditionally cancellable at any time without notice;
• unused overdraft facilities for public tender guarantees and performance bonds that can be cancelled unconditionally at any time without notice or that effectively provide for automatic cancellation in case of deterioration in the borrower's credit quality;
• other items presenting low risk, subject to BRH approval.

3. Capital Conservation Buffer

In addition to the minimum RFP requirements of 13% and 6% set respectively for microfinance companies and microcredit enterprises, an additional equity cushion, composed entirely of core equity elements, must be established at the following rates:

• 2.5% of the total of assets, excluding items excluded under section 2.3, plus the credit equivalent of off-balance sheet commitments for microfinance companies;
• 1% of the total of assets, excluding items excluded under section 2.3, plus the credit equivalent of off-balance sheet commitments for microcredit enterprises.

Failure to meet this additional requirement does not constitute an offense subject to disciplinary measures but requires establishing or rebuilding this cushion when the set level is not met, by limiting profit distribution according to a variable percentage depending on the magnitude of the shortfall (see section 4 of this circular).

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4. Dividend Declaration

An MFI is strictly prohibited from distributing dividends, in any form whatsoever, to its shareholders, partners, or members if it fails to comply with the capital standards set forth in section 2 of this circular.

Institutions that do not meet the capital conservation buffer set forth in section 3 are required to retain the following percentage of their distributable profits:

Microfinance Company

Core Equity Ratio	% of Distributable Profits to Retain
Ratio < 9.75 %	100 %
Ratio ≥ 9.75 % and < 10.375 %	80 %
Ratio ≥ 10.375 % and < 11 %	60 %
Ratio ≥ 11 % and < 11.625 %	40 %
Ratio ≥ 11.625 % and < 12.25 %	20 %

Microcredit Enterprise

Core Equity Ratio	% of Distributable Profits to Retain
Ratio < 4.5 %	100 %
Ratio ≥ 4.5 % and < 4.75 %	80 %
Ratio ≥ 4.75 % and < 5 %	60 %
Ratio ≥ 5 % and < 5.25 %	40 %
Ratio ≥ 5.25 % and < 5.5 %	20 %

5. Reporting

MFIs must submit electronically to the BRH, within 28 days following the end of the quarter, the following reports prepared as of the quarterly closing date:

• Quarterly report – calculation of capital ratios (Appendix I)
• Quarterly report – report on balance sheet and off-balance sheet assets (Appendix II)
• Quarterly report – calculation of regulatory capital (Appendix III)

6. Information Availability for the BRH

Microfinance institutions must keep the following information available to the BRH:

• all working papers related to the preparation of the reports required under this circular;
• all internal or external consultant studies regarding equity enhancement projects or equity sufficiency;
• projected financial statements, dividend distribution forecasts, and prospective calculations of capital adequacy ratio trends based on these forecasts.

Following the analysis of this information and after discussion with a microfinance institution, the BRH may require a reclassification of equity (core equity or supplementary equity) or a modification of the credit equivalent conversion factors applied to off-balance sheet items.

7. Sanctions

In the event of non-compliance with the obligations defined in this circular, a microfinance institution is subject to the following penalties: