Central Bank of Jordan Microfinance Consumer Financial Protection Instructions No. (2018/15)

Issued in accordance with the provisions of paragraph (b/13) of Article (4) of the Central Bank of Jordan Law No. (33) of 1971 and its amendments, and the provisions of Article (26) of the Microfinance Companies System No. (5) of 2015.

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Article (1): Title of Instructions

These Instructions shall be known as the "Microfinance Consumer Financial Protection Instructions."

Article (2): Definitions

The following words and phrases shall have the meanings assigned to them below wherever they appear in these Instructions:

Term	Definition
The Kingdom	The Hashemite Kingdom of Jordan.
The Central Bank	The Central Bank of Jordan.
The Company	The Microfinance Company.
Effective Interest Rate (EIR)	A single percentage representing the actual annual cost of the loan/financing over the life of the loan/financing, including nominal interest/returns and costs defined by the contract, calculated as shown in Annex No. (1).
Costs	Commissions, expenses, and/or any other amounts charged by the Company for the loan/financing and on any other activities or services provided to customers, excluding interest/returns.
The Board	The Board of Directors of the Company or its governing body.
Senior Executive Management	The General Manager/Regional Manager and their deputy and assistant, the Operations Director, and the Financial Director, as well as any employee who has executive authority parallel to any of the aforementioned and reports directly to the General Manager/Regional Manager.
Regulated Income	The net monthly salary and/or any income of the customer from known and specific sources.
Debt Burden Ratio (DBR)	The sum of amounts deducted from the customer's or guarantor's regulated income for all granted loans/financing and/or those applied for, divided by the total regulated income of the customer or guarantor.
Key Information Document for Product/Service	A disclosure document containing key information about each product or service provided by the Company to customers, according to the form provided in Annex No. (2).

Article (3): Scope of Application

a. These Instructions apply to all microfinance companies operating in the Kingdom and to microfinance services provided in accordance with Islamic Sharia principles, to the extent that such does not conflict with their nature, effective from 1/10/2018.

b. Microfinance companies are responsible for any violation of the provisions of these Instructions, whether resulting from actions, omissions, or negligence by the Board, Senior Executive Management, employees of the Company, or any third party dealing with the Company's customers for the benefit of the Company or based on its directives.

Article (4): Product or Service Design

The Company must establish written foundations and procedures for the design of products and services that identify risks of excessive indebtedness, risks of concentration of the Company's core activity in granting consumer loans/financing, risks of converting productive loans/financing into consumer purposes, and risks of exposing customers to high legal risks. These must include:

a. Identifying the target customer segment in accordance with the Company's strategy and competitive capacity.

b. Operational procedures to be followed when launching any new product/service, including decision-making authorities for approving such product/service, and assessing its suitability for the needs and capacities of the target customers.

c. Mitigating the aforementioned risks at all stages, including development, pricing, marketing, and sales.

Article (5): Credit Policy and Responsible Pricing

a. The Company must prepare its credit policies, operational procedures, and contract models in accordance with these Instructions, and such policies must be approved by the Board.

b. The Company must, at a minimum, include the following in its credit policy:

1. The maximum Debt Burden Ratio (DBR).
2. The maximum maturity period for loans/financing.
3. The maximum interest rate/return on loans/financing.
4. A clear mechanism for the terms of rescheduling non-performing loans/financing.
5. Accepted collateral, if any.

Article (6): Protecting Customers from Excessive Indebtedness Risks

a. The Company must give utmost importance to protecting customers from excessive indebtedness risks, such that a procedure manual is prepared to assess customers' financial solvency and repayment capacity, ensuring that the Debt Burden Ratio specified in the credit policy is not exceeded.

b. Before granting loans/financing and signing contracts, the Company must investigate the credit status of the customer and guarantor from reliable sources, including information available at the licensed Credit Information Company, taking into account orders issued by the Central Bank regarding this matter to verify the credit status of each. The Company must obtain a written acknowledgment of all the customer's obligations and the burden of repaying them, whether when granting a new loan/financing or renewing a loan/financing for an existing customer. The Company must not rely on information collected when the loan/financing was first granted.

Article (7): Disclosure and Transparency

a. Advertising for the Company's products and services must be clear and comprehensive, including all information, terms, and conditions related to those products and services. It must not contain untrue facts, promises, or incomprehensible phrases. Advertising must be drafted in easy-to-understand Arabic, with clear and readable font, including margins, and the expiration date of the advertising offer must be clarified.

b. The Company may advertise its products and services briefly through electronic means or visual and audio advertising media, provided that all details related to the advertisement are available on its website and in its branches in accordance with the provisions of paragraph (a) of this Article.

c. Advertising must not contain any disparagement of any kind against competing companies.

d. The Company must provide leaflets to customers regarding all its products and services in all branches, marketing offices, and on its website. These leaflets must include detailed information about those products and services, enabling customers to distinguish between them, including - for example - clarifying the difference between a discounted loan (where all interest is collected in advance) and other types of loans/financing, along with interest/returns, costs, deductions, and any other conditions, with illustrative examples.

e. The information provided by the Company regarding its products and services must be consistent and comparable, allowing the customer to compare products/services offered by different companies.

f. Contracts and all forms approved by the Company must be drafted in understandable Arabic for the average person, printed in clear and readable font, including margins. Contract texts must be clear and not subject to more than one interpretation.

g. There must be a contract model for each type of loan/financing or any other service. Any modification to the contract signed with the customer must be done either by signing a new contract or by adding an annex to the existing contract.

h. If the Company rejects a customer's request for a loan/financing or any other service, it must inform the customer of the reason for rejection - unless there is a legal impediment - through secure communication channels within a maximum period of (5) working days from the date of rejection.

i. The Company must provide the customer and guarantor with the Key Information Document for the Product/Service before signing the contract.

j. The Company must grant the customer and guarantor sufficient time before signing the contract to review all contract terms, answer all their inquiries, and ensure their understanding of all rights and obligations. The contract model must include, at a minimum:

1. The value of the loan/financing in numbers and words.
2. The purpose for which the loan/financing was obtained.
3. The duration of the loan/financing, repayment period, and grace period (if any).
4. The base interest rate/return, the Effective Interest Rate (EIR) used in its calculation, and any costs not included in the EIR calculation, such as penalties and late payment fees.
5. The number of installments, their value, due dates, and a breakdown of the principal separately from interest/returns and other fees and expenses.
6. Consequences for the customer and guarantor in case of the customer's breach of contractual obligations:
   a. Late fees, interest rate increases, and any legal fees, etc. b. Judicial enforcement on any collateral provided - if any - by the customer or guarantor to secure the debt.
   c. Possibility of judicial enforcement by the Company on the personal property of the customer or guarantor not pledged as security for the debt.
7. Statement of the customer's right to request modification of loan/financing terms regarding installment values and/or due dates, and the expenses that may result from this.
8. Terms and conditions related to collateral, if any.
9. Statement of the customer's right to file a complaint.
10. Acknowledgment by the customer and guarantor of the accuracy of the information and documents provided.
11. Procedures in case of the customer's death.
12. Terms and mechanism for early repayment of the loan/financing, if applicable, and any additional expenses that may accrue as a result.
13. The customer's right to cancel and rescind the contract within at least one day from the date of signing the contract, without any expenses for the customer, provided that no amounts delivered to the customer are disposed of by any means.
14. Statement of any other services related to the contract (if any), such as insurance services.

k. The Company may not terminate the contract before its expiry date except in case of the customer's breach of contract terms or in accordance with paragraph (j/13) above, and after notifying them in writing to the address registered with the Company.

l. The Company is prohibited from including in the contract signed with the customer a clause granting the Company the right to modify any clause of the contract unilaterally without obtaining the customer's written consent.

m. After signing the contract with both the customer and guarantor and obtaining their acknowledgment of reading and understanding all contract terms, the Company must provide them with a copy of the Key Information Document for the Product/Service duly signed. The Company is obligated to provide the customer and guarantor with copies of any forms and papers signed upon request by either, and the customer and guarantor must sign to confirm receipt of those copies.

n. The Company is prohibited from adding any amounts such as fees, insurance, commissions, or any other additional amounts exceeding the costs specified in the contract signed with the customer.

o. The loan/financing or the majority of it must not be repaid as a single lump sum at the end of the loan/financing term (Balloon Payment) unless there are clear, specific, and properly documented sources of repayment for the said lump sum.

p. The Effective Interest Rate specified in the contract must reflect the advertising(s) related to it. The Company must transparently disclose this rate for its approved products and services, and must include an illustrative example of calculating this rate on the Company's website.

Article (8): Protection of Customer Data

a. All data and information of the customer and/or guarantor are considered confidential. They must not be used or shared with any third party without the prior consent of the customer and guarantor, in accordance with prevailing legislation and Central Bank orders.

b. Data collected about the customer must be documented, correct, and accurate, and must be updated promptly. The customer has the right to review such data and object to it if it is incorrect.

c. Employees of the Company must sign a commitment to maintain the confidentiality of customer data and information, ensuring their commitment not to misuse or disclose such data and information during their employment with the Company and even after leaving their employment.

d. The Company is responsible for protecting customer data and information and maintaining their confidentiality. The Company must provide the appropriate environment and secure procedures to protect such data and information.

e. The Company must prepare clear operational procedures to ensure the protection of customers' electronic data. These procedures must address data entry, modification, and access, as well as archiving, destruction, and backup system protection procedures. The Company should inform employees of these procedures and train them on them.

f. When responding to inquiries from customers, the Company must not disclose any information related to them or their accounts until their personal identity has been verified.

Article (9): Dealing with Customers with Fairness and Respect

a. The Company must establish clear and specific procedures for dealing with delinquent customers and/or humanitarian cases or customers facing urgent financial difficulties.

b. The Company must establish clear and specific procedures for customers who are literate or who suffer from any physical disabilities.

c. The Company is prohibited from accepting checks as collateral for granted loans/financing.

2. The Company is prohibited - if the customer and/or guarantor signs the contract - from demanding the collection of its rights other than through a single lawsuit, either via the contract or via the promissory note, in addition to their signature on the contract.

d. If an incentive system is adopted by the Company, it must be based on criteria that take into account the interests of customers and the quality of loans/financing provided to them, in a way that prevents employees of the Company from engaging in any practices that harm customers or the Company.

e. Employees of the Company are specifically prohibited from performing any of the following when following up on the collection of due payments:

1. Contacting or visiting any party related to the customer or the customer at their workplace for the purpose of requesting information about the financial solvency of the customer or guarantor.
2. Providing the customer and/or guarantor with incorrect information (written or verbal) regarding the consequences of defaulting on payments.
3. Writing on postal correspondence and other communications sent to the customer or guarantor in a manner that appears to relate to the collection of due payments or any private financial matters.
4. Sending a notice to more than one customer in a single notice, thereby including personal information belonging to other customers.
5. Using inappropriate or arbitrary means to collect due payments.

f. Employees of the Company are prohibited from favoring or discriminating in dealing with customers at any stage of service provision based on debt, race, gender, or any other reason.

g. The Company must prepare a special policy on principles of dealing with customers with fairness and respect that meets all requirements of these Instructions and is approved by the Board. This policy must be reviewed at least every (3) years or whenever necessary, along with feedback from customers and relevant parties, taking into account the following:

1. The policy must reflect best practices in the microfinance sector and be compatible with these Instructions.
2. It must specify the procedures to be followed by Senior Executive Management and Company employees, and include penalties for any violation of this policy by them.
3. It must review employee training programs, human resources systems, employee evaluation systems, internal compliance systems, and incentive systems, as well as other internal procedures and policies, to ensure their ongoing alignment with the policy on principles of dealing with customers with fairness and respect.

h. The Company must provide advice and counseling to customers facing financial difficulties to overcome those difficulties before proceeding with legal actions against them.

Article (10): Handling Customer Complaints

The "Internal Procedures for Handling Complaints of Customers of Financial and Banking Service Providers" Instructions No. (2017/1) dated 28/8/2017, or any other instructions replacing them, shall apply to handle complaints of the Company's customers.

Article (11): General Provisions

a. The Company must transparently disclose to customers the interest rates, fees, commissions, services, and all products it charges.

b. The Company must provide customers with statements of their accounts periodically, and upon the customer's request even if there is a judicial dispute between the customer and the Company. The account statement must include all necessary details and data, and at a minimum:

1. The value of the granted loan/financing.
2. Interest/returns.
3. Expenses, commissions, and any other costs.
4. Paid installments and due installments.
5. The outstanding balance of the loan/financing.

c. The Company must provide free copies of these Instructions in its branches. These Instructions should also be published on the Company's website.

d. The Company must provide the necessary human and operational resources to execute its business and services throughout all regions of the Kingdom.

e. The Company must train its employees, especially those dealing directly with customers, on the principles of customer protection and transparent dealing, as well as the mechanism for assessing the suitability of products and services for the customer.

f. The Company must clearly advertise branch working hours at the main entrance of each branch and on the Company's website, and must adhere to the advertised working hours.

g. The Company must provide the Central Bank with the following:

1. Quarterly reports on complaints according to the form provided in Annex No. (3), within a maximum period of (15) days from the end of each quarter.
2. The electronic link to interest rates/returns, fees, commissions, and any costs related to the products and services provided by the Company, published on the Company's website, to be published on the Central Bank's website or any modification to this link, at least (7) working days before activating any modification to it, specifying the activation start date.

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Governor
Dr. Ziad Friez

• Attached.

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Annex No. (1)

Calculation of Effective Interest Rate

Effective Interest Rate (EIR)

The Effective Interest Rate (EIR) is calculated according to the following equation:

(EIR) = (1+IRR)¹² - 1

Where [Internal rate of return (IRR)] represents the monthly effective interest rate, and the following equation is used to find it:

PV = Σ PMTi / (1+IRR)ⁱ/ⁿ i=1 i=n

Where:

• IRR: Internal rate of return, representing the monthly effective rate.
• PV: Present value of the loan/financing granted to the customer, minus any costs deducted in advance from the principal of the loan/financing (e.g., administrative fees, loan insurance fees, etc.).
• PMTi: Value of the monthly installment (i) due from the customer under the contract (e.g., annual loan insurance fees).
• n: Number of installments paid by the customer.
• i: Number of the installment due from the customer.

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Assumptions to be Considered When Calculating the Effective Interest Rate

• The interest value remains unchanged throughout the financing period.
• The declining balance method is used to calculate interest on the financing/loan during the contract period.
• All costs that the customer must pay are added, such as administrative fees/commissions.
• Repayment is in periodic installments throughout the financing period.
• Any costs or fees due to the beneficiary resulting from their breach of any obligations in the contract are excluded.
• The financing contract runs for the agreed period, and both parties (customer and Company) are committed to their obligations according to the terms in the loan/financing contract.
• Fees will remain fixed and valid until the end of the financing/loan contract, unless the services provided to the customer under the financing/loan contract are subject to a condition or a condition imposed by a third party, in which case the customer must be notified in writing of the new condition (e.g., loan insurance fees, Ministry of Finance stamps, etc.).

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Illustrative Example of How to Calculate the Effective Interest Rate

Example: Company (Z) granted a customer a loan of (1000) Jordanian Dinars on 1/1/2017 for (12) months, with a nominal annual interest rate (compounded) of (12%) annually, according to the costs shown below (repayment method: monthly installments starting on 1/2/2017):

• Credit Granting Commission (5%) = 50 Dinars.
• Loan Insurance Fee (3%) = 30 Dinars.

Calculation Method:

First: Nominal annual interest = 12%, so nominal monthly interest = 1%.

Second: Cash flows at the start of the loan: 1000 - (30 + 50) = 920 Dinars.

Third: Calculate the monthly loan installment using the PMT equation in Excel, entering the following:

• Rate = Nominal monthly interest = 1%
• Nper = Number of installments (until the end of the loan term) = 12
• PV = 1000 Dinars
• FV = 0
• Type = (0) or leave the box empty if the first loan installment is paid by the customer (i.e., paid in the first period).
• If the first loan installment is paid by the customer immediately at the beginning of the first period.

The result is that the monthly installment (PMT) = 88.85 Dinars (the attachment shows the cash flow table).

Fourth: Calculate the Internal Rate of Return [Internal Rate of Return (IRR)] using Excel, using the (IRR) equation as follows:

• In the Value box: Enter all cash flows (negative and positive).
• In the Guess box: Enter (e.g., expected return): "zero".

The result is = 0.0234527

Which represents in this case the monthly effective rate.

Fifth: Calculate the Effective Interest Rate (EIR) by substituting the Internal Rate of Return (IRR) into the following equation:

(EIR) = ((1+ IRR)¹²) - 1
(EIR) = (1 + 0.0234527)¹² - 1 = 22.7%

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Attachment - Table (Cash Flows)

Installment No.	Date	Nominal Monthly Interest	Monthly Installment	Interest Payment¹	Principal Payment²	Costs	Remaining Amount	Cash Flows
X₁	10/1/2017	1%	57.77	-	-	0.7	0.0001	-0.85
X₂	10/2/2017	1%	57.77	0.1	57.78	-	501.186	57.77
X₃	10/3/2017	1%	57.77	1.16	36.68	-	150.137	57.77
X₄	10/4/2017	1%	57.77	0.37	70.018	-	70.018	57.77
X₅	10/5/2017	1%	57.77	1.68	38.17	-	37.681	57.77
X₆	10/6/2017	1%	57.77	0.76	50.027	-	68.7850	57.77
X₇	10/7/2017	1%	57.77	7.65	87.27	-	16.315	57.77
X₈	10/8/2017	1%	57.77	0.15	0.837	-	18.143	57.77
X₉	10/9/2017	1%	57.77	1.43	35.37	-	86.4638	57.77
X₁₀	10/10/2017	1%	57.77	8.34	78.57	-	68.4118	57.77
X₁₁	10/11/2017	1%	57.77	1.68	38.17	-	50.0581	57.77
X₁₂	10/12/2017	1%	57.77	0.1	0.0001	-	0.0001	57.77

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Annex No. (2/A)

Key Information Statement for Individual Loans/Financing

Company Name: _______________________

This document is important because it summarizes the key information about the loan/financing you wish to obtain. Therefore, we ask you to sign it only after reading it and reading the loan/financing contract and understanding all its terms.

Details of this Loan/Financing

• Customer Name: _______________________
• Guarantor Name: _______________________
• Type of Loan/Financing: _______________________
• Purpose of Loan/Financing: _______________________
• Collateral: (if any) _______________________
• Total Loan/Financing Amount: In Jordanian Dinars _______________________

Loan/Financing Duration

• Starts on date: _______________________
• Ends on date: _______________________
• Interest/Return Rate based on: _______________________
• Interest/Return Amount: In Jordanian Dinars _______________________

Insurance

• Type: _______________________
• Administrative Fees: Type: _______________________
• Other Costs: Type: _______________________

Total Cost of Loan/Financing

• Total Interest/Returns you will pay to obtain the loan/financing (In Jordanian Dinars): _______________________
• Total Amount to be Repaid (In Jordanian Dinars): _______________________
• Total Cost of Loan/Financing Value Added to It (In Jordanian Dinars): _______________________

Installment

• Installment Frequency: Weekly □ / Monthly □ / Other □
• Number of Installments: _______________________
• Grace Period (if any from the date of loan/financing disbursement): _______________________
• Effective Interest/Return Rate (for comparison with other products at the Company or other companies): % _______________________

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Annex No. (2/B)

Key Information Statement for Group Loans/Financing

Company Name: _______________________

This document is important because it summarizes the key information about the loan/financing you wish to obtain. Therefore, we ask you to sign it only after reading it and reading the loan/financing contract and understanding all its terms.

Details of this Group Loan/Financing

• Customer Name: _______________________
• Names of Other Customers in the Group: _______________________
• Type of Loan/Financing: _______________________
• Purpose of Loan/Financing: (for each borrower) _______________________
• Collateral: (if any) _______________________
• Total Loan/Financing Amount in the Group for the Participating List: In Jordanian Dinars _______________________
• Total Loan/Financing Amount Specific to You (Your Share in the Loan/Financing): In Jordanian Dinars _______________________

Loan/Financing Duration

• Starts on date: _______________________
• Ends on date: _______________________
• Interest/Return Rate based on: _______________________
• Interest/Return Amount in Jordanian Dinars for You Individually: _______________________

Insurance

• Type: _______________________
• Administrative Fees: Type: _______________________
• Other Costs: Type: _______________________

Your Share of Total Cost of Loan/Financing

• Your Share of Total Interest/Returns you will pay to obtain the loan/financing (In Jordanian Dinars): _______________________
• Your Share of Total Amount to be Repaid (In Jordanian Dinars): _______________________
• Your Share of Total Cost of Loan/Financing Value Added to It (In Jordanian Dinars): _______________________

Installment

• Installment Frequency: Weekly □ / Monthly □ / Other □
• Number of Installments: _______________________
• Grace Period (if any from the date of loan/financing disbursement): _______________________
• Effective Interest/Return Rate (for comparison with other products at the Company or other companies): % _______________________

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Annex No. (2/C)

Other Important Information You Should Know

• If you delay repayment of the loan/financing by more than ____ days, a late fee of ____ Jordanian Dinars ____ % of (specified by the Company) ____ will be calculated.

• If you are unable to repay the loan/financing (if any), the following may occur:

  • You may lose the collateral (if any), and the Company has the right to file a lawsuit against you.
  • This will affect the credit record of both of you.
  • It will lead to both of you bearing any additional costs to repay the loan/financing.

• You have the right to obtain a copy of the contract you will sign with the Company, in addition to the repayment schedule.

• You have (_____) working days from the signing of the loan/financing contract to cancel the loan for free. If you wish to cancel the loan/financing, you must notify the microfinance company immediately and return the full amount.

How We Can Stay in Touch

To inquire about our services or file a complaint if you are dissatisfied with the service/product provided by our company, or if you have any questions or problems with timely payment, you can contact us through the following means:

• Toll-free number: _______________________
• Phone number: _______________________
• Dedicated email: _______________________

(During working days from ____ AM to ____ PM, and we will review the complaint submitted by you and contact you subsequently regarding this matter.)

To Contact You

• Address: _______________________
• Phone number: _______________________

Signature	Date
Customer:
Guarantor:
Loan Officer:
Branch Manager:
Branch Name:

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