Circular BRH/IMF/2026/1 on the Management of Credit Risk for Microfinance Institutions

Bank of the Republic of Haiti
CIRCULAR

CIR. : BRH/IMF/2026/1 :

TO MICROFINANCE INSTITUTIONS

In accordance with Articles 36 and 38 of the Decree of June 5, 2020, on the organization and functioning of Microfinance Institutions (MFIs), MFIs are required to comply with the following provisions regarding credit risk management. Banks with a microcredit division are required to apply only sections 5 to 15 of this circular and the related reports.

1. Definitions

The following definitions apply to this circular:

a) Qualified shareholders: shareholders holding directly or indirectly 10% or more of the institution's capital or voting rights.

b) Provisioning for non-performing loans: income statement account where the additional provisioning charge for loss risks on loans and other non-performing assets is recorded, to bring the provision to the amount necessary to cover the loss risk.

c) Counterparty: any natural or legal person whose default exposes the institution to a loss risk on assets, due to transactions of any nature conducted with that person (interbank deposits and loans, credit operations, investments, participations, other balance sheet assets, off-balance sheet operations).

d) Exposure: total book value of asset items and off-balance sheet commitments relating to the same counterparty.

e) Regulatory capital: regulatory capital as defined by Circular No. 1 on capital adequacy requirements for MFIs.

f) Guarantee: instrument that allows the creditor to protect against a debtor's default in future obligation fulfillment.

g) Group of related counterparties: considered as forming a group of related counterparties:

1. persons who have capital links such that one of them exercises, directly or indirectly, exclusive or joint control or significant influence over the others, within the meaning of the provisions of the Law of May 14, 2012 and international accounting consolidation standards published by the International Accounting Standards Board (IASB);
2. persons who are linked such that financial difficulties encountered by one or some of them would necessarily cause serious financial difficulties for the other or others. Such links are presumed to exist between two or more natural or legal persons in the following cases:
   • one of them has the right or power to appoint or remove the majority of the members of the management or supervisory bodies of the others;
   • their administrative, management, or supervisory bodies are composed predominantly of the same persons or they are under single management pursuant to a contract, articles of association, or in fact;
   • one of them has the right or power vis-à-vis the others:
     • to exercise dominant influence pursuant to a contract, agreement provisions, or articles of association,
     • to decide on their strategy or direct their activities, coordinate their management, or decide on crucial transactions, such as profit or loss transfers;
   • these persons have financial dependency links, such as the existence of inter-company accounts, guarantees, or sureties issued by one of them in favor of another;
   • these persons maintain predominant business relations among themselves, notably through subcontracting or franchise agreements;
   • these persons are local authorities or public establishments and have financial dependency links among themselves.

h) Persons related to the microfinance institution: considered as related persons:

1. natural or legal persons who hold directly or indirectly 10% or more of the institution's capital or voting rights;
2. any holder of financial instruments, other than capital, included in the calculation of the institution's regulatory capital according to the circular on capital adequacy requirements for MFIs, and holding in total, in this form and in capital, a share of 10% or more in the total amount of the institution's regulatory capital;
3. any entity in which the persons referred to in the two preceding paragraphs hold directly or indirectly a participation of 10% or more of the capital;
4. the directors and senior management, within the meaning of the circular on Governance of Financial Institutions, of the institution as well as of entities over which it exercises exclusive or joint control or significant influence within the meaning of international accounting consolidation standards;
5. entities in which the institution holds directly or indirectly 10% or more of the capital or voting rights;
6. natural persons (related) who have spousal, parent-child, or child-parent relationships with shareholders holding 10% or more of the capital of the financial institution, or with the directors or senior management referred to in this definition.

i) Loans: fund advances or any other credit, with or without guarantee, granted by an MFI to a debtor who is required to repay, on demand or at specified dates, the advanced funds as well as payable interest and fees.

1. Consumer loans: advances and loans granted by an MFI for the acquisition of consumer goods or payment of services. Credit card advances are included in this category.
2. Housing loans: loans and advances granted by a financial institution for the acquisition, construction, repair, or improvement of residential real estate. They concern the following residential real estate: single-family residences, multi-unit housing of any type, mixed-use buildings where more than half of the area is used for residential housing, land intended for residential construction.
3. Commercial loans: credit granted to a natural or legal person for business purposes. These credits include loans and advances, debt securities, guarantees, loan substitute securities. Loans to financial intermediaries as well as commercial real estate loans belong to this category.
4. Production loans: credit granted to a natural or legal person for production purposes. Production is understood as the combination of inputs aimed at producing a finished product intended for marketing or subsequent processing.

j) Secured loan: a loan for which the MFI holds adequate protection for both principal and interest recovery, in the form of one or more eligible guarantees described in section 4 of this circular.

k) Non-performing loan: claims classified in the "Substandard", "Doubtful", and "Loss" categories in accordance with the rules defined by this circular.

l) Micro, Small and Medium Enterprise (MSME): any enterprise meeting both of the following criteria: i) workforce between 1 and 100 employees and ii) annual turnover less than 50 million gourdes.

m) Written-off loan: a claim deemed uncollectible after exhausting all collection avenues, and removed from the balance sheet through its transfer to losses in the income statement.

n) Restructured loan: a claim whose initial contractual terms are subject to an addendum or novation due to the deterioration of the borrower's financial situation, resulting in the extension of the term, rescheduling of the repayment schedule, revision of the interest rate, and/or modification of other initial conditions.

o) General provision: provision established for prudence purposes, to cover the general credit risk across the entire loan portfolio, without reference to a specific loan.

p) Specific provision: provision established after the risk assessment of each non-performing loan.

q) Related party risk: exposure of a microfinance institution toward a person related to the institution. The following shall be considered as the same related party risk:
a. risks on a group of related counterparties including a person related to the institution, b. risks on a group of natural persons related to the institution as well as on legal entities linked to them.

r) Credit risk: risk incurred by a microfinance institution in the event of default by a counterparty or a group of related counterparties. Credit risk is determined in accordance with the provisions of section 3.6 of this circular. Incurred risks include the following:

1. Claims held on other financial institutions, in the form of account balances, loans, or other receivables;
2. Customer credits and other receivables thereon;
3. Investments in securities and in any other form;
4. Leased fixed assets under credit lease operations and receivables related to these operations;
5. Other receivables from third parties;
6. Off-balance sheet items carrying credit risk (irrevocable financing and guarantee commitments to customers or other financial institutions, irrevocable agreements to purchase loans, securities, or other asset items).

s) Off-balance sheet risk: commitment by signature of the MFI in favor of a third party to guarantee the fulfillment of a financial obligation.

t) Unrelated risk: exposure of a microfinance institution toward an isolated natural and/or legal person or a group of related counterparties, other than persons related to the institution.

2. Credit Granting Requirements

MFIs may only grant microcredit. Microcredit constitutes any credit used for financing:

• micro, small and medium enterprises (MSMEs), as defined in this circular;
• natural persons for consumption or payment of services purposes;
• natural persons for housing acquisition.

Any microcredit granted to a natural person to finance the activities of their informal micro-enterprise (trade, production, or services) must be considered as a loan to a micro-enterprise.

Microcredits granted by MFIs must be denominated exclusively in gourdes. In other words, MFIs are prohibited from granting loans in foreign currencies.

MFIs are required to comply with the credit risk management and control principles as determined in Annex XI of this circular.

3. Credit Risk Concentration

The concentration limits described below do not apply to operations with the BRH and other financial institutions authorized in Haiti. Credit risks are determined in accordance with the provisions of section 3.6 of this circular.

3.1 Credit portfolio limitation

Microfinance companies are required to maintain at all times a maximum ratio of 80% between their credit portfolio (balance sheet and off-balance sheet) net of eligible guarantees (section 4 of this circular) and the total asset amount.

Credit portfolio (balance sheet) net of eligible guarantees + off-balance sheet commitments in credit equivalent	<=80%
Total Assets

Microcredit enterprises are not subject to this limit.

3.2 Unrelated risks

Microfinance companies must comply with the following provisions regarding limits governing the concentration of credit risks (balance sheet and off-balance sheet) on the same individual counterparty or group of related counterparties (but not related to the MFI):

Credit risk (balance sheet + off-balance sheet in credit equivalent) on a counterparty or group of related counterparties	<5%
Regulatory Capital

Microcredit enterprises must comply with the following provisions regarding limits governing the concentration of credit risks (balance sheet and off-balance sheet) on the same counterparty or group of related counterparties:

Credit risk (balance sheet + off-balance sheet in credit equivalent) on a counterparty or group of related counterparties	<= 8%
Regulatory Capital

3.3 Related risks

Loans from an MFI to its qualified shareholders, directors, and senior management are subject to the BRH's non-objection and must be granted in accordance with the general loan conditions to customers.

MFIs must comply with provisions regarding limits governing the concentration of credit risk on a person or group of persons related to the institution according to the criteria defined in this circular.

The total exposure of a microfinance company on the same related party or group of related parties must not exceed 3% of its regulatory capital:

Credit risks (balance sheet + off-balance sheet) on a related party or group of related counterparties	<= 3%
Regulatory capital

The cumulative credit risks of a microfinance company on all its related parties and its personnel must not exceed 15% of its regulatory capital.

The total exposure of a microcredit enterprise on a related party or the same group of related parties must not exceed 5% of its regulatory capital:

Total credit risks (balance sheet + off-balance sheet) on a group of related counterparties	<= 5 %
Regulatory capital

The cumulative credit risks of a microcredit enterprise on all its related parties and its personnel must not exceed 20% of its regulatory capital.

3.4 Common provisions

Credit risks (related and unrelated) are determined under the following conditions:
a) On-balance sheet exposures are taken at their book value; b) Off-balance sheet exposures are taken at their credit equivalent amount determined by applying the conversion factors set by the circular on capital adequacy requirements; c) Specific provisions for non-performing loans applicable, where applicable, to on-balance sheet and off-balance sheet exposures are deducted from the book value of the exposures to which they relate. d) Eligible guarantees described in section 4 of this circular are deducted from the exposures to which they relate.

Also deductible under the same conditions are amounts covered by guarantee instruments established and managed under their responsibility:

• by multilateral development banks listed in Annex II of the aforementioned circular;
• by bilateral development aid public agencies, with prior approval from the BRH.

4. Eligible Guarantees in Credit Risk Calculation

For the purposes of calculating credit concentration risks, the following guarantees may be deducted from the loan balance:

1. Securities issued by the BRH;
2. Securities issued by the Haitian State;
3. Fungible deposits (cash deposits held with the lending MFI intended to guarantee credit risk – mandatory savings). These deposits are eligible when the funds are held by the lending institution for the client's account under the following conditions:
   • The funds cannot be withdrawn during the duration of the risk;
   • The lending institution may use the funds to settle the debt to the extent that it is not settled by the client in accordance with the loan agreement terms and where no legal provision prevents the use of the guarantee to settle the debt.

Microcredit enterprises cannot claim a guarantee in the form of mandatory savings to guarantee all or part of a loan;

4. Guarantees issued by bilateral and multilateral development agencies;
5. Guarantees issued by the Industrial Development Fund (FDI);
6. Guarantees issued by bilateral development aid public agencies, with prior approval from the BRH;
7. Non-possessory pledges with underlying claims on the BRH and notified to it so as to guarantee the direct payment to the pledgee creditor of amounts due on these securities;
8. 80% of deposit amounts when the funds are held in another financial institution provided that it is located in Haiti and the lending institution obtains written confirmation from the client and another from the banking establishment that the deposit meets the following two conditions:
   • The funds cannot be withdrawn during the duration of the risk,
   • The lending establishment may use the funds to settle the debt to the extent that it is not settled by the client in accordance with the loan agreement terms and where no legal provision prevents the use of the guarantee to settle the debt.

5. Classification of On-Balance Sheet Claims/Loans

Claims of microfinance institutions must be classified according to the following categories:

• Current (C)
• To be noted (AS)
• Substandard (F)
• Doubtful (D)
• Loss (P)

Classification is based on actual or anticipated repayment risks of the claims, without taking into account any guarantees they may be secured by.

Classification rules apply to the total amount of each claim, namely the claim principal and other claims related to it (overdue installments, accrued and due interest, accrued and undue interest, commissions, and other receivables).

5.1 Current claims

Current claims are claims whose repayment is carried out in accordance with contractual provisions and which are held on counterparties whose ability to honor all their commitments raises no cause for concern (solid financial situation, quality shareholding, satisfactory situation and prospects of the business sector).

5.2 Claims to be noted

Claims to be noted are claims for which the current and future ability of the counterparty to repay its commitments, fully and on time, raises cause for concern, due to the existence of isolated payment incidents, early warning signs of difficulties (deterioration of the debtor's financial situation, poor commercial performance, management problems, change in shareholding, etc.), or unfavorable market or business sector prospects. Classified as claims to be noted:

• credits, other than credit lease and housing loans, overdue for a maximum of 31 to 60 days;
• claims under credit lease and housing loan operations with overdue installments of up to 90 days;
• any other claim not showing overdue installments, but whose repayment raises cause for concern due to recurring payment difficulties or strong uncertainties regarding the counterparty's future repayment capacity.

5.3 Substandard claims

Substandard claims are claims presenting the following characteristics:

• credits other than credit lease and housing loans overdue for more than 61 days to 90 days;
• claims under credit lease and housing loan operations with overdue installments from more than 90 days to 180 days;
• all other claims not showing overdue installments meeting the criteria defined above, but presenting significant risk factors without meeting the classification conditions for "Doubtful Claims".

5.4 Doubtful claims

Doubtful claims are claims of any nature presenting a high risk of total or partial non-recovery. Classified in this category:

• credits, other than credit lease and housing loans, overdue for 91 days up to 120 days;
• claims under movable credit lease operations with overdue installments dating from more than 180 days up to 270 days;
• housing loans and claims under real estate credit lease operations with overdue installments dating from more than 180 days up to 360 days;
• restructured claims, in accordance with the provisions of section 9 of this circular;
• any other claim on a counterparty presenting a high risk of non-repayment due to serious weaknesses compromising the proper fulfillment of its commitments (negative equity, suspension of credits by suppliers, restructuring actions initiated at creditors' request, etc.), without meeting the classification conditions for "Losses".

5.5 Losses

Claims to be classified as Losses are claims of any nature presenting a very high or certain risk of total or partial non-recovery. Classified in this category:

• credits of any nature, other than credit lease and housing loans, overdue for more than 120 days;
• claims under movable credit lease operations, with overdue installments dating from more than 270 days;
• housing loans and claims under real estate credit lease operations with overdue installments dating from more than 360 days;
• claims subject to a legal collection procedure;
• claims on counterparties that have openly declared bankruptcy.

6. Classification of Off-Balance Sheet Commitments

Off-balance sheet commitments carrying a probable or certain risk of being drawn upon, due to a high probability of default by the beneficiary of these commitments, are to be classified in a specific off-balance sheet account heading "Doubtful off-balance sheet commitments". The following are to be recorded in this heading:
a) irrevocable financing or guarantee commitments in favor of counterparties on which the institution carries non-performing claims on its balance sheet; b) irrevocable signature commitments in favor of third parties and presenting a probable or certain risk of being drawn upon by the microfinance institution, notably in the event of notification by the third-party beneficiary of the guarantee of information leading to consider as certain or probable the drawing upon by that party of the guarantee given by the institution.

7. Establishment of Provisions for Credit Risk

Customer credits, claims related to credit lease operations, other claims assimilable to customer credits, and claims relating to these credits are subject to a general provision and specific provisions according to the modalities defined below.

7.1 General provision

Every MFI must establish a general provision for doubtful claims of 1.5% calculated on the balance of current loans and 2% on to-be-noted loans.

7.2 Specific provision

Every non-performing loan must be subject to a specific provision calculated as follows:

| Classification of loans | Minimum required provisions |
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