Circular Letter No. 2584 — Clarification Regarding the Revocation of Regulations Pertaining to the Prohibition on Operating in Rural Credit (MCR 1-6)

CIRCULAR LETTER NO. 002584

Clarification Regarding the Revocation of Regulations Pertaining to the Prohibition on Operating in Rural Credit (MCR 1-6).

We clarify, in light of the provisions of Resolution No. 2,181, of July 20, 1995, that:

I - Considering that the regulation pertaining to the prohibition on operating in rural credit as a borrower (MCR 1-6) has been revoked and that the financial institution must adopt the necessary measures for faithful observance of the basic principle provided in current legislation regarding the suitability of the applicant, the impediments published by the Central Bank of Brazil are rendered ineffective;

II - The financial institution, when granting rural credit, must observe the general regulation applicable to other credit operations, especially the content of item IX, subsection "d", of Resolution No. 1,559, of December 22, 1988;

III - Upon verification of an occurrence constituting tax fraud or a criminal offense, the financial institution, in the manner provided for in Article 2, subsection II, of the aforementioned Resolution No. 2,181, must forward the supporting documents to the Regional Department of the Central Bank of Brazil under whose jurisdiction it falls, for the purpose of communication to the tax authorities or the Public Ministry, under the title "Rural Credit - Communication of Tax Fraud and/or Criminal Offense", observing the following CADOC codes (Document Catalog):

a) commercial banks 20.5.9.400-8; b) development banks 22.5.9.400-6; c) investment banks 24.5.9.400-4; d) multiple banks 26.5.9.400-2; e) state banks and savings banks 36.1.9.400-7.

2. In view of the provisions of Article 4 of the aforementioned Resolution, the necessary pages for updating the Rural Credit Manual (MCR) are attached.

Brasilia, September 22, 1995.

DEPARTMENT OF NORMS OF THE FINANCIAL SYSTEM DEPARTMENT OF SUPERVISION

Sergio Darcy da Silva Alves Adilson Rodrigues Ferreira Head Head

RURAL CREDIT MANUAL
Part 1 - Text
Index of Chapters and Sections

1 - PRELIMINARY PROVISIONS

1 - Introduction
2 - National Rural Credit System
3 - Operational Structure
4 - Beneficiaries
5 - Technical Assistance

2 - BASIC CONDITIONS

1 - General Provisions
2 - Budget, Plan and Project
3 - Guarantees
4 - Expenses
5 - Utilization
6 - Reimbursement
7 - Supervision

3 - OPERATIONS

1 - Formalization
2 - Working Capital Credits
3 - Investment Credits
4 - Marketing Credits
5 - Accounting and Control

4 - SPECIAL PURPOSES

1 - Federal Government Loans - EGF
2 - Seed and Seedling Production
3 - Fishing Activity
4 - Mechanized Services Provision

5 - CREDITS TO COOPERATIVES

1 - General Provisions
2 - Service to Members
3 - Integration of Partnership Shares
4 - Retention Rate
5 - Pass-through to Members

6 - RESOURCES

1 - General Provisions
2 - Mandatory Resources
3 - Linked Deposits
4 - Rural Savings Booklet
5 - Free Savings Booklet (to be disclosed)
6 - Development Programs
7 - (to be used)
8 - Free Resources

7 - PROGRAM FOR GUARANTEE OF AGRICULTURAL AND LIVESTOCK ACTIVITY - PROAGRO

1 - Preliminary Provisions
2 - Classification
3 - Additional
4 - Proof of Losses
5 - Coverage
6 - Resource
7 - Expenses
8 - Non-Financed Activity
9 - Impediment of Appraisers
10 - Final Provisions

8 - SPECIAL PROGRAMS

1 - Agricultural and Livestock Investment Program - PROINAP 2 - Small Rural Producer Support Program - PAPP 3 - Japanese-Brazilian Cooperation Program for the Development of the Cerrados - PRODECER 4 - National Rural Development Program (PNDR) 5 - Financing Program for Acquisition of Irrigation Equipment - PROFIR 6 - PROFIR - Operations with OECF Resources

7 - National Program for Utilization of Irrigable Floodplains - PROVARZEAS 8 - PROVARZEAS - Operations with IDB Resources 9 - PROVARZEAS - Operations with KfW Resources

9 - NON-CODIFIED REGULATIONS

1 - List of Regulations
2 - Resolutions
3 - Circulars
4 - Circular Letters

10/38 - (extinct)

39 - NON-CODIFIED DOCUMENTS - (in extinction)

0 - List of Documents
1 - Resolutions
2 - Circulars

TITLE : RURAL CREDIT
CHAPTER: Basic Conditions - 2
SECTION : General Provisions - 1

1 - The granting of rural credit is subject to the following essential requirements:
a) suitability of the borrower; b) presentation of a budget, plan or project, except in the financing of crops with Basic Cost Value (VBC) or in discount operations; c) timeliness, sufficiency and adequacy of resources; d) observance of a utilization and reimbursement schedule; e) supervision by the financier.

2 - The financial institution must use the normal customer registry for the granting of rural credit.

3 - It is the responsibility of the pass-through cooperative to prepare the beneficiary's registration form for the sub-loan.

4 - The registration form must remain at the operating agency of the financial institution or, in the case of a sub-loan, at the cooperative, available for supervision by the Central Bank of Brazil.

5 - The granting of rural credit, the registration of its instruments and the constitution and registration of its guarantees do not require the presentation of:
a) certificate or proof of settlement of pension or tax obligations, except in the cases provided for in the next item and in the legislation pertaining to the Rural Land Tax (ITR); b) negative certificate of fines for infringement of the Forest Code; c) guide for settlement of rural union contributions.

6 - The rural producer who processes their products or sells them directly to the consumer, at retail, or to a domiciled acquirer abroad, is obliged to present the Negative Debt Certificate (CND), issued by the Social Security.

7 - Tax or pension debts and fines for infringement of the Forest Code prevent the approval of rural credit, if the interested agency communicates to the financial institution the filing of the collection lawsuit.

8 - The financial institution notified of the filing of the collection lawsuit, in the case of the previous item, may grant rural credit to the defendant, through the constitution of sufficient guarantees to cover jointly the disputed debt and the debt to be incurred.

9 - Financing may only be granted if the defendant deposits in court the amount in dispute, when the judicial collection refers to debts arising from contributions to the National Institute for Colonization and Agrarian Reform (INCRA).

TITLE : RURAL CREDIT
CHAPTER: Basic Conditions - 2
SECTION : Supervision - 7

1 - Supervision of rural credit is mandatory.

2 - Supervision must be carried out:
a) in agricultural working capital credit: at least once during the course of the operation, before the time scheduled for the release of the last installment or up to 60 (sixty) days after the use of the credit, in the case of single installment release; b) in Federal Government Loan (EGF): as provided for in the Minimum Prices Operations Manual; c) in other financings: up to 60 (sixty) days after each utilization, to prove the realization of works, services or acquisitions.

3 - It is incumbent upon the supervisor to verify the correct application of budgetary resources, the development of financed activities and the status of guarantees, if any.

4 - In the event of detection of criminal offenses or tax frauds, the financial institution must communicate the facts to the Central Bank of Brazil, forwarding the supporting documents of the irregularities found, with a view to adopting the appropriate measures with the Public Ministry or tax authorities.

5 - Any omission or negligence in verifying the correct application of budgetary resources constitutes a serious offense, subjecting the offender to regulatory sanctions.

6 - The result of the supervision must be recorded in a specific report, with technical assistance at the portfolio level responsible for noting in a specific field or in an attached document, integral to the report, the measures adopted by the agency to remedy any irregularities found.

7 - Supervision may be carried out by an employee of the financial institution itself or by a specialized natural or legal person, through agreement.

8 - Supervision is prohibited:
a) by a natural or legal person hired directly by the borrower to provide technical assistance at the company level; b) by a company in which the borrower participates directly or indirectly.

9 - Sampling supervision is permitted for credits with a value not exceeding R$ 6,500.00 (six thousand and five hundred reais), without prejudice to indirect controls.

10 - Sampling consists of directly supervising at least 10% (ten percent) of the credits indicated in the previous item, granted in each agency in the last twelve months.

11 - The agency must select the credits for sampling under criteria of broad diversification of borrowers, purposes and regions.

12 - Direct supervision of all credits currently granted to the same borrower is required when the sum of their values exceeds R$ 6,500.00 (six thousand and five hundred reais).

13 - It is incumbent upon the cooperative beneficiary of credit for pass-through to supervise the sub-loans, and the financier may also exercise this, if deemed convenient.

14 - Measurement of crops or pastures is mandatory as an integral part of supervision, when the area of a crop financed by the same financial institution exceeds 1,000 hectares on the same property, unless the financing is intended exclusively for the isolated acquisition of agricultural pesticides and their application.

15 - The provisions of the previous item do not prejudice the requirement for measurement resulting from specific regulation of the Program for Guarantee of Agricultural and Livestock Activity - PROAGRO.

16 - Measurement must be carried out in due time to determine the extent of the planted area.

17 - Proof of area not exceeding 1,000 hectares must be carried out as part of normal supervision services, under routine methods.

18 - The Central Bank of Brazil may require measurement of crops or pastures whenever, in its judgment, the analysis of data from the Common Registry of Rural Operations (RECOR) indicates this convenience.

19 - Presentation of spreadsheets, maps, sketches or similar documents, with characterization of reference points and proof of the methodology adopted in measurement, is required whenever the measured area exceeds 1,000 hectares.

20 - Measurement may be executed by a service provider company, a professional hired specifically for the purpose or from the financial institution's own staff.

21 - Measurement by a professional from the pass-through cooperative's own staff is admissible for the purpose of supervising sub-loans.

22 - Except in PROAGRO appraisals, measurement of crops or pastures constitutes a supervision service, with expenses borne by the financier.

23 - In the case of measurement requested by the Central Bank of Brazil, its cost must be shared among financial institutions, proportionally to the area financed by each.

24 - The borrower may be required to reimburse expenses incurred with supervision or measurement of crops and pastures, in the case of:
a) frustrated supervision or measurement due to their fault; b) extraordinary supervision or measurement, carried out due to irregularity in their conduct; c) supervision or measurement in which a reduction of more than 20% (twenty percent) in the planted area is proven, compared to that declared in the credit instrument.

25 - The Central Bank of Brazil is entitled to supervise rural credit operations carried out by financial institutions, including with borrowers, and the credit instrument must contain an explicit clause to this effect.

26 - The financial institution must designate a supervisor to carry out inspections at the rural property level, together with representatives of the Central Bank of Brazil, without burden to the latter, whenever such designation is requested by the supervision of that agency.

27 - The Central Bank of Brazil credits interest of 12% p.a. (twelve percent per year) and update based on the Reference Rate (TR) on the collections required from financial institutions in administrative processes and similar, pertaining to rural credit, when their return occurs due to the provision of an appeal filed.

TITLE : RURAL CREDIT
CHAPTER: Program for Guarantee of Agricultural and Livestock Activity (PROAGRO)-7
SECTION : Classification - 2

1 - Working capital rural enterprises, linked or not to rural financings, conducted under strict observance of the norms of this manual, are eligible for PROAGRO.

2 - Respecting the PROAGRO risk limit, the program covers the total nominal value of the analytical budget of the enterprise, regardless of the existence of Basic Cost Value (VBC), observed by the portfolio technical assistance of the agent regarding economic viability and the principles of timeliness, sufficiency and adequacy of resources provided.

3 - For the purposes of the previous item, the value of inputs must be computed as the beneficiary's own resources:
a) acquired previously and not financed when the main working capital credit was granted; b) of own production.

4 - The analytical budget must be prepared in current values without any increase for adjustment purposes.

5 - For the purposes of PROAGRO, it is admitted:
a) to include in the analytical budget expenses with technical assistance, when contracted; b) to reallocate portions of the analytical budget, except the item destined for harvest, provided that it is previously authorized by the portfolio technical assistance of the agent.

6 - Classification of resources destined for the following is prohibited:
a) enterprise without the corresponding analytical budget; b) enterprise already classified in the same harvest or calendar year; c) acquisition of inputs as advance working capital; d) processing or industrialization working capital; e) working capital of any crop associated with pasture; f) fishing activity; g) provision of mechanized services; h) enterprise implanted in an improper time or location, under frequent risks of adverse events, according to indications of tradition, research or experimentation; i) enterprise under the responsibility of a natural or legal person prohibited from providing services for PROAGRO; j) enterprise with three approved coverages relative to the last three classifications.

7 - Classification of more than one operation for the same enterprise, financed or not, is permitted, provided that the previous one is no longer subject to loss risk covered by the program.

8 - In any case, classification of resources that raise the PROAGRO risk with the same beneficiary to more than R$ 150,000.00 (one hundred and fifty thousand reais) is prohibited.

9 - The PROAGRO risk is calculated by summing the nominal value classified in each operation.

10 - The validity of PROAGRO coverage:
a) in the agricultural working capital operation of temporary crops, begins with the transplanting or emergence of the plant in the definitive location and ends with the transfer of the product from its cultivation area;

b) in the agricultural working capital operation of permanent crops, begins with the debit of the additional amount in the account linked to the operation and ends with the transfer of the product from its cultivation area; c) in the livestock working capital operation, begins with the debit of the additional amount in the account linked to the operation and ends with the transfer of the product from the property of origin.

11 - Classification is formalized through the inclusion of a specific clause in the credit instrument, by which the beneficiary unequivocally expresses their adherence to PROAGRO, specifying:
a) the enterprise; b) the total nominal value of the linked analytical budget, discriminating the credit portion and the beneficiary's own resources; c) the rate, tax base and due date of the additional amount; d) the period of validity of PROAGRO coverage; e) that, in the case of agricultural working capital of temporary crops, the program's coverage is limited to the resources corresponding to the area where there is transplanting or emergence of the plant in the definitive location; f) minimum and maximum coverage percentages; g) the receipt of a copy of the PROAGRO regulation, according to document no. 23 of this manual.

12 - The expression of interest in adhering to PROAGRO only generates rights with respect to the program if the following conditions are met, cumulatively:
a) direct formalization in the credit instrument; b) debit of the additional amount in the account linked to the operation; c) occurrence of losses due to covered cause, provided for in this chapter, during the validity of the program's coverage.

13 - The analytical budget, signed by the beneficiary and the PROAGRO agent, must be attached to the credit instrument, forming an integral part for all legal and operational purposes.

14 - Classification cannot be formalized or revised by amendment to the credit instrument.

TITLE : RURAL CREDIT
CHAPTER: Program for Guarantee of Agricultural and Livestock Activity (PROAGRO)-7
SECTION : Proof of Losses - 4

1 - The communication of losses is made by the beneficiary using a standardized form, according to document no. 18 of this manual, delivered to the agent or, in the case of sub-loan operations, to their cooperative against receipt on the third copy.

2 - Within 3 (three) business days from receipt of the loss communication, the agent must request proof of losses, observing the limitations established by the regional professional councils, when applicable, to be carried out under their responsibility, with the objective of:
a) determining the causes and extent of the losses; b) identifying the items of the analytical budget not carried out, totally or partially; c) estimating the production to be harvested after the technician's visit; d) determining the technology used in the management of the enterprise.

3 - The following special procedures must be observed in the case of credit for pass-through by a production cooperative:
a) the PROAGRO beneficiary must deliver the loss communication to the cooperative, which must return the third copy to them, stamping a receipt in the specific field, intended for the agent's use; b) the cooperative must fill out the standardized form (document no. 18), leaving blank the fields for the agent, according to filling instructions; c) it is also the cooperative's responsibility, on the business day following receipt of the loss communication, to forward it to the agent, accompanied by the other necessary information and documents.

4 - Within 3 (three) business days from the request for proof of losses, the agent must inform the occurrence to the Central Bank of Brazil electronically or magnetically, based on a layout provided in SISBACEN.

5 - The PROAGRO agent, as responsible for proof of loss services, is liable for any damages caused to the beneficiary when:
a) the request for those services is made late; b) the proof of losses is carried out by a technician whose designation is expressly prohibited, as established in this chapter.

6 - For proof of losses, the agent must request the technician to measure the crop:
a) when the area subject to classification exceeds 200 ha (two hundred hectares) and has not yet been measured as part of supervision services; b) when there are indications of area reduction.

7 - It is incumbent upon the PROAGRO agent, through technical assistance companies, qualified autonomous professionals, their own staff or cooperative, to carry out proof of losses.

8 - Where there is no adequate availability of qualified professionals, at the agent's discretion, proof of losses by their supervisors is admitted, provided they possess sufficient knowledge to execute the task.

9 - Proof of losses is prohibited if the total classified resources are not superior to R$ 500.00 (five hundred reais), and their application and uninsurable losses must be proven based on information available to the portfolio technical assistance of the agent.

10 - Verification of losses is prohibited:
a) by a technician, cooperative, or technical assistance company prohibited from providing services to PROAGRO; b) by the beneficiary themselves, cooperative, or by a technical assistance company in which they participate directly or indirectly; c) by the technician, cooperative, or technical assistance company that prepared the plan or project of the enterprise;

d) by the technician, cooperative, or technical assistance company that provided technical assistance to the enterprise; e) by the technician, cooperative, or technical assistance company that supervised the enterprise.

11 - In the case of preparation of a plan or project, provision of technical assistance, and supervision of the enterprise, the prohibition set forth in the previous item applies exclusively to the technician responsible for those services, provided that in the locality there is no adequate availability of qualified professionals, at the discretion of the agent.

12 - The request for verification of losses is made by the PROAGRO agent using a specific form, according to document no. 18 of this manual, to which the following must be attached:
a) the second copy of the loss notification; b) copy of the credit instrument, or copy of the adherence term to PROAGRO, in the case of an enterprise not financed, addenda, complementary mentions, and annexes; c) analytical budget linked to the enterprise; d) itinerary for locating the property; e) sketch or map of the location of the crop; f) data on the application of inputs; g) technology recommended for the enterprise, when linked to the provision of technical assistance at the property level; h) information on any irregularities found during the course of the operation; i) other information and documents necessary for the verification of losses.

13 - For verification of losses, the technician must inspect the enterprise, making at least:
a) one visit to the property, within 3 (three) business days from the request of the agent, in the case of partial loss from an event occurring in the harvesting phase or in the case of total loss; b) two visits to the property, the first within 3 (three) business days from the request of the agent, and the other at the time scheduled for the start of harvesting, in the case of partial loss from an event prior to the harvesting phase.

14 - It is the responsibility of the technician in charge of verifying losses:
a) immediately return to the agent the request for verification of losses, against receipt, when unable to carry it out; b) carry out the measurement of crops, when requested by the agent, with the hiring of specialized services and the choice of methodology to be used being under their responsibility; c) record their conclusions in a report on the verification of losses, prepared according to document no. 19 of this manual, requiring, in the case of crop measurement, a sketch with characterization of the reference points or a planimetric plan and a document corroborating the methodology adopted.

15 - It is also the responsibility of the person in charge of verifying losses to expressly state on:
a) technology used in the enterprise; b) losses due to non-covered causes; c) final production;

d) quality of the product and its relationship with the covered causes of the program, with the hiring of specialized services for product classification being under their responsibility, if indispensable to satisfy this requirement.

16 - The report on the verification of losses must be delivered to the agent, against receipt, observing the following:
a) in the case of partial loss from an event prior to the harvesting phase, the first part of the report must be delivered, within 10 (ten) business days from the first visit, with a receipt on the back of both copies; b) in any case, upon completion of the service, the completed report (second part or full report) must be delivered, within 10 (ten) business days from the single or final visit, with a receipt in the appropriate field of both copies.

17 - In the case of partial losses, the agent is obliged to monitor the development of the enterprise from the notification of losses until harvesting, through their supervision.

18 - It is up to the agent to release the area affected by an adverse event, when proving that the value of the expected production is insufficient to cover the expenses of the subsequent stages of the operation.

19 - In the case of total loss, the agent is obliged to inspect the enterprise before releasing the area.

20 - The agent may request the completion of the report or even of the service performed, when deemed necessary for the decision on the coverage request.

21 - As administrator of the program, the Central Bank of Brazil may, regardless of the conclusions of the services of technical assistance, supervision, or verification of losses, appoint technicians to verify the results of the supported enterprise.

22 - For the purposes of the previous item, the appointed technician has the same attributions defined in this chapter for the person in charge of verifying losses.

TITLE : RURAL CREDIT
CHAPTER: Agricultural Activity Guarantee Program (PROAGRO)-7
SECTION : Impediment of Experts - 9

1 - As administrator of PROAGRO, the Central Bank of Brazil may, at its discretion, prohibit from providing services to the program the technician or company that:
a) has caused damage to the beneficiary or to PROAGRO; b) has demonstrated unsatisfactory performance in services provided for PROAGRO; c) is in debt with PROAGRO.

2 - Upon verification of any of the situations pointed out in the previous item, the agent must:
a) within the 10 (ten) subsequent days, address an interpellation to the involved party, granting them a period of 30 (thirty) days to provide explanations and present a defense; b) interpellate, in the manner of the previous clause, the directors and partners with management power, in the case of a legal entity;

c) forward to the Central Bank of Brazil the entire process, within 10 (ten) days of the end of the period granted for the defense, informing their CPF or CGC number.

3 - The interpellation mentioned in the previous item is carried out, at the discretion of the agent:
a) by means of a receipt, collected at the agent's premises; b) by postal mail, with "acknowledgment of receipt" (AR), with express indication that it aims to interpellate the recipient; c) by a person designated by the agent; d) through the titles and documents registry office.

4 - The process must contain the following documents:
a) copy of the letter of interpellation, duly receipted or accompanied by the respective "acknowledgment of receipt"; b) in the case of refusal to receive the interpellation, a declaration to that effect signed by the person responsible by the agent to carry out the interpellation, attested by two witnesses, or declaration of the official responsible by the titles and documents registry office; c) response to the interpellation, if presented; d) copy of the registration form of the interpellated; e) copy of the supervision and technical assistance reports and of the loss verification reports; f) copy of the documents characterizing the irregularities; g) conclusive opinion of the agent regarding the occurrence.

5 - The facts and evidence must be specified in the interpellation, with precision and clarity.

6 - The agent must forward the process to the Central Bank of Brazil, so that the interpellation by public notice is promoted, when the place where the involved party is located is unknown, uncertain, or inaccessible.

7 - Upon communication of irregularities, it is up to the Central Bank of Brazil, if it considers the justifications presented unsatisfactory:
a) determine the impediment of access of the defaulting party to the provision of services to PROAGRO; b) communicate the facts to the Public Ministry, when a criminal offense is configured; c) communicate the occurrence to the Regional Council in which the technician is registered.

8 - In view of the impediment to provide services to PROAGRO, the agent must record the occurrence in the registration form of the impeded party and of the technical assistance companies in which they participate directly or indirectly, as administrator, partner with management power, controller, shareholder, or majority shareholder, considering them equally impeded.

9 - The impediment originating from a link with an impeded natural person only persists while the link and the original impediment persist.

10 - From the decision of impediment, an appeal lies to the National Monetary Council, its acceptance with suspensive effect being prohibited.

11 - The Central Bank of Brazil may suspend the impediment when an incurable procedural defect is found, capable of rendering the decision of impediment voidable.

12 - The request for suspension of the impediment is delivered to the agent, who must forward it to the Central Bank of Brazil, with a conclusive opinion, explaining, if favorable to the request, the reasons that motivate the revision of the impediment.

13 - The impediment and the lifting of the impediment are published by the Central Bank of Brazil, through a communication published in the Official Gazette of the Union.

TITLE : RURAL CREDIT
CHAPTER: Agricultural Activity Guarantee Program (PROAGRO)-7
SECTION : Final Provisions - 10

1 - Regardless of the result of the decision on the coverage request, the documentation related to the operation must be maintained in archive for a period of 5 (five) years from the last administrative decision, with the first two years at the operating agency of the agent, for purposes of supervision by the Central Bank of Brazil.

2 - The burden of interest incidence ceases for the beneficiary and for PROAGRO:
a) during the period in which the agent is in default regarding the deadlines fixed for them to inform the occurrence of loss notification to the Central Bank of Brazil, process and judge the coverage request, request reimbursement of expenses and release of resources destined for the coverages imputable to the program, as well as forward the resource to CER; b) from the notification of partial losses until the decision on the coverage request, when the agent fails to monitor the development of the respective enterprise.

3 - Without prejudice to the application of the specific norms of this manual, it is mandatory to extend by a period of up to 120 (one hundred and twenty) days the original maturity of the rural credit operation, pending measures in the administrative sphere, within the scope of the program, provided that:
a) it is in normal course; b) the notification of losses and the appeal to CER, if applicable, have been presented in a timely manner.

4 - Violation of the PROAGRO norms subjects the offender, at the discretion of the Central Bank of Brazil, to disqualification from participating in rural credit as a borrower or service provider, without prejudice to the other sanctions applicable.