Corporate Governance Instructions for Microfinance Companies No. (10/2020)

In the Name of Allah, the Most Gracious, the Most Merciful

[Logo of the Central Bank of Jordan]

Reference No.: 15557 / 28 / 2 Date: 28 / 4 / 1442 AH Corresponding to: 6 / 12 / 2020 AD

Corporate Governance Instructions for Microfinance Companies No. (10 / 2020)

Issued pursuant to the provisions of Articles (4/b) and (65/b) of the Central Bank Law No. (23) of 1971 and its amendments, and the provisions of Article (26) of the Microfinance Companies System No. (5) of 2015.

Article (1): Scope of Application a. These Instructions shall be known as the "Corporate Governance Instructions for Microfinance Companies" and shall apply to all microfinance companies operating in the Kingdom. They shall come into effect one year from the date of their issuance. b. Branches of foreign microfinance companies operating in the Kingdom shall comply with these Instructions to the extent applicable to them, or with the corporate governance and fitness guidelines issued by the parent company or the supervisory authority in the home country, whichever better achieves the objectives of corporate governance and fitness. In the latter case, the branch must provide evidence thereof to the Central Bank, provided there is no conflict with the legislation. In the event of a conflict, the branch must inform the Central Bank and the parent company thereof and provide the necessary clarification regarding this conflict and obtain the Central Bank's approval on the method of addressing this conflict.

Article (2): Definitions The words and phrases appearing in these Instructions shall have the meanings specified below unless the context or circumstances indicate otherwise:

• The Central Bank: The Central Bank of Jordan.
• The Company: A microfinance company.
• The Board: The Board of Directors or the Board of Trustees of the Company.
• Member: A member of the Company's Board of Directors or Board of Trustees, whether in a personal capacity or as a representative of a legal entity.
• Senior Executive Management: Includes the Company's General Manager or Regional Director, Deputy General Manager or Deputy Regional Director, Assistant General Manager or Assistant Regional Director, Chief Financial Officer, Operations Director, Risk Management Director, Internal Audit Director, Compliance Monitoring Director, as well as any employee in the Company who holds executive authority equivalent to any of the aforementioned and reports functionally directly to the General Manager. This includes persons holding such positions temporarily by assignment or delegation if such duration exceeds one month.
• The Body: The Sharia Supervisory Board.
• Stakeholders: Any interested party in the Company such as shareholders/partners, employees, creditors, customers, or relevant regulatory authorities.
• Corporate Governance: The system by which the Company is directed and managed, which aims to determine and achieve the Company's institutional objectives, manage the Company's operations safely, and adhere to due diligence towards shareholders, partners, and other stakeholders, and to comply with legislation and internal Company policies.
• Independent Member: A member who is not subject to any influences that limit their ability to make objective decisions in the best interest of the Company, and who meets the conditions specified in Article (4/b) of these Instructions.
• Executive Administrative Member: A member who participates in the daily management of the Company's work for compensation.
• Fitness: The possession of credibility, integrity, minimum competence, academic qualifications, and practical experience by members of the Board, Senior Executive Management, and the Body, in accordance with the standards set forth in these Instructions.
• Control: The direct or indirect ability to exercise effective influence on the business and decisions of another person.
• Related Party with Controlling Interest: Control of not less than (10%) of the capital of a legal entity. A person is considered related to the Company if either (the person or the Company) has a controlling interest in the other, directly or indirectly. Subsidiary companies of the Company are considered related parties, or if the person is an executive in the Company or has a joint business interest with an executive therein, or if the person is the spouse of an executive in the Company or is a relative of that executive or their spouse up to the third degree, or has a joint business interest with any of them.

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Article (3): Corporate Governance Manual a. The Company shall prepare its own Corporate Governance Manual in a manner consistent with its needs and policies, and the Manual shall include, at a minimum, the requirements and conditions set forth in these Instructions. b. The Company shall approve the Corporate Governance Manual through the Board and send a copy thereof to the Central Bank before the effective date of these Instructions. c. The Company shall publish its Corporate Governance Manual on its website for the information of the public, Company customers, and all stakeholders, and shall disclose in the annual report the existence of the Manual and the extent of its compliance with its implementation.

Article (4): Board Composition a. The number of Board members shall not be less than five members. b. The number of independent members shall not be less than two members or (20%) of the Board, whichever is higher. In the event of a fraction in the result of calculating the aforementioned percentage, the result shall be rounded up to the next whole number. The following conditions are required as a minimum for a member to be considered independent:

1. They must not have worked as an employee of the Company during the three years preceding the date of appointment/election.
2. They must not be related by blood up to the second degree to any other Board members or any members of the Senior Executive Management of the Company.
3. They must not be a shareholder/partner in the Company with a percentage exceeding (5%).
4. They must not have held the position of executive member on the Board or a member of the Board of the Parent Company or its subsidiaries, or been an employee thereof, during the three years preceding their appointment/election.
5. They must not have served on the Board for more than eight consecutive years.
6. They must not currently be a partner or employee of the Company's external auditor, nor have been so during the three years preceding their appointment/election as a Board member, and must not be related by the first degree to the partner responsible for the audit process. c. The Chairman of the Board must not be a member of the Senior Executive Management. d. The Chairman of the Board or any of its members shall not be authorized individually to exercise part or all of the Board's authorities. e. The Central Bank may deem any member not independent, according to its discretion, despite the application of all independence conditions set forth in paragraph (b) of this Article.

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Article (5): Board Duties, Responsibilities, and Meetings a. The Board shall perform, at a minimum, the following duties and responsibilities:

1. Determine the Company's strategic objectives and direct the Senior Executive Management to prepare a strategy to achieve these objectives and develop work plans consistent therewith, which shall be approved by the Board.
2. Supervise the Senior Executive Management, monitor its performance, and ensure the implementation of all Company policies and systems, and ensure it is informed of the main risks facing the Company and that it takes action to control and monitor them.
3. Ensure the soundness and fitness of the Company's financial situation, and adopt appropriate policies for supervising and monitoring the Company's performance and ensuring the taking of necessary corrective actions at appropriate times.
4. Approve the audited final financial statements of the Company and recommend their approval to the General Assembly.
5. Adopt the manual of policies and procedures for compliance with the provisions and principles of Islamic Sharia.
6. Adopt the credit policy, the policy for handling customer complaints, and any other policies the Board deems necessary or required by relevant legislation.
7. Ensure the availability of sufficient internal control and monitoring systems, including risk management systems, and periodically and continuously ensure the effectiveness of these systems, and that the Internal Auditor and External Auditor review these systems at least once a year.
8. Take necessary measures to ensure the Company's compliance in all its operations and activities with all relevant legislation and the requirements of the Central Bank and competent authorities.
9. Adopt a clear, transparent, and objective policy that specifies and defines the mechanism for selecting and appointing members of the Senior Executive Management, including determining their remuneration whether in the form of fees, salaries, allowances, bonuses, or any other benefits, and approve a succession plan for members of the Senior Executive Management for senior management positions.
10. Adopt the Company's organizational structure showing the administrative hierarchy, including committees emanating from the Board, and approve the job descriptions for Senior Executive Management positions.
11. Adopt a general policy and clear procedures for identifying conflict of interest situations and the necessary measures to avoid them, and disclose in writing any situation that may involve a conflict of interest, including reviewing transactions with related parties and assessing their risks.
12. Determine the Company's need to contract with experts and consultants based on the recommendation of the Senior Executive Management, and determine their fees and contract terms.
13. Adopt a code of ethics for Board members and Company employees at all levels and job titles, such that this code includes clear principles, policies, and controls for work behaviors and professional conduct ethics, bearing in mind - in the case of companies practicing microfinance in accordance with Islamic Sharia - that this code must comply with the ethics standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions. It is the Company's responsibility to take necessary measures to verify that all executives in the Company are aware of it.
14. Establish performance evaluation criteria for the Senior Executive Management according to the Company's objectives and strategic plan.
15. Hold regular meetings with the Senior Executive Management and discuss the reports submitted by them.
16. Take steps to ensure the accuracy of information sent to the Central Bank.
17. Appoint the Body for a period of four years, renewable upon the recommendation of the Nomination and Remuneration Committee.

b. The Board shall meet periodically and whenever necessary, with the number of such meetings not being less than six meetings during the year, and no more than two months passing without holding a meeting. c. Board members shall attend Board meetings in person. In the event that personal attendance is not possible, a member may express their opinion via video or telephone or any other communication means after obtaining the Chairman's approval. They may also vote on Board decisions provided that:

1. This is documented properly.
2. The number of members present in person is not less than two-thirds of the Board members.
3. The percentage of personal attendance by the member is not less than (50%) of the Board meetings during the year.

Article (6): Chairman of the Board The Chairman of the Board shall perform, at a minimum, the following duties: a. Establish a constructive and effective relationship between the Board, the Senior Executive Management, and the Body. b. Ensure the Company's application of the best corporate governance standards. c. Ensure that the Senior Executive Management provides the Board with reports and information periodically, regularly, and at appropriate times, and that the Board and its members have accurate, sufficient, and necessary information well in advance of any meeting to enable them to make appropriate and sound decisions in the best interest of the Company. d. Encourage all Board members to participate effectively in discussing all matters pertaining to the Company within an atmosphere of mutual trust and open dialogue. e. Discuss strategic and important issues in Board meetings in detail. f. Verify that each Board member is provided with relevant legislation regarding the Company's work and the Central Bank's instructions related thereto, and informed of their responsibilities and duties. g. Ensure the existence of a charter regulating and defining the Board's work. h. Provide each member with a sufficient summary of the Company's activities upon appointment or upon request.

Article (7): Board Secretary The Board shall appoint a Secretary for the Board to perform, at a minimum, the following duties and responsibilities: a. Determine the dates of Board meetings and prepare for them. b. Prepare all necessary papers and documents for Board meetings and provide copies to each member well in advance of the meeting date. c. Attend all Board meetings, and record all deliberations, proposals, objections, reservations, and decisions made by the Board. d. Prepare minutes of Board meetings and decisions and ensure that all Board members sign them. e. Follow up on the implementation of Board decisions and follow up on any subject whose discussion was postponed and raised in a previous meeting. f. Keep records and documents of Board meetings. g. Provide the Central Bank with the fitness decisions signed by the Board.

Article (8): Sharia Supervisory Board a. The Company shall appoint a Sharia Supervisory Board, with the number of its members not being less than three persons of expertise and specialization, and its opinion shall be binding on the Company. b. A letter of engagement must be signed between the Company and the Body, whereby its scope of work, duties, responsibilities, and financial remuneration are determined. c. The Body shall perform the following duties:

1. Monitor the Company's operations and activities regarding its compliance with the provisions of Islamic Sharia.
2. Issue opinions on the forms of contracts necessary for its operations and activities.
3. Adopt the manual of Sharia work procedures for all the Company's operations.
4. Review and approve the internal Sharia audit report, which shall be submitted to the General Assembly and the Audit Committee.
5. Issue an opinion on the Memorandum of Association and Articles of Association and ensure their compatibility with the provisions and principles of Islamic Sharia.
6. Adopt the annual internal Sharia audit plan.
7. Study the observations contained in internal Sharia audit reports.
8. Consider any matters assigned to it pursuant to orders issued by the Central Bank for this purpose and issue an opinion thereon.
9. Ensure compliance with the code of ethics issued by the Accounting and Auditing Organization for Islamic Financial Institutions.
10. Approve the appointment of a resident Sharia auditor for the Company who possesses the necessary expertise and knowledge, and supervise their work and evaluate their performance, such that they serve as the Secretary of the Body, and shall perform, at a minimum, the following duties: a. Examine and evaluate the adequacy and effectiveness of the Company's Sharia supervision system. b. Monitor the Company's management's compliance with Sharia aspects, fatwas, and decisions issued by the Body. c. Prepare the annual internal Sharia audit plan and commit to implementing its provisions. d. Attend all Body meetings, record all deliberations, proposals, objections, reservations, and how votes are cast on draft decisions and fatwas, and keep records and documents of Body meetings. e. Answer daily questions and inquiries addressed to them by Company employees regarding the Sharia aspects of the Company's activities. f. Ensure that Body members sign the minutes of meetings and decisions, follow up on the implementation of fatwas and decisions taken by the Body, and provide a copy thereof to the Compliance Monitoring Director for information and action.

Article (9): Board Committees a. The Board shall form specialized committees from among its members in areas requiring specific expertise, and the Board shall define their authorities and monitor their performance. b. Each committee must have a work charter approved by the Board that defines its composition, objectives, duties, and work mechanism. c. The committee shall operate under the supervision of the Board and submit its reports and recommendations to it regarding the results of its performance of duties. d. The Board shall form, at a minimum, the following committees:

1. Audit Committee: a. This committee shall be formed of at least three members of the Board with appropriate practical experience in the Company's field of business, with the number of committee members not being less than (3) members, chaired by an independent member. The committee shall primarily exercise the following duties and authorities:

   1. Review the scope, results, comprehensiveness, and adequacy of the Company's internal and external audits.
   2. Review accounting issues having a material effect on the Company's financial statements.
   3. Review the adequacy and effectiveness of the Company's internal control and monitoring systems.
   4. Adopt the annual internal audit plan, review observations in internal audit reports, and follow up on measures taken regarding them.
   5. Obtain any information from the Senior Executive Management and have the right to summon any person to attend any of its meetings to discuss a specific matter.
   6. Supervise the Internal Audit Department, periodically review the results of its work, ensure that the Senior Executive Management implements the recommendations of the Internal Audit Department, and ensure the enhancement of the independence of internal auditors and giving them the appropriate status in the Company's job hierarchy.
   7. Meet with the Internal Auditor, External Auditor, and Company Compliance Monitoring Director at least once a year without the presence of any members of the Senior Executive Management.
   8. Recommend the appointment and acceptance of the resignation of the Director of the Internal Audit Department.
   9. Review observations in Central Bank reports and External Auditor reports and follow up on measures taken regarding them.
   10. Submit recommendations to the Board regarding the appointment of the External Auditor, termination of their work, fees, and all matters related thereto, such that the External Auditor possesses the qualifications and experience enabling them to perform their duties properly and have a good reputation and character.
   11. Review the Company's financial statements before presenting them to the Board, specifically verifying the application of Central Bank orders regarding expected credit loss provisions or any other provisions in accordance with effective instructions.
   12. Review and monitor procedures enabling Company employees to report errors in financial reports and other violations confidentially, and ensure that investigation results are followed up and addressed objectively and independently.
   13. Adopt a charter for Internal Audit, such that the charter enhances the function of Internal Audit, defines its authorities and relationship with other functions, and provides support to Internal Audit management in accessing all aspects of the Company's business. b. The work of this committee shall not be merged with any other committee. c. No member of the Audit Committee shall be a member of any committees emanating from the Board that have executive authorities. d. In the branch of a foreign company, an audit committee shall be formed by decision of the Board of Directors of the Parent Company, consisting of a chairman and two members from the directors of supervisory departments (Internal Audit, Risk Management, and Compliance Monitoring), chaired by the Director of the Internal Audit Department in the Branch, as follows:
   14. The committee shall exercise the duties and authorities stipulated in paragraph (d/1) of this Article.
   15. The committee shall operate under the supervision of the Audit Committee emanating from the Board of Directors of the Parent Company and submit its reports and recommendations to it regarding the results of its performance of duties.
   16. If the meeting relates to the work of any of the supervisory departments represented in the committee, the director of the relevant department shall not be allowed to vote on decisions and recommendations related to that department, and the Chairman of the Committee may request them to leave the meeting. In the event of any difference of opinion between the other two members, the matter shall be referred to the Board of Directors of the Parent Company or the committee emanating from it.
   17. The committee may invite any person to consult their opinion regarding a specific matter.

2. Risk Management Committee: a. This committee shall be formed of at least three members of the Board, one of whom must be an independent member. It may also include some members of the Senior Executive Management who are not Board members. b. The committee shall perform the following duties:

   1. Review the Company's risk management policy and framework before its approval by the Board.
   2. Discuss reports related to risk management and submit periodic reports to the Board indicating the extent to which existing risks are consistent with the approved policy and acceptable risk levels.
   3. Ensure the existence of a business continuity plan and examine and review it at least once a year.

3. Nomination and Remuneration Committee: a. This committee shall be formed of at least three members of the Board, one of whom must be an independent member. b. The committee shall perform the following duties:

   1. Identify qualified persons to join the Board membership, taking into account the capabilities and qualifications of the candidates. In the case of re-nominating a member, the number of their attendances and effectiveness in Board meetings shall also be taken into account.
   2. Nominate to the Board qualified persons to join the Senior Executive Management.
   3. Nominate to the Board qualified persons to join the Body.
   4. Determine whether a member qualifies as an independent member, taking into account the minimum conditions set forth in Article (4/b) of these Instructions, and review this annually.
   5. Follow specific and approved bases for evaluating the performance of the Board, its emanating committees, the Body, and the General Manager annually, such that the performance evaluation criterion is objective.
   6. Provide information and summaries regarding the background of some important topics about the Company to Board members upon request, and ensure their continuous awareness of the latest topics related to microfinance.
   7. Ensure the existence of a policy for granting bonuses to Company executives and review it periodically and ensure its application.
   8. Recommend the determination of the General Manager's salary and the remuneration and other privileges of the rest of the Senior Executive Management.

e. The Board may form other committees with the authorities and duties it deems necessary for the Company's business. f. Committee members shall attend meetings in person. In the event that personal attendance is not possible, a member may express their opinion via video or telephone after obtaining the Chairman's approval. They may also vote on decisions provided that:

1. This is documented properly.
2. The number of members present in person is not less than two-thirds of the committee members.
3. The percentage of personal attendance by the member is not less than (50%) of the committee meetings during the year.

g. It is prohibited for any Board member to be the chairman of more than one of the committees mentioned in these Instructions, and it is prohibited for them to be the chairman of more than two committees from all committees emanating from the Board.

Article (10): General Manager of the Company The General Manager shall perform, at a minimum, the following duties: a. Supervise the preparation of Company policies and submit them to the Board for approval, and ensure that the Company conducts its operations and activities in accordance with the strategies and policies approved by the Board. b. Develop the Company's strategic direction. c. Manage the Company's daily operations. d. Implement Board decisions. e. Provide the Board with financial, administrative, and other reports reflecting the Company's performance. f. Ensure the existence of effective internal control for the Company and ensure compliance with all relevant legislation. g. Provide the Central Bank, all other regulatory authorities, the Internal Auditor, the External Auditor of the Company, and any other legally authorized entity with all documents and information accurately and in a timely manner.

Article (11): Fitness a. Members of the Board, Senior Executive Management, and the Body must possess the highest degree of credibility, integrity, competence, necessary expertise, and the ability to commit and dedicate time to the Company's work. It is the responsibility of the Board and the Nomination and Remuneration Committee to ensure this. b. The Board's approval must be obtained when appointing or accepting the resignation or termination of service of any members of the Senior Executive Management or members of the Body in the Company. c. The prior non-objection of the Central Bank must be obtained when nominating any members of the Board and the Body, the General Manager, the Regional Director, the Audit Director, and the Compliance Monitoring Director. d. The Chairman of the Board must ensure that the Central Bank is informed of any material information that may negatively affect the fitness of any of its members. e. The Board must inform the Central Bank of any material information that may negatively affect the fitness of any members of the Senior Executive Management or members of the Body.

Article (12): Fitness of Board Members a. The Board shall adopt an effective policy to ensure the fitness of its members, which shall include, at a minimum, the standards, requirements, and conditions that must be met by the appointed member. This policy shall be reviewed whenever necessary, and sufficient procedures and systems shall be established to ensure that all members meet the fitness standards and continue to possess them. b. The following conditions must be met by those holding the position of Chairman or member of the Board:

1. They must be at least twenty-five years old.
2. They must have a good reputation and character.
3. They must not be a board member in any other microfinance company within the Kingdom or its General Manager or an employee thereof, unless the other company is a subsidiary of that company.
4. They must not be a lawyer, legal advisor, or external auditor of the Company.
5. All Board members must hold at least a Bachelor's degree, with the majority holding a scientific degree in Economics, Finance, Accounting, or Business Administration.
6. They must not be government employees or employees of any official public institution, unless they are representing it. c. The majority of Board members must have experience in the field of microfinance, banking, financial leasing, or any field related to lending and financing activities for a period of not less than three years. d. At least one Board member in companies practicing microfinance in accordance with Islamic Sharia must possess knowledge of financing activities compatible with the provisions of Islamic Sharia. e. The Chairman or members of the Board in companies that do not aim to achieve profit may not be elected for more than two consecutive terms. f. Each person holding the position of Chairman or member of the Board must sign the declaration contained in Appendix No. (1) of these Instructions, which shall be kept by the Company, and a copy thereof shall be sent to the Central Bank accompanied by the member's curriculum vitae. g. In addition to what is stated in paragraph (f) of this Article, all independent members must sign the declaration contained in Appendix No. (2) of these Instructions, which shall be kept by the Company, and a copy thereof shall be sent to the Central Bank.

Article (13): Fitness of Senior Executive Management Members a. The Board shall appoint a General Manager who possesses integrity, technical competence, and financial experience. b. The following conditions must be met by those appointed to the Senior Executive Management of the Company:

1. They must have a good reputation and character.
2. They must be dedicated to managing the Company's business.
3. They must not be a board member in any other company practicing microfinance activities within the Kingdom, unless the other company is a subsidiary of that company.
4. All members of the Senior Executive Management must hold at least a Bachelor's degree in specialties related to the positions they hold.
5. They must have experience in the field of microfinance, banking, financial leasing, or any field related to lending and financing activities for a period of not less than five years for the General Manager, and three years for the majority of members of the Senior Executive Management. c. Each person holding a position in the Senior Executive Management must sign the declaration contained in Appendix No. (3) of these Instructions, accompanied by documents, academic certificates, experience certificates, character certificates, and other necessary supporting documents, which shall be kept by the Company, and a copy thereof shall be sent to the Central Bank accompanied by the curriculum vitae. d. Without prejudice to what is stated in Article (11/c), the Central Bank may object to the appointment of any person to the Senior Executive Management if it finds that they do not meet any of the conditions set forth in paragraph (b) of this Article.

Article (14): Fitness of Sharia Supervisory Board Members a. The Board shall adopt an effective policy to ensure the fitness of the Body's members, which shall include, at a minimum, the standards, requirements, and conditions that must be met by the member. This policy shall be reviewed whenever necessary, and sufficient procedures and systems shall be established to ensure that all members meet the fitness standards and continue to possess them. b. The following conditions must be met by those holding the position of Chairman or member of the Body:

1. They must hold at least a Bachelor's degree in Sharia Sciences in the field of Islamic Jurisprudence and its principles, or Islamic Economics, or Islamic Finance.
2. They must have experience of not less than (3) years in issuing fatwas and Sharia rulings and/or experience in the field of teaching or scientific research of not less than (4) years after graduation. c. Each person holding the position of Chairman or member of the Body must sign the declaration contained in Appendix No. (4) of these Instructions, which shall be kept by the Company, and a copy thereof shall be sent to the Central Bank accompanied by the curriculum vitae.

Article (15): Shareholders'/Partners' Rights The Company shall provide shareholders/partners with all relevant information well in advance of the General Assembly meeting date to enable each shareholder/partner to make sound decisions based on correct and accurate facts and information.

Article (16): Disclosure and Transparency a. The Board shall adopt guiding principles for disclosure and transparency, which should aim to enhance effective communication with all stakeholders and encourage effective participation by shareholders/partners and all relevant persons and entities. b. The Board shall ensure the accuracy, correctness, and adequacy of disclosed information, and the disclosure process shall be conducted in a timely manner in a manner that ensures the arrival of all information, especially those that may have an impact on the decisions of regulatory authorities...