Circular to Banks and Financial Institutions No. 04 of 2016

Tunisia, 15 September 2016

Circular to Banks and Financial Institutions No. 04 of 2016

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The Governor of the Central Bank of Tunisia,

Having examined Law No. 2012-53 dated 3 April 2012 on the basic statute of the Central Bank of Tunisia,

Having examined Law No. 2012-84 dated 11 July 2012 on banks and financial institutions,

Having examined Law No. 2014-52 dated 24 July 2014 approving the loan agreement signed in Tunis on 8 April 2014 between the Government of the Tunisian Republic and the Arab Fund for Economic and Social Development as manager of the "Special Account",

Having examined the loan management agreement signed on 11 December 2014 between the Ministry of Economy and Finance and the Central Bank of Tunisia, implementing the loan agreement approved by Law No. 2014-52 dated 24 July 2014 mentioned above,

Subject: Financing line of 31 million US dollars or its equivalent, implemented pursuant to the provisions of Law No. 2014-52 dated 24 July 2014 approving the loan agreement signed in Tunis on 8 April 2014 between the Government of the Tunisian Republic and the Arab Fund for Economic and Social Development as manager of the "Special Account".

Having examined the annex to the loan management agreement signed on 18 March 2016 between the Ministry of Finance and the Central Bank of Tunisia,

Has decided as follows:

Article 1: This circular sets out the conditions for the use by banks and financial institutions of the financing line under their custody, and the criteria for granting loans to final beneficiaries, with the aim of contributing to efforts to support micro, small and medium-sized project financing institutions and startups, whether established or in the formation phase, with a developmental dimension in the Tunisian Republic across all economic sectors, regardless of their nature, and to support microfinance institutions in providing new job opportunities, poverty reduction, and increased production.

Chapter One: General Provisions

Article 2: The Central Bank of Tunisia establishes a financing line of 31 million US dollars or its equivalent in Tunisian dinars, under the custody of banks and financial institutions, specifically for granting loans to micro and small private sector enterprises.

Article 3: For the purposes of this circular, the following terms shall have the meanings indicated below:

1. Financing line: A sum of 31 million US dollars or its equivalent in Tunisian dinars, from the loan agreement between the Tunisian Republic and the Arab Fund for Economic and Social Development, approved by Law No. 2014-52 dated 24 July 2014, managed by the Central Bank of Tunisia.
2. Loan: The loan contract concluded between the bank or financial institution and the final beneficiary, funded from the use of the financing line.
3. Banks and financial institutions: As defined by Law No. 2012-84 dated 11 July 2012 on banks and financial institutions.
4. Micro, small and medium-sized enterprises or final beneficiaries: Any micro or small enterprise regardless of size or activity, whether established or in the formation phase in the Tunisian Republic.
5. Special Account for project and micro/small enterprise financing: The account opened by banks and financial institutions with the Central Bank of Tunisia to receive funds withdrawn from the financing line for the purpose of granting and disbursing loans.
6. Account currency: The Special Account shall be denominated in US dollars or Tunisian dinars, or both, according to the request of the bank or financial institution.
7. Direct deduction: The deduction by the Central Bank of Tunisia from the bank's account of the outstanding installments, taking into account the final beneficiary's compliance with obligations.

Chapter Two: Conditions for Access to the Financing Line

Article 4: Banks, financial institutions, and private sector micro and small enterprises must meet the conditions and obligations stipulated in this circular.

Section One: Conditions Applicable to Banks and Financial Institutions a- Conditions for accessing the financing line

Article 5: Any bank or financial institution wishing to use the financing line must notify the Central Bank of Tunisia (External Payments Department) in writing and obtain its approval for its use under the conditions set out in this circular.

Article 6: Each bank or financial institution wishing to use the loan shall open a bank account named "Special Account for Project and Micro/Small Enterprise Financing", dedicated to funds withdrawn in US dollars or Tunisian dinars, according to the bank's request. This account shall be subject to audit by the bank's or financial institution's statutory auditors.

Article 7: Before submitting a withdrawal request, the bank or financial institution must provide the Central Bank of Tunisia (External Payments Department) with the identity, capacity, and specimen signature(s) of the person(s) authorized to submit withdrawal requests on its behalf.

Article 8: The bank or financial institution shall submit withdrawal requests to the Central Bank of Tunisia (External Payments Department) accompanied by the following documents:

• A list containing existing or planned projects, the approved financing program, and the work plan intended to be followed for the use of the requested withdrawal amount, according to the annex.
• A detailed report on the use of amounts previously withdrawn from the financing line.

Article 9: The bank or financial institution must use the Special Account exclusively for granting loans to micro and small enterprises and supporting microfinance institutions, and for recording installment disbursements.

b- Conditions for utilizing the financing line

Article 10: The Central Bank of Tunisia shall establish repayment schedules for withdrawn amounts, which it shall forward to the bank or financial institution.

Article 11: The bank or financial institution shall repay the withdrawn amounts from the financing line in installments not exceeding fifteen (15) monthly installments, following a grace period of up to five (5) years from the date of each withdrawal operation.

Article 12: The bank or financial institution shall pay an annual interest rate of:

• 6% on withdrawn and unpaid amounts granted in US dollars.
• 2% on withdrawn and unpaid amounts granted in Tunisian dinars. Interest shall be calculated from the withdrawal date on an annual basis. The year shall consist of three hundred and sixty (360) days, and the month of thirty (30) days.

Article 13: The bank or financial institution is committed to expanding the base of beneficiaries by recycling repaid installments and other collected amounts from lending operations, and reusing them for the same purpose for which the Special Account loan was granted. The bank or financial institution is committed to returning all repaid amounts to the Central Bank of Tunisia in the event that repaid installments are not recycled.

Article 14: Installments shall be due on March 1 and September 1 of each year.

Article 15: The Central Bank of Tunisia shall directly deduct from the bank's account opened with it the principal of each installment and its interest upon maturity. Financial institutions must obtain prior authorization from the Central Bank of Tunisia to exercise direct deduction of the principal and interest of each installment from their account opened with the Central Bank of Tunisia upon maturity. The bank or financial institution may not claim against this deduction any payments related to its contractual or non-contractual relationship with the beneficiary, nor may it waive, wholly or partially, the settlement or non-performance of any obligation.

Article 16: The accounting records of the bank or financial institution must clearly show the amounts withdrawn from the Special Account opened with it and their utilization. These operations shall be audited.

Article 17: The Special Account opened with the bank or financial institution shall be audited by statutory auditors according to recognized auditing standards. They must provide the Central Bank of Tunisia within a period not exceeding six (6) months from the end of each financial year with a report expressing their opinion on the accuracy of the financial statements of the opened account, the validity of contracts, books, accounting documents, and bank statements related to it, and the bank's or financial institution's compliance with the provisions of this circular.

Article 18: The bank or financial institution must, upon request, provide the Central Bank of Tunisia with all information and data related to the use of the loan, the financial and administrative status of the beneficiary institutions, and the jobs created or that can be created. It must also provide information on defaulting and late-paying beneficiaries, and aggregate statistics on non-compliance, delays in compliance, and repayment.

Article 19: The bank or financial institution undertakes to notify the Central Bank of Tunisia (External Payments Department) in Arabic, according to the attached model:

• Within one month from the end of each quarter: A detailed report on the progress of program implementation, showing the use of withdrawn loan amounts, the financing amount granted for each beneficiary project, and the purpose of financing, as well as data on micro and small enterprises regarding their size, ownership, objectives, activities, job creation, and geographical location.
• A report on the number of defaulting or late-paying beneficiaries, their duration, and their percentage relative to the total program credit portfolio.
• A report on any events of major impact, or likely to have a major impact, on the status of the Special Account.

Article 20: The bank or financial institution shall submit to the Central Bank of Tunisia (External Payments Department) a copy of the annual closing accounts of the Special Account and the statutory auditors' report related to it, within a period not exceeding four months from the end of the year.

Article 21: In the event of failure to submit these reports within the specified period, the Central Bank of Tunisia may deduct from the bank's account the withdrawn amounts.

Article 22: The bank or financial institution shall cooperate with the Central Bank of Tunisia to determine the Arab Fund's deadline, duration, and procedures prior to the Economic and Social Development Representative's inspection of the Special Account's implementation progress and related documents and operations.

Section Two: Conditions Applicable to Final Beneficiaries and Obligations a- Conditions Applicable to Final Beneficiaries upon Loan Contract Conclusion

Article 23: The final beneficiary must not have any outstanding financial or non-financial banking commitments registered at the Credit Information Center of the Central Bank of Tunisia, as per Circular No. 2014-02 dated 11 March 2014.

Article 24: The loan must not be used to repay a previous loan or financial commitment, whether granted by the bank or financial institution or another creditor.

Article 25: The submitted project must have acceptable economic viability and contribute to creating new jobs.

Article 26: The loan value may not exceed 10% of the investment cost of the new project submitted by the final beneficiary. It may not exceed 70% of the investment cost for planned expansions in production capacity projects for established enterprises.

Article 27: The project must not have a negative impact on the surrounding environment. Projects licensed by the State must comply with environmental requirements, without the need to engage a specialized environmental expert.

Article 28: Priority shall be given to projects using goods, merchandise, or materials of Tunisian origin.

Article 29: The loan value provided by the bank or financial institution, whether for financing new projects or expanding existing ones, may not exceed three (3) million Tunisian dinars, and the loan term may not exceed ten (10) years, including a grace period not exceeding five (5) years.

b- Obligations of Final Beneficiaries upon Loan Contract Conclusion

Article 30: Loan contracts between banks/financial institutions and beneficiaries must include conditions and procedures ensuring:

• Beneficiaries allocate the obtained financing to achieve the objectives of Article 1.
• Implementation and completion of financed projects according to sound technical, financial, and administrative standards.
• Adherence to transparency and competition rules to obtain goods and services necessary for implementing financed projects.

Article 31: Loan contracts between banks/financial institutions and beneficiaries must include conditions and procedures ensuring the implementation of projects according to sound technical, financial, and administrative standards.

Article 32: Banks or financial institutions shall grant final beneficiaries an interest rate not exceeding:

• 8.5% per year in the case of lending in US dollars.
• 4.5% per year as a maximum in the case of lending in Tunisian dinars. Banks or financial institutions may withdraw funds in US dollars and lend them in Tunisian dinars. The year shall consist of three hundred and sixty (360) days, and the month of thirty (30) days.

Article 33: The final beneficiary shall repay the withdrawn loan amounts over ten (10) years maximum, following a grace period of up to five (5) years from the date of each withdrawal operation.

Article 34: The final deadline for using the resources of this loan is January 12, 2020.

Article 35: The obligations stipulated in Circular No. 2013-12 shall remain in force for banks that have used program resources vis-à-vis final beneficiaries.

Article 36: The obligations stipulated in Circular No. 2013-12 shall remain in force for banks that have used program resources vis-à-vis the Central Bank of Tunisia, insofar as they do not conflict with this circular, until banks and financial institutions.

Article 37: Circular No. 2013-12 dated 15 April 2013 is hereby repealed and replaced by this circular addressed to banks and financial institutions, concerning a financing line of 31 million US dollars or its equivalent, implemented pursuant to Law No. 2014-52 dated 24 July 2014 approving the loan agreement signed in Tunis on 8 April 2014 between the Government of the Tunisian Republic and the Arab Fund for Economic and Social Development as manager of the "Special Account".

Article 38: This circular shall enter into force upon its publication and shall apply to banks that have used the financing line pursuant to the provisions of Circular No. 2013-12 dated 15 April 2013.

The Governor Chedly Ayari

Annex Financing Requests Reference: Lending Institution Name: Intermediary Institution Name (if any): Withdrawal Request Number: We hereby submit the following projects for financing:

Project Name	Project Type	Project Location (Governorate)	Project Owner Type	Total Cost	Loan Amount	Investor Contribution	Remarks
				USD / TND	USD / TND	USD / TND	Special Account

Borrower: Authorized Signatory(s) Name and Surname: Position: Signature: