General Principles of Responsible Lending

Annex to the Decision No. 31/13 of the Board of Directors of the Central Bank of the Republic of Uzbekistan dated December 25, 2021

General Principles of Responsible Lending

The General Principles of Responsible Lending (hereinafter referred to as the Principles) define the approaches in relations related to the issuance of consumer loans and microloans (hereinafter referred to as loans) between commercial banks and microcredit organizations (hereinafter referred to as credit institutions) and borrower-individuals (hereinafter referred to as borrowers).

Chapter 1. General Provisions

1.1 These Principles were developed for the following purposes:

• to prevent risks that may arise in the issuance of loans to borrowers by credit institutions and to improve the quality of the credit portfolio;
• to ensure that borrowers responsibly assess their creditworthiness and that difficulties in making payments by debtors do not arise in the future.

1.2 The following main concepts are used in these Principles:

• responsible lender – a credit institution that offers loan products to borrowers, voluntarily accepts these Principles and complies with them;
• responsible lending – a set of ethical principles and norms that involves acting in the best interests of the customer, ensuring the affordability of payments, transparency of loan types and terms, and supporting the borrower if they encounter difficulties in making loan payments;

Chapter 2. Principles of Providing Information

2.1 The responsible lender provides borrowers with complete and reliable information about the requirements imposed on borrowers, the important terms of loan products, including the annual interest rate, the total cost of the loan, all types and amounts of commissions, fines, and penalties before the contract is signed. In this regard, the responsible lender must fill out and present to the borrower an information sheet on the main terms of the loan together with the borrower.

2.2 The responsible lender provides the borrower with a complete set of necessary information that allows for a full assessment of the loan product terms and makes an informed decision. Information provided and distributed by the responsible lender must be as open and understandable for the borrower as possible and should not distract them.

2.3 The responsible lender must explain information in clear, understandable, and simple language. Loan contracts and informational materials provided to borrowers, including copies of statements, reports on the use of bank cards, marketing and advertising materials, must be expressed in clear and understandable language, including ensuring that they are not subject to dual interpretation or complete misunderstanding by debtors who do not have specialized knowledge in the financial sector.

2.4 The responsible lender ensures the accessibility of its services and the availability of information about itself. At service locations and on its official website, the responsible lender posts documents confirming its right to provide loans, information about its working hours, addresses, and phone numbers.

2.5 The responsible lender explains to borrowers during the loan process that failure to timely fulfill obligations regarding loan repayment may lead to an increase in the debt burden due to the accrual of interest at an increased interest rate, penalties, and fines on the loan, that delayed payments have a negative impact on their credit history, and that this may limit the opportunity to obtain other loans in the future.

2.6 The responsible lender explains to the borrower the following, among others, for the purpose of preventing or reducing risks that may affect their financial situation in the future:

• to provide honest information about themselves;
• to carefully review the loan terms;
• to address questions to the responsible employee of the credit institution if the loan terms are not understood;
• to obtain one original copy of the concluded loan contract;
• to make loan payments within the deadlines specified in the loan contract;
• to inform the lender about this situation if they consider there to be suspicious practices regarding funds withdrawn from their bank card without acceptance (acceptance-free);
• not to sign documents related to loan processing (application forms, loan, pledge contracts) and payment documents (payment document forms) if information has not been entered (filled in);
• to keep copies of documents related to the loan (signed loan contract, documents related to payments made).

2.7 The responsible lender explains to third parties acting as guarantors and pledging their property about the risks that may arise in the future, specifically that if the borrower fails to repay the loan and accrued interest on time, the lender may demand payment of the resulting loan debts from the guarantor, that amounts may be collected without acceptance from the guarantor's bank accounts (bank cards) in the manner specified in the contract, and that if debts are not covered within the specified deadlines, lawsuits may be filed with the court authorities to collect them, resulting in the enforcement being directed against the guarantor's property or pledged property.

2.8 The responsible lender emphasizes to borrowers jointly that they are equally responsible for the existing debt, and about the risks that may arise in the future, specifically that if the borrower fails to repay the loan and accrued interest on time, the repayment of loan debts is considered the joint obligation of the co-borrowers, and that amounts may be collected without acceptance from their accounts in the bank (bank cards), and if debts are not covered within the specified deadlines, lawsuits may be filed with the court authorities to collect them.

2.9 The responsible lender must warn borrowers about the need to take into account the possibility of force majeure situations and other circumstances that may lead to their inability to fulfill their obligations during the loan process (including loss of employment, delayed receipt of salary and other types of income due to reasons beyond their control, difficulty in finding employment, a decrease in income resulting from deterioration of health).

Chapter 3. Principles of Assessing Borrowers' Repayment Capacity

3.1 The responsible lender establishes an effective procedure for assessing the borrower's creditworthiness before concluding a loan contract. According to the responsible lender's system for assessing borrowers' creditworthiness, excessive debt burden on the borrower must not be allowed.

3.2 The responsible lender undertakes the obligation to ensure that loan products that do not correspond to the borrowers' financial capabilities are not offered. During the consideration of applications from borrowers for loans, the responsible lender strives to determine whether they can repay the loan without difficulties or not.

3.3 If the borrower indicates that the terms of the loan contract offered by the credit institution do not suit them, the responsible lender should not urge the borrower to conclude this contract or advise increasing the lending limit.

3.4 The responsible lender studies the following to ensure that the loan funds provided to borrowers do not cause difficulties in the long term and assesses their creditworthiness:

• income;
• assets;
• existing debts;
• employment status;
• fixed and variable expenses;
• the number of people financially dependent on the borrowers;
• any foreseeable changes in their financial situation;
• other factors that may affect the ability to repay the loan.

Chapter 4. Principles of Responsible Loan Issuance by Credit Institutions

4.1 The responsible lender conducts open and conscientious activity in its relations with borrowers, fully complying with current legislation.

4.2 The responsible lender does not allow misleading existing and potential borrowers in its professional activity, hiding important information about loan products, falsifying documents, and also warns borrowers not to engage in such actions.

4.3 The responsible lender takes all necessary measures (training, professional development, quality control, etc.) to prevent the conclusion (extension) of loan contracts with customers through incorrect, dishonest, and incomplete information provision by its employees, representatives, or agents, as well as through pressure on borrowers.

4.4 The system of rewarding employees, representatives, and agents engaged in selling loan products and assessing the financial situation of borrowers takes into account their compliance with these Principles.

4.5 The responsible lender ensures that its employees, representatives, and agents have the necessary level of knowledge and skills in the field of lending, and also guarantees their courteous interaction with borrowers in accordance with ethical and moral rules.

4.6 The responsible lender provides high-quality services and treats all borrowers with respect, regardless of their gender, race, nationality, language, religion, social origin, belief, financial situation, personality, and social status.

4.7 The responsible lender uses information provided by the borrower only for determining their creditworthiness and for providing services to them in subsequent periods.

4.8 The responsible lender strictly observes the confidentiality of information provided by the borrower, takes all necessary measures to protect their personal data and not disclose bank secrecy, and discloses protected information only in cases provided for by current legislation.

4.9 Based on the request of a borrower who does not have specialized knowledge in finance and law, the responsible lender explains the necessary information or terms existing in the loan contract in a correct and understandable manner.

4.10 The responsible lender sends an SMS notification to the borrower confirming that their application and documents submitted to the bank by visiting the bank or through the remote service system have been accepted for execution.

4.11 The responsible lender sends notifications to the borrower when a loan is issued, fully repaid, and regarding loan payments made. Notifications may also be sent in SMS form as agreed with borrowers in the contract.

4.12 The responsible lender expresses all terms of the contract in a font of uniform size, and also, at the borrower's request before signing the contract, provides a sample form of the loan product for the borrower to familiarize themselves with its terms. The borrower has the right to take the loan contract with them to fully familiarize themselves with its terms and make a reasoned decision before signing it.

4.13 The responsible lender specifies in writing all terms related to the issuance and repayment of the loan in the contract, including the date of loan issuance, amount, loan term, methods and schedule for repaying loan debt, the amount of the annual and effective interest rate, the amount of monthly payments (or the method of determining it), all types of commissions and their amounts, the total cost of the loan product, applicable penalty sanctions (penalties and fines), the possibility of early repayment of the loan, and other terms.

4.14 Each page of the loan contract concluded between the responsible lender and the borrower for the purpose of obtaining confirmation that the borrower has familiarized themselves with the lending terms must be personally signed by the borrower. After the contract is signed in two copies, the responsible lender presents one original copy of the contract signed by its authorized representative to the borrower.

4.15 The responsible lender strives to create all opportunities for the borrower to contact them, and also conveys information about such communication methods to the borrowers.

4.16 The responsible lender takes all necessary measures to ensure the most affordable and convenient conditions for borrowers to fulfill their obligations regarding loan repayment.

4.17 When a borrower expresses a desire to conclude an additional service contract related to lending, the responsible lender takes measures together with the borrower to ensure that the borrower does not fall into a situation where their total debt burden does not allow sufficient income to meet ordinary daily needs.

4.18 The sale of additional loan products to the borrower is carried out based on the results of the preliminary assessment of the borrower's creditworthiness by the responsible lender, taking into account the borrower's existing debts and the opportunity to simultaneously repay several loans.

4.19 The responsible lender does not offer additional loan products to the borrower without obtaining their written consent confirmed by their signature.

4.20 If changes introduced into the terms of the previously provided loan product bring unfavorable consequences for the borrower or cause additional expenses for them, the responsible lender does not change any terms of the currently concluded contract for such provided loan product without obtaining the borrower's prior written consent.

4.21 The responsible lender develops internal rules regulating the actions of the responsible lender aimed at objectively assessing the causes of the borrower's financial difficulties and finding a responsible solution acceptable for both the responsible lender and the disciplined debtor in this situation.

4.22 The responsible lender complies with the requirements of legislation on advertising when advertising loan products.

4.23 The responsible lender develops clear and transparent rules for accounting and repaying debt, and also defines the borrower's right to refuse to take a loan product and the right to fulfill their obligations under the loan contract in advance.

4.24 To prevent the borrower's debt from increasing significantly due to a lack of funds, the responsible lender determines and explains to borrowers the order of withdrawal of funds directed to the repayment of the loan as specified in the contract.

4.25 The responsible lender must not allow aggressive debt collection practices.

4.26 The responsible lender does not restrict the borrower's right to appeal to court to protect their rights. The borrower of the responsible lender may appeal to the court at their choice: at their place of residence, at the place where the contract was concluded, or at the place where the responsible lender is located.

4.27 The responsible lender takes all possible measures to resolve disputes out of court.

4.28 The responsible lender voluntarily and independently establishes and implements necessary measures, procedures, and inspections to ensure compliance with these Principles.

4.29 The opportunities and conditions for making payments related to the repayment of loan debt are established by the responsible lender in such a way that the borrower must have sufficient time to make payments to prevent the accrual of high interest and fines for delaying the loan term, including the responsible lender creates an opportunity for the borrower to independently choose the date for making payments.

4.30 The responsible lender provides the borrower with a set of information about all terms of the provision and use of the loan product, as well as other useful information for the purpose of preventing delays in payments by the borrower.

Chapter 5. Principles of Insurance in Responsible Lending

5.1. The responsible lender requires insurance of risks from the borrower only when provided for by legislation or when the specific characteristics of a certain loan product require it. If a certain loan product implies mandatory insurance, the responsible lender gives the borrower the right to choose an insurance company.

5.2. If, in the opinion of the responsible lender, it is necessary to conclude an insurance contract when concluding a loan contract, the borrower must be given the right to voluntarily choose the loan product with or without an insurance contract.

5.3 If the amount of the insurance payment received under the insurance contract by the responsible lender exceeds the sum belonging to them as the beneficiary, the responsible lender must return the difference to the borrower or their heirs without unjustified delays.