Instruction No. 001/2017-CSBF on the Operations of Microfinance Institutions (MFIs)

Instruction No. 001/2017-CSBF on the Operations of Microfinance Institutions (MFIs)

The Banking and Financial Supervision Commission (CSBF),

Having regard to Law No. 95-030 of February 22, 1996, relating to the activity and supervision of credit institutions, as amended;

Having regard to Law No. 2005-016 of September 29, 2005, relating to the activity and supervision of microfinance institutions;

Having regard to Decree No. 2007-012 of January 9, 2007, fixing the legal forms of microfinance institutions and the procedures for their registration in the trade and companies register;

Having regard to Decree No. 2007-013 of January 9, 2007, fixing the minimum capital of credit institutions and the nominal value of participation securities;

Having regard to Decree No. 2014-1684 of October 29, 2014, appointing the Governor of the Central Bank of Madagascar;

Having regard to Instruction No. 001/2000-CSBF of February 1, 2000, relating to the available own funds of credit institutions;

Having regard to Instruction No. 001/2008-CSBF of November 14, 2008, relating to the financial transparency of MFIs;

Having regard to Instruction No. 002/2008-CSBF of November 14, 2008, relating to the prudential standards for MFIs 2 and 3;

Having regard to the opinion formulated by the profession pursuant to the last paragraph of Article 36 of the aforementioned Law No. 95-030;

DECIDES:

Article 1: General Provisions

This instruction determines the operations that MFIs are authorized to perform based on their minimum capital, legal form, respective classification level, and mutualist or non-mutualist status.

A summary table of authorized operations is provided in Annex 1.

Microfinance institutions (MFIs) must define and implement a system enabling them to:

(i) verify the adequacy between the magnitude of risks incurred and the classification level, operating structures, and internal control system established;

(ii) ensure their profitability, viability, and solvency through sound management and good portfolio distribution of credit to promote financial inclusion.

All operations other than those provided for in this instruction are prohibited.

Article 2: Definitions

Pursuant to Articles 14, 15, and 16 of the aforementioned Law No. 2005-016, the terms for credits for any MFI are defined as follows:

• short term: initial contractual maturity of less than one (1) year;
• medium term: initial contractual maturity of one (1) to five (5) years;
• long term: initial contractual maturity of more than five (5) years.

The regulatory minimum capital, according to the classification level and mutualist or non-mutualist status, is defined by the aforementioned Decree No. 2007-013.

Pursuant to this instruction, other definitions are grouped in the glossary in Annex 2.

Article 3: Limits on Operations for Level 1 MFIs (MFI1)

3.1. Credit

MFI 1s grant only short-term credits.

The amount of individual credit granted to a natural person must not exceed 6,000,000 ariary for MFI 1s.

MFI 1s may grant credits to groups, provided that the total amount of credit granted does not exceed 24,000,000 ariary regardless of the number of group members, and provided that the individual amount per beneficiary does not exceed the limit stated in the previous paragraph.

3.2. Savings/Deposits

Mutualist MFI 1s may receive guarantee deposits related to credits defined in the glossary.

Mutualist MFI 1s may collect savings from their members, as defined in the glossary, without exceeding 1,000,000 ariary per member.

Non-mutualist MFI 1s may receive mandatory deposits or guarantee deposits related to credits defined in the glossary.

Non-mutualist MFI 1s cannot collect public deposits, as defined in the glossary.

3.3. Ancillary Operations

As ancillary services to microfinance, MFI 1s may perform the following operations:

• advisory and training services in favor of financial inclusion;
• internal transfer operations, for their own account or on behalf of clients, carried out within the same MFI or within the same mutualist network, using any technological means or process authorized by the relevant current regulations.

3.4. Membership

The number of members of a mutualist MFI 1 must not exceed 1,500.

3.5. Updating of Thresholds

The aforementioned thresholds may be updated by circular of the President of the CSBF.

Article 4: Limits on Operations for Level 2 and 3 MFIs (MFI2 and 3)

4.1. Credit

MFI 2s grant short- and medium-term credits, including hire-purchase (credit-bail).

MFI 3s grant short-, medium-, and long-term credits, including hire-purchase (credit-bail).

MFI 2s and 3s must permanently respect the risk division ratio established by the CSBF. To this end, they are required to comply with the relevant regulatory provisions.

4.2. Savings/Deposits

Mutualist MFI 2s and 3s collect only the savings of their members. As an exception, they may receive time deposits from other MFIs and other organizations with the prior authorization of the CSBF pursuant to Article 55 of the aforementioned Law No. 2005-016.

Non-mutualist MFI 2s and 3s are authorized to collect public deposits when:

• they are constituted as a public limited company (société anonyme) with multiple shareholders;
• they possess the minimum capital required for MFIs authorized to collect public deposits in accordance with the decree on the minimum capital of credit institutions.

Non-mutualist MFI 2s and 3s may collect deposits from other MFIs with the prior authorization of the CSBF.

4.3. Ancillary Operations

MFI 2s and 3s are authorized to provide the following ancillary services:

• internal transfer operations, for their own account or on behalf of clients, carried out within the same MFI or within the same mutualist network, using any technological means or process authorized by the relevant current regulations;
• safe deposit box rental;
• advisory and training services in favor of financial inclusion;
• fund transfers denominated in national currency destined for or originating from credit institutions authorized to perform these operations in Madagascar;
• and any other service promoting financial inclusion, with the prior authorization of the CSBF.

MFI 2s and 3s must, at all times, respect the regulations relating to prudential standards.

Article 5: Declarations

MFI 1s must send to the General Secretariat of the CSBF, no later than January 31 of the following fiscal year, a control statement on the compliance with the limits stipulated in this instruction, using the model in Annex 3. For mutualist MFIs affiliated with a central body, the declarations are centralized, validated, and transmitted by that body.

MFI 2s and 3s are required to comply with the provisions of the instruction on the financial transparency of MFIs.

Article 6: Derogation Provision

The CSBF may authorize an institution to temporarily derogate from the provisions of this instruction, granting it a deadline to regularize its situation.

Article 7: Sanctions

Violation of the provisions of this instruction results in the application of the sanctions established by the aforementioned Laws No. 95-030 and No. 2005-016.

Article 8: Final Provisions

Instruction No. 005/2007-CSBF of May 11, 2007, relating to the operations of microfinance institutions, is repealed.

The annexes form an integral part of this instruction.

This instruction enters into force upon notification to the Professional Association.

Done in Antananarivo, on January 31, 2017

For the Banking and Financial Supervision Commission,

The President,

Alain H. RASOLOFONDRAIBE

Governor of Banky Foiben'i Madagasikara