Instruction No. 001/2024-CSBF on the Refinancing Conditions for Microfinance Institutions

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BANKY FOIBEN'I MADAGASIKARA

COMMISSION DE SUPERVISION BANCAIRE ET FINANCIERE

INSTRUCTION N° 001/2024-CSBF ON THE REFINANCING CONDITIONS FOR MICROFINANCE INSTITUTIONS

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The Banking and Financial Supervision Commission (CSBF),

Having regard to Law No. 2020-011 of September 1, 2020 on banking law,

Having regard to Law No. 2017-026 of February 8, 2018 on microfinance,

Having regard to Decree No. 2021-005 of February 24, 2021 setting the minimum capital and nominal value of shares or partnership interests of microfinance institutions,

Having regard to Instruction No. 003/2019-CSBF of September 6, 2019 on prudential ratios and management indicators for microfinance institutions,

Having regard to Instruction No. 002/2022-CSBF of December 20, 2022 on regulatory capital for credit institutions,

Having regard to the opinion formulated by the Professional Association of MFIs (APIMF),

DECIDES

CHAPTER ONE - GENERAL PROVISIONS

Article 1: Purpose

This instruction aims to set the refinancing conditions for microfinance institutions with other microfinance institutions, other credit institutions, and any entity.

Article 2: Definitions

For the purposes of this instruction, the following terms shall mean:

• credit institution, abbreviated as CI, any entity referred to in Article 14 of the aforementioned banking law;
• microfinance institution, abbreviated as MFI, any entity referred to in Article 7 of the aforementioned microfinance law;
• bank, any entity referred to in Article 15 of the aforementioned banking law;
• financial institution, any entity referred to in Article 18 of the aforementioned banking law;
• entity, any entity other than CIs.

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CHAPTER TWO - REFINANCING BETWEEN MFIS

Article 3: Refinancing conditions with other MFIs

3.1. MFIs authorized to refinance with other MFIs must meet all of the following conditions:
a. on solvency,

• the minimum solvency ratio, as defined by Instruction No. 003/2019-CSBF aforementioned, is met;
• regulatory capital and core capital, as defined by Instruction No. 002/2022-CSBF aforementioned, are positive;
• cumulative losses, taken into account in full and including interim losses incurred during the period, are less than 50% of equity as defined by the CI accounting plan;
• equity as defined by the CI accounting plan exceeds the amount of the regulatory minimum capital;
  b. on portfolio quality,
• the portfolio at risk rate overdue by 30 days (PAR 30) does not exceed a maximum of 10% over the past three years;
• the risk diversification ratio, as defined by Instruction No. 003/2019-CSBF aforementioned, is met;
  c. on sustainability and profitability,
• the operating ratio does not exceed 100% over the past three years;
• return on assets (ROA), calculated monthly based on the latest up-to-date regulatory reporting statements, is positive;
• return on equity (ROE), calculated monthly based on the latest up-to-date regulatory reporting statements, is positive;
• the current deposit coverage ratio, as defined by Instruction No. 003/2019-CSBF aforementioned, is met.
  d. on account reliability, the certified financial statements of the preceding fiscal year must not contain any reservations by the auditor(s). e. on governance, the internal control and risk management mechanisms in place must comply with current regulations.

3.2. Refinancing operations between MFIs are conducted exclusively on the Banky Foiben'i Madagasikara platform dedicated to the inter-MFI market.

Article 4: Eligible MFIs

Only the CSBF is authorized to rule on the eligibility of an MFI to refinance with other MFIs.

The General Secretariat of the CSBF (SG-CSBF) monthly establishes the list of MFIs eligible to refinance with other MFIs, based on the conditions set out in Article 3 above. It transmits said list to the Professional Association of MFIs and the Directorate in charge of Monetary Operations at Banky Foiben'i Madagasikara, within ten (10) business days from the receipt of periodic statements, by any means leaving a written trace.

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CHAPTER THREE - REFINANCING WITH OTHER CIs AND ANY ENTITY

Article 5: Refinancing conditions with other CIs

Refinancing of MFIs with other CIs is not subject to specific criteria set by the CSBF.

Other CIs must carry out the required due diligence and set the refinancing conditions for MFIs to secure their funds.

Article 6: Refinancing conditions with any entity

Refinancing of MFIs with any entity is subject to prior authorization from the SG-CSBF. To this end, the MFI communicates to the SG-CSBF the following documents:

• the draft loan agreement between the MFI and the lending entity;
• the MFI borrower's three-year projected cash flow plan;
• information on the impact of refinancing costs on interest rates charged to clients;
• documents justifying the origin of the lending entity's funds.

MFIs are required to communicate any other supplementary information requested by the SG-CSBF.

CHAPTER FOUR - FINAL PROVISIONS

Article 7: Sanctions

When an MFI fails to comply with the provisions of this instruction, the CSBF may impose one or more disciplinary and financial sanctions provided for by current legislation.

Article 8: Entry into force

This instruction enters into force upon its notification to the Professional Association of MFIs and its publication on the Banky Foiben'i Madagasikara website.

Done in Antananarivo, on 17 DEC 2024

For the Banking and Financial Supervision Commission,

[Signature]
THE PRESIDENT,
Aivo H. ANDRIANARIVELO