Instruction No. 0011 on the Operation of a Federation of Savings and Credit Cooperatives

INSTRUCTION NO. 0011 RELATIVE TO THE OPERATION OF A FEDERATION

The Central Bank of Congo,

Having regard to Law No. 005/2002 of May 7, 2002, relating to the establishment, organization, and operation of the Central Bank of Congo, specifically Article 6;

Having regard to Law No. 003/2002 of February 2, 2002, relating to the activity and control of Credit Institutions, specifically Articles 24 to 30;

Having regard to Law No. 002/2002 of February 2, 2002, laying down provisions applicable to Savings and Credit Cooperatives, specifically Articles 58 to 96;

Decrees:

TITLE I: DEFINITIONS, OBJECT, AND SCOPE OF APPLICATION

CHAPTER I: DEFINITIONS

Article 1

For the purposes of this Instruction, the following terms are considered as:

1. Subject to regulation: any Primary Savings and Credit Cooperative or any Central Savings and Credit Cooperative affiliated with a federation;

2. Central Savings and Credit Cooperative, abbreviated as "COOCEC": any Savings and Credit Cooperative whose members are exclusively COOPECs;

3. Savings and Credit Cooperative: any association of persons, with variable capital, endowed with legal personality, and founded on the principles of union, solidarity, and mutual assistance, primarily aimed at collecting savings from its members and granting them credit;

4. Primary Savings and Credit Cooperative, abbreviated as "COOPEC": any Savings and Credit Cooperative primarily composed of natural persons and counting at least twenty members, operating according to the principles listed in Article 9 of Law No. 002/2002 of February 2, 2002, laying down provisions applicable to Savings and Credit Cooperatives;

5. Federation: a structure grouping COOPECs or COOCECs;

6. Federation of Central Savings and Credit Cooperatives, abbreviated as "FEDERATION": any Savings and Credit Cooperative composed exclusively of COOCECs;

7. Network: the set of Savings and Credit Cooperatives affiliated with the same COOCEC or FEDERATION according to the grouping modalities defined by Law No. 002/2002 of February 2, 2002, laying down provisions applicable to Savings and Credit Cooperatives.

CHAPTER 2: OBJECT AND SCOPE OF APPLICATION

Article 2

This Instruction determines the operation of the federation.

It also sets out the missions, management rules, supervision modalities, as well as financial disclosure and reports to be produced.

Article 3

This Instruction applies to Central Savings and Credit Cooperatives as well as to Federations of Central Savings and Credit Cooperatives exercising their activities on the territory of the Democratic Republic of Congo.

TITLE II: APPROVAL

Article 4

Without prejudice to the conditions provided for in Articles 12 to 19 of Law No. 002/2002 of February 2, 2012, laying down provisions applicable to Savings and Credit Cooperatives, the application for approval as a federation must primarily include the following documents:

– draft affiliation agreements between the subjects to regulation and the federation seeking approval; – the minutes of the General Assembly deciding on the creation of the federation; – the notarized minutes of the General Assemblies of all subjects to regulation having consented to the grouping; – documents attesting to the approval of the institutions to be grouped; – certified financial statements of the subjects to regulation for the previous fiscal year; – the business plan; – the procedure manuals; – the training plan for managers and staff; – the inspection manual for the subjects to regulation; – the internal regulations of any fund established to address risks related to its activities.

Article 5

The affiliation agreement must include in particular the conditions, commitments, and obligations of each party and other modalities such as branding, disaffiliation, suspension, exclusion, confidentiality, communication, duration, notices and information, disputes and differences, assignment, suspension, and eventual legal proceedings.

TITLE III: MISSIONS OF A FEDERATION

Article 6

Federations and their subjects to regulation form networks characterized notably by the pooling of resources, standardization of operations, contractual solidarity, and internal governance rules.

Article 7

Federations are called upon to ensure the guidance and financial education of the subjects to regulation, while serving as a relay to favor efficient supervision by the Central Bank of Congo over the entire network.

Article 8

Federations are essentially centers for coordination, control, planning, and service provision to their subjects to regulation. Their mission is:

• to secure the assets of the members of their subjects to regulation by: – efficient representation within the federation; – compliance with the legal and regulatory texts of the Regulatory Authority; – compliance with agreements concluded with certain organizations; – document-based and on-site controls; – risk management;

• to ensure institutional strengthening through: – operational support: liquidity management, fund circulation, credit management to subjects to regulation, authorization of credits exceeding the fixed ceiling or to related persons as defined in Article 27 of Instruction No. 002 on prudential standards, technical assistance, and training; – maintenance of practice standardization: normalization of products and services, policies, and procedures; – IT and logistical support.

TITLE IV: MANAGEMENT OF THE FEDERATION

Article 9

A federation, within the framework of its attributions provided for in Articles 92 and 93 of Chapter II of Title III of Law No. 002/2002 laying down provisions applicable to Savings and Credit Cooperatives, must adopt statutes, rules, policies, procedures, and mechanisms covering notably the management of operations and relations with the subjects to regulation.

CHAPTER 1: STATUTES

Article 10

The statutes of a federation must comply with the requirements provided for in Article 12 of Law No. 002/2002 laying down provisions applicable to Savings and Credit Cooperatives concerning its establishment, denomination, area of intervention, headquarters, corporate purpose, members, share capital, financial resources, organs, management, self-control, external control, supervision, management and disclosure rules, registers, and other final and transitional provisions.

Article 11

The statutes are an integral part of the approval application.

Any subsequent modification of the statutes adopted by the General Assembly of the federation must be submitted for approval to the Central Bank of Congo within a period of one month from the date of their change.

CHAPTER 2: RULES, POLICIES, AND MANAGEMENT MECHANISMS

Section 1: Rules and Policies

Article 12

The rules, policies, and management mechanisms must be transmitted to the Central Bank of Congo for opinion within 30 days following their approval by the Board of Directors.

Article 13

Any federation must adopt a policy regarding the liquidity of subjects to regulation in compliance with the requirements of the legal and regulatory texts in this matter.

This policy must have as objectives notably: – maintaining sufficient liquidity to ensure the financing of members' needs; – investing funds in a manner that meets security requirements and liquidity needs; – establishing limits and standards to be applied in the management of investments and liquidity.

Article 14

The asset elements considered for liquidity purposes refer to the following: – demand and term deposits with Credit Institutions and Microfinance Institutions approved by the Central Bank of Congo; – short-term credits (portion due within one month) to subjects to regulation; – other securities authorized by the Central Bank of Congo.

Article 15

The policy referred to in Article 13 of this Instruction must notably fix the maximum amount that subjects to regulation may hold in liquidity at its premises to meet its short-term needs at any time.

The surplus liquidity of subjects to regulation is deposited in demand and term deposit accounts in other financial institutions approved by the Central Bank of Congo, according to the terms and procedures defined by the federation regarding deposits, collection, and funding.

Article 16

The credit policy must primarily provide for the forms of loans, their characteristics, and repayment conditions, including notably the purpose, amount, rate, term, repayment deadlines for principal and interest, as well as any other required documentation.

Article 17

Any federation must adopt a policy regarding credits granted by subjects to regulation to their members as well as that of the federation to subjects to regulation, in compliance with the requirements of the legal and regulatory texts in this matter.

Article 18

A federation may only grant credit to its subjects to regulation.

Article 19

The credit policy is designed to minimize the risk of losses.

This policy must have as objectives notably: – securing the credit portfolio; – making the productive asset profitable; – establishing the principles, policies, and procedures for granting credit, disbursement, monitoring, and recovery; – granting loans in the interest of the subjects to regulation and their members.

Section 2: Management Mechanisms

Article 20

A federation may establish distinct funds to address the risks it faces and to ensure effective and efficient management of these liquidity surpluses. These include funds for administration, liquidity and investment, development and immobilization, as well as investment.

Article 21

The sums deposited in a specific fund and the asset elements transferred to it are used and managed in accordance with its internal regulations established by the federation.

Article 22

The administration fund is intended for financing the activities of the federation, managing its assets, and accumulating reserves through an annual contribution paid by the subjects to regulation.

The federation's policy determines the rules regarding its operation and use.

Article 23

The liquidity fund is intended to collect deposits from subjects to regulation, make investments, and grant them credits in case of temporary liquidity needs.

The federation's rules determine the proportion of subjects to regulation deposits maintained therein, as well as the form of deposits and their maturity.

Article 24

A federation may receive term deposits from subjects to regulation to allow them to make their liquidity surpluses productive.

The policy must notably provide for the amount, rate, term, and modalities for the repayment of principal and interest.

Article 25

A federation may grant loans to subjects to regulation taking into account their repayment capacity, the adopted credit granting policy, as well as the legal, regulatory, and financial requirements of the network.

This policy is however conditional on the federation's ability to source liquidity from subjects to regulation and/or its ability to borrow from external interveners.

Article 26

The development fund is intended to grant credits to subjects to regulation for real estate projects or the start-up of new COOPECs.

The federation's policy determines the rules regarding its operation and use.

Article 27

The investment fund is intended to take participations in companies having a direct link with their main activities of financial intermediation, without prejudice to the legal and prudential provisions in this matter.

The federation's policy determines the rules regarding its operation and use.

CHAPTER 3: SECURITY FUND

Article 28

Any federation is required to establish a security or guarantee fund intended to address risks related to its activity and confront the conjunctural difficulties of subjects to regulation such as liquidity risks and/or exogenous shocks likely to compromise the financial viability of subjects to regulation.

Article 29

The security or guarantee fund is funded by non-refundable annual contributions from subjects to regulation based on a levy of 1% of the net credit outstanding at the end of the fiscal year.

These contributions are received by the federation no later than six months after the close of the fiscal year.

Article 30

The security or guarantee fund may also receive resources from the State in the form of donations or from any person or organization willing to support the network by granting non-refundable assistance.

Federations are required to ensure the origin of these donations in compliance with legal and regulatory provisions on combating money laundering and the financing of terrorism.

Any donation of funds, outside of member contributions, must be reported to the Central Bank of Congo.

Article 31

The endowment of the security or guarantee fund is capped at 10% of the total assets of the network, beyond which funding through contributions ceases to be mandatory.

However, depending on the assessment of the network's financial situation, the Central Bank of Congo may order an increase in the level of the fund.

Article 32

The request for use of the fund, accompanied by the subjects to regulation's recovery plan, is submitted for prior authorization to the Board of Directors of the federation. The latter ensures the management of this fund through an ad hoc committee.

Article 33

The security or guarantee fund may intervene more than twice in favor of a single subject to regulation.

Article 34

The internal regulations of the fund are submitted to the Central Bank of Congo for opinion within 30 days following their approval by the Board of Directors.

CHAPTER 4: FINANCING OF THE FEDERATION

Article 35

Any federation must adopt a pricing policy for its services to subjects to regulation and financing, which constitute central elements for the development and sustainability of all its subjects to regulation.

The ability of subjects to regulation to pay must be taken into account so as not to compromise their survival.

Article 36

The choice of financing modes from subjects to regulation must respect the following general principles:

• transparency: – maintaining the federation's financing on a permanent basis; – clear and simple fixation as well as prior communication of the level of annual contributions of subjects to regulation; – making available any information or document likely to allow subjects to regulation to evaluate the cost of their affiliation to the federation relative to the services obtained.

• equity: – cost sharing according to the equalization system; – participation of all subjects to regulation in the operating costs of the federation; – implementation of a financing strategy encouraging excellence and accountability of subjects to regulation.

• universality and solidarity: – uniform application of financing modalities and modes to all subjects to regulation; – evaluation of the federation's contributions in the activities of subjects to regulation; – stability and predictability of the federation's financing resources to allow it to plan and manage its budget and activities effectively; – negligible administrative costs associated with financing modes; – application of recognized performance indicators within the federation.

Article 37

The selected financing modes must take into account the essential or specific services addressed to all subjects to regulation or to a particular institution.

They can be translated into different types of contributions, namely:

• a general contribution addressed to all institutions, established based on 6% of the productive asset of the subject to regulation. The productive asset, calculated based on the monthly averages of the 12 months of the previous year, represents any asset that generates income, namely healthy credits, investments in the form of deposits, or any product generated by subjects to regulation.

• a special contribution established on a user/payer basis, where the user of a specific service is billed according to the service rendered by the federation.

TITLE V: ETHICAL RULES AND SUPERVISION

CHAPTER 1: ETHICAL RULES

Article 38

Any federation must define, for the use of its members, ethical rules for the prevention of conflicts of interest and put in place procedures for their management.

These rules must notably preserve the integrity of managers, employees, interested persons, and related persons regarding operations referring notably to deposits, credits, purchases, sales, and concluded contracts.

Article 39

The rules must cover the confidentiality of information, services, and documents relating to subjects to regulation and the federation, as well as the prohibition of their use for personal purposes.

They must also provide for obligations to declare credits granted to interested persons or related persons.

Article 40

The Supervisory Board must report its observations, any contract with an interested person, any situation of conflict of interest, and any irregularity to the Board of Directors at least every 6 months.

The Board of Directors of the federation is required to transmit this report to the Central Bank of Congo.

CHAPTER 2: SUPERVISION

Article 41

Any federation must, at least once a year, conduct document-based and on-site controls of the operations of subjects to regulation.

To this end, the federation must establish a structure, resources, and methodologies appropriate to the characteristics of its subjects to regulation, in compliance with the requirements of the Central Bank of Congo.

A federation that is unable to inspect all its members during two consecutive fiscal years cannot accept the admission of new subjects to regulation.

Article 42

The federation must submit to the Central Bank of Congo for approval, in the first half of December of each year, its annual plan for on-site controls at subjects to regulation and report quarterly on its progress.

Article 43

Each control conducted at subjects to regulation must result in a report stating the results and required follow-ups. A copy of this inspection report is transmitted to the Boards of Directors and Supervisory Boards of the subject to regulation as well as to the Central Bank of Congo, within fifteen days following its production.

Article 44

The federation must ensure the implementation of the recommendations formulated in the control report and those issued by the Central Bank of Congo.

It must also accompany subjects to regulation in the preparation, implementation, and monitoring of recovery plans and corrective measures for observed anomalies.

Article 45

The federation may suspend for a maximum period of three months any manager or body of a subject to regulation and, if necessary, appoint, with the prior authorization of the Central Bank of Congo, a provisional administrator to temporarily exercise responsibilities for the following reasons:

– misappropriation or unexplained absence of assets; – serious fault or significant breach in the exercise of the obligations of a manager of a subject to regulation; – spoliation of the assets of subjects to regulation to the detriment of their members.

Article 46

The provisional administrator must present to the federation and to the Central Bank of Congo, as soon as possible, a detailed report of its conclusions accompanied by recommendations.

TITLE VI: FINANCIAL DISCLOSURE AND REPORTS TO BE PRODUCED

Article 47

The managers of the federation must prepare, analyze, and transmit to the competent authorities the following reports:

To the Board of Directors of the federation: – the monthly activity report, including financial statements and the evolution of the financial situation and budget; – the inspection reports of subjects to regulation and the federation produced by the federation's inspection service and by the Central Bank of Congo; – the recovery plans of subjects to regulation and the follow-ups to inspection reports and recovery plans; – the monthly and annual reports required by Instruction No. 009 relating to the transmission of periodic situations; – the annual report of the federation.

To the Central Bank of the Congo: – the annual control schedule of the regulated entities; – the monthly and annual reports required by Instruction No. 009 regarding the transmission of periodic situations; – the inspection reports of the regulated entities produced by the inspection service of the holding company according to the form prescribed by the Central Bank of the Congo; – the recovery plans of the regulated entities and the follow-ups to inspection reports and recovery plans; – the follow-up reports to specific requests from the Central Bank of the Congo; – the annual report of the holding company.

The annual report of the holding company must contain, in addition to what is provided for in Instruction No. 009, the following: – a statement of sums deposited by the regulated entities for their account, established according to the various categories of deposits and indicating the average annual yield obtained by each of the categories; – a statement of credits granted and investments, established according to the various categories of credits or investments and indicating the average annual yield obtained by each of the categories; – a statement of the assets and liabilities and of the results of the holding company and the regulated entities presented on a consolidated basis according to generally accepted accounting principles and certified by an external auditor or statutory auditor; – the annual reports of the different bodies of the holding company presented to the General Assembly of members.

The holding company must, in addition to the reports it produces pursuant to the current legal and regulatory texts, transmit annually to the Central Bank of the Congo its consolidated financial statements accompanied by the certified annual financial statements of each of the institutions it controls.

To the regulated entities: – the annual reports of the different bodies and activities of the holding company, including the financial statements.

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TITLE VII: FINAL PROVISIONS Article 48 Any failure to comply with the provisions of this Instruction shall result in the application of the sanctions provided for by the current legal and regulatory texts.

Article 49 This Instruction shall enter into force on the date of its signature.

Done in Kinshasa, on January 18, 2013. J-C. MASANGU MULONGO Governor

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