Instruction No. 002 on Prudential Standards for Savings and Credit Cooperatives and Microfinance Institutions

INSTRUCTION NO. 002 ON PRUDENTIAL STANDARDS FOR SAVINGS AND CREDIT COOPERATIVES AND MICROFINANCE INSTITUTIONS

The Central Bank of Congo,

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

Having regard to Law No. 003/2002 of February 2, 2002, relating to the activity and supervision of Credit Institutions, particularly Title III;

Having regard to Law No. 002/2002 of February 2, 2002, laying down provisions applicable to Savings and Credit Cooperatives, particularly Articles 58 to 61;

Having regard to Instruction No. 1 to Microfinance Institutions, particularly Article 27;

Decrees the prudential standards applicable to Savings and Credit Cooperatives and Microfinance Institutions within the framework of their management.

Article 1 This instruction applies to Savings and Credit Cooperatives and Microfinance Institutions, hereinafter referred to as "the regulated entities".

Article 2 Regulated entities are individually required to permanently comply with the prudential management standards set by the Central Bank of Congo.

When Savings and Credit Cooperatives are organized as a network, the same standards apply on a consolidated basis, unless otherwise provided.

TITLE I: MINIMUM CAPITAL

Article 3 Microfinance Institutions must at all times have paid-up share capital at least equal to the minimum capital fixed by the Central Bank of Congo.

Article 4 Savings and Credit Cooperatives must at all times have paid-up share capital. This capital consists of shares whose nominal value is determined by the statutes.

Article 5 The Central Bank of Congo reserves the right, at the time of approval, to require more from the regulated entities based on the activity forecasts submitted to it.

Regulated entities are required, prior to approval, to fully pay up the capital in cash.

Article 6 Any regulated entity must justify at all times that its core own funds are at least equal to the minimum capital.

The standard is assessed based on core own funds as defined in Article 8 below.

TITLE II: PRUDENTIAL OWN FUNDS

Article 7 Prudential own funds consist of the sum of core own funds and supplementary own funds.

Article 8 Core own funds consist of the sum of the items listed in point A, less the items listed in point B.

A. The following are included: – Share capital (Account 10); – Share premiums (Sub-account 110); – Legal, statutory, voluntary, and other reserves (Sub-account 111); – Positive brought forward amounts (Sub-account 120); – Unallocated surpluses or profits (Sub-account 130); – Capital reconstruction provisions (Sub-account 144); – Hedging funds (Sub-account 170); – Allocation funds (Sub-account 171);

B. The following are deducted: – Subscribed but unpaid share capital (Account 10); – Uncompensated deficits or losses (Sub-account 121); – Net loss or deficit (Sub-account 131); – Intangible fixed assets (Account 20); – Shares in umbrella structures (Sub-account 252); – Participations held for more than one year in other Credit Institutions or other financial institutions (Sub-account 2510).

Article 9 Supplementary own funds include: – The capital gains and regulated provisions account (Account 14) less the capital reconstruction provision (Sub-account 144); – Equipment grants (Account 15); – Subordinated loans and debts (Sub-account 1622); – Mutual guarantee funds (Sub-account 172); – Provisions for risks, charges, and losses (Account 18).

The following are deducted: – Subordinated claims meeting the definitions of this Instruction held in other Credit Institutions or other financial institutions (Sub-account 255).

Article 10 Funds arising from the issuance of securities or subordinated loans require prior authorization from the Central Bank of Congo when they meet the following minimum conditions: – The initial duration of the contract must be at least five years. If no maturity is set, the debt can only be repayable with a five-year notice period; – Prior agreement from the Central Bank of Congo is formally required to proceed with early repayment, provided that the solvency of the regulated institution is not affected; – The loan contract does not contain a clause providing that, in circumstances other than the liquidation of the regulated institution, the debt must be repaid before the agreed maturity; – In the event of liquidation of the regulated institution, these securities or loans can only be repaid after settlement of all other debts.

Only amounts actually received can be accounted for as securities or subordinated loans. When less than five years remain to run, an annual reduction of 20% of the residual amount is applied to reflect the diminishing contribution to the solvency of the regulated institution.

Article 11 Supplementary own funds can only be included in prudential own funds within the limits of core own funds.

Subordinated debts referred to in Articles 9 and 10 of this Instruction can only be included in supplementary own funds up to 50% of core own funds.

TITLE III: SOLVENCY

Article 12 Regulated entities, with the exception of Microcredit Enterprises, are required to permanently comply with the solvency ratio, the minimum standard for which is set at 10%.

This ratio is the ratio between the amount of their prudential own funds and that of their total weighted assets.

Article 13 The numerator of the ratio consists of prudential own funds in accordance with the provisions of Title II of this Instruction.

Article 14 The denominator of the ratio includes all asset elements and off-balance sheet commitments, with the exception of elements deducted from prudential own funds in accordance with the provisions of Articles 8 and 9 of this Instruction.

In the calculation of the solvency ratio, asset elements and off-balance sheet commitments are assigned weighting coefficients of 0%, 20%, 25%, and 100% depending on whether they present high, medium, moderate, or low risk.

Article 15 Assets and off-balance sheet commitments are classified according to risk as follows: – Cash covered by an insurance policy: 0%; – Cash not covered by an insurance policy: 20%; – Banks, Congolese financial institutions: 25%; – Customer credits after deduction of credit deposits when accompanied by a merger agreement in case of default: 100%; – Other assets and all financing commitments given: 100%.

TITLE IV: LIQUIDITY

Article 16 Regulated entities, with the exception of Microcredit Enterprises, are required to permanently comply with a minimum liquidity ratio of 20% between their available funds and their demand deposits, known as the "immediate liquidity ratio".

Article 17 The numerator of the ratio consists of: – Cash on hand (Account 57); – Bank balances (Account 56).

Article 18 The denominator of the ratio consists of: – Demand deposits (Sub-accounts 330, 331, 332).

TITLE V: RESERVES

Article 19 The general reserve of regulated entities is funded by an annual levy of at least 15% on net surpluses before distribution of dividends for each fiscal year, where applicable, after imputation of any possible deficit brought forward.

Article 20 Amounts set aside in the general reserve cannot be shared among members, partners, or shareholders.

Article 21 The allocation to the general reserve is mandatory, regardless of the level reached by the cumulative amount of this reserve relative to the regulated entity's share capital.

TITLE VI: LIMITATION AND DIVISION OF RISKS

Article 22 The risks to which a Savings and Credit Cooperative is exposed cannot exceed double the total of its members' deposits.

Article 23 The numerator of this ratio is composed of risks incurred by the regulated entity, namely: – Distributed credits (Accounts 30 to 39); – Participation securities (Account 25); – Balances with correspondents (Accounts 53 and 56); – Commitments given by signature (All).

Deposits of guarantee and commitments received by signature from a financial institution for a duration at least equal to that of the risks it covers may be deducted from these risks.

Article 24 The denominator of this ratio is composed of the total deposits (Accounts 33, 34, 35, 36, and Sub-account 373).

Article 25 Regulated entities may grant credits or guarantees to related persons for a total amount not exceeding 20% of their prudential own funds as defined in Article 7 of this Instruction.

Article 26 The total outstanding loans and signature commitments granted to related persons of a Savings and Credit Cooperative cannot exceed 20% of the total of its members' deposits.

Article 27 The following are considered related persons: – Shareholders, founding members, directors, executives, and staff as well as their first-degree family members; – Legal entities in which the regulated entity holds participations; – Legal entities belonging to any of the persons cited in the first bullet point; – Legal entities for which any of the persons cited in the first bullet point have particular interests; – Non-banking natural persons linked to the institution by cross-guarantee contracts or business contracts, namely subcontracting or franchise contracts.

Article 28 Microfinance Institutions cannot grant credits and signature commitments to a single client or a single signature for a total amount exceeding 5% of their prudential own funds.

For any credit or commitment exceeding the ceiling referred to in the previous paragraph, the Microfinance Institution must request prior agreement from the Central Bank of Congo.

By a single signature, it is meant any natural or legal person acting in their own name and/or for the account of another structure of which they hold directly or indirectly a power of control, notably exclusive, joint, or significant influence.

This standard also applies to balances or claims with its correspondents.

Article 29 Savings and Credit Cooperatives cannot grant credits and signature commitments to a single member for a total amount exceeding 10% of their total prudential own funds.

This standard also applies to balances or claims with its correspondents.

Article 30 The total amount of participations taken by regulated entities in legal entities cannot exceed 25% of their prudential own funds as defined in Article 7 of this Instruction.

This rule does not cover the participations of Savings and Credit Cooperatives in Central Savings and Credit Cooperatives and of the latter in Federations.

TITLE VII: COVERAGE OF MEDIUM AND LONG-TERM EMPLOYMENT BY STABLE RESOURCES

Article 31 Regulated entities are required to permanently comply with a minimum ratio of 100% between stable resources and stable employment.

For networks, this standard is applied on a non-consolidated basis.

Article 32 The numerator is composed of the following elements: – Prudential own funds as defined in Article 7; – Medium and long-term deposits (Account 34); – Special regime deposits (Account 35); – Medium and long-term loans and debts (Account 16); less subordinated loans (Sub-account 1622).

Article 33 The denominator is composed of the following elements: – Net fixed assets (Class 2); – Medium and long-term credit (Accounts 31 and 30); – Litigious claims for their net amount (Account 39).

TITLE VIII: COVERAGE OF FIXED ASSETS BY PRUDENTIAL OWN FUNDS

Article 34 Regulated entities are required to finance the fixed assets retained by their prudential own funds.

The fixed assets retained are calculated as follows: – Net fixed assets (Class 2); – Less: Participations in other Credit Institutions or financial institutions (Sub-account 251); – Less: Subordinated claims in other Credit Institutions or financial institutions (Sub-account 255); – Less: Intangible fixed assets (Account 20).

Article 35 The fixed assets retained by Microfinance Institutions cannot exceed fifty percent (50%) of their prudential own funds.

Article 36 The fixed assets retained by Savings and Credit Cooperatives cannot exceed fifty percent (50%) of their prudential own funds.

For Savings and Credit Cooperatives approved on the date of entry into force of this instruction, the ratio must decrease from 100% to 75% then to 50% at the end of each calendar year starting from the signing of this instruction.

For networks, this ratio is calculated on a non-consolidated basis.

TITLE IX: LIMITATION OF OPERATIONS OTHER THAN SAVINGS AND CREDIT ACTIVITIES

Article 37 Regulated entities cannot take participations in companies whose object does not directly contribute to the realization of their corporate purpose, with the exception of securities held following the recovery of a claim and intended for resale in the short term.

They may, with prior authorization from the Central Bank, hold investment securities in companies whose activity contributes to the realization of their operation, and notably: – In information technology service companies and software publishing companies; – In cash transport companies; – In companies supporting and training micro-entrepreneurs and farmers; – In companies whose sole object is the holding of real estate property housing the operation of the regulated entity; – For Savings and Credit Cooperatives in Central Savings and Credit Cooperatives and of the latter in Federations.

Article 38 Operations and services considered as ancillary are any activity not included in the scope of savings collection and/or credit granting activities.

Any ancillary operation or service requires prior authorization from the Central Bank of Congo.

Article 39 Products derived from ancillary operations must not represent more than 20% of the previous year's income.

The numerator is composed of the following Sub-accounts: – 721 Commissions and fees received on money transfers; – 722 Commissions and fees received on payment means; – 723 Foreign exchange profits; – 727 Other Commissions; – 7289 Other diverse services; – 741 Income from movable and immovable property; – 748 Other ancillary products.

The denominator is composed of: – Class 7 Income Accounts (Year N - 1)

TITLE X: SUPERVISION OF FOREIGN EXCHANGE POSITIONS

Article 40 In order to prevent risks related to exchange rate fluctuations, regulated entities are required to permanently comply with: – The ratio between the amount of their long or short position in each foreign currency and the amount of their prudential own funds must be within the range of -5% to 5%. For the most frequently used currencies in their transactions, the maximum ratio is raised to 15%; – A maximum ratio of 15% between the amount of their long or short position of the total currencies and the amount of their prudential own funds.

Article 41 The position is said to be long when foreign currency assets exceed foreign currency commitments.

Conversely, the position is said to be short when foreign currency commitments exceed foreign currency assets.

Article 42 The numerator of the ratio is the net foreign exchange position determined by the difference between assets and commitments in foreign currencies.

Assets consist of asset elements denominated in foreign currencies, excluding tangible, intangible, and financial fixed assets.

Commitments include: – Liability elements denominated in foreign currencies; – Off-balance sheet elements denominated in foreign currencies consisting exclusively of accounts for commitments on securities, on foreign currency transactions, and on financial derivative instruments.

Article 43 The denominator of the ratio consists of prudential own funds calculated in accordance with the provisions of Article 7 of this Instruction.

TITLE XI: TRANSITIONAL AND FINAL PROVISIONS

Article 44 Any failure to comply with the provisions of this Instruction entails the application of sanctions provided for by the legal and regulatory texts in force.

Article 45 This Instruction enters into force on January 1, 2013.

Made in Kinshasa, on April 14, 2012

J-C. MASANGU MULONGO Governor