REPUBLIC OF MAURITANIA

CENTRAL BANK OF MAURITANIA

GOVERNOR

MINISTRY OF FINANCE / MINISTRY OF JUSTICE

Nouakchott, [Date]

Instruction No. 09/GR/07

Establishing Financial Transparency Standards Applicable to Microfinance Institutions

The Governor of the Central Bank of Mauritania,

Having regard to Ordinance No. 2007-004 of January 12, 2007 establishing the status of the Central Bank of Mauritania,

Having regard to Ordinance No. 2007-005 of January 12, 2007 regulating Microfinance Institutions,

Having regard to Ordinance No. 2007-020 of March 13, 2007 regulating Credit Institutions,

Having regard to Decree No. 019-2007 of January 7, 2007 appointing the Governor of the Central Bank of Mauritania,

Decides:

Article 1: General Provisions
The present Instruction applies to Microfinance Institutions (MFIs) as well as their unions and federations for Category A MFI networks.

Unless otherwise provided in the present Instruction, the accounting rules and transmission of financial statements for credit institutions shall apply to Microfinance Institutions.

SECTION I. INTERIM ACCOUNTING FRAMEWORK AND PRESENTATION OF FINANCIAL STATEMENTS

Article 2: MFIs must maintain accounting records comprising a balance sheet, an income statement, supplementary financial statements, and an annual report in accordance with the standards required for credit institutions.

Pending the adoption of a specific accounting plan for Microfinance Institutions, the current accounting framework remains applicable to all MFIs, without prejudice to the specific provisions contained in the present Instruction.

Article 3: Consolidated Accounting
Mutualist MFIs organized in networks shall prepare consolidated accounts through the network's umbrella structure using the global integration method. This consolidation includes the umbrella body and all institutions affiliated with the network.

Accounting for participations in other credit institutions or enterprises shall be carried out in accordance with general corporate law.

Article 4: Accounting for Cooperative Financial Shares The shares of basic financial cooperatives shall be accounted for as follows:

• On a specific short-term liability account with customers, when the shares are redeemable at the member's request without the cooperative being able to invoke insufficient available equity to refuse or delay repayment;
• In share capital, when the cooperative's statutes and the network's financial regulations provide a mechanism to block the repayment of shares to members, particularly when the cooperative's equity adequacy ratio falls or would fall below 15%.

Shares held in unions and federations shall be accounted for as share capital.

Article 5: Accounting for Credit Operations with Customers MFIs' credits to their customers shall be accounted for as performing loans and non-performing loans.

Performing loans shall be accounted for according to their initial maturity.

Loans with an initial maturity of less than one (1) year shall be classified as short-term.

Loans with an initial maturity between one (1) year and three (3) years shall be classified as medium-term.

Loans with an initial maturity exceeding three (3) years shall be classified as long-term.

Article 6: Residual Maturity of Operations When the MFI's information and management system does not allow for the reclassification of customer and financial sector receivables and liabilities according to their residual maturity, the initial maturity of assets and liabilities, divided by two, shall be used for calculating the coverage ratio for medium and long-term commitments.

However, this method does not apply to agricultural credits with an initial maturity exceeding six months and where the principal is repayable at maturity.

Article 7: Downgrading and Provisioning of Non-Performing Loans A non-performing loan is defined as:

• any credit where at least one installment has been unpaid for 30 days, or
• any credit that has undergone restructuring of the original schedule, or
• any credit suspected of being a compensating loan used to repay another ongoing credit within a credit institution in Mauritania, or
• current accounts and credit facilities whose average monthly balance has remained debit for more than six months.

For these operations, the concept of non-performing loan replaces that of immobilized, doubtful, disputed, or uncollectible receivables. Non-performing loans shall be accounted for under the heading: Non-performing Loans.

Non-performing loans shall be provisioned as follows:

• 20% upon downgrading, i.e., after 30 days of payment delay or for any other reason mentioned in the first paragraph above,
• 50% after two (2) months of downgrading,
• 100% after five (5) months of downgrading.

Advances granted to customers under Article 17 of Ordinance No. 2007-005 by MFI umbrella structures benefiting from a Central Bank derogation may be downgraded and provisioned in accordance with the provisions applicable to banks, but solely for credits exceeding the ceiling authorized for MFIs.

The MFI's financial statements must clearly distinguish between:

• credits not exceeding the ceilings authorized for MFI umbrella structures,
• underlying non-performing loans and provisions,
• credits exceeding the amount authorized for MFIs, underlying immobilized, disputed, doubtful, and litigious receivables and provisions (as defined in the applicable accounting plan).

MFIs may account for unpaid receivables of less than 30 days as immobilized receivables. They may provision them for a maximum amount of 10%.

Downgradings and provisions must be recorded at the time the asset impairment is recognized.

Article 8: Accounting and Provisioning of Interest and Commissions Accrued but unpaid interest and commissions shall be recorded on a separate account titled "accrued interest" and simultaneously provisioned at 100%.

Article 9: Write-offs
Non-performing loans shall be written off no later than 17 months after their downgrading.

Credits written off shall be subject to off-balance sheet monitoring for a minimum of 24 additional months.

SECTION II. DECLARATIVE OBLIGATIONS

Article 10: MFIs are required to submit periodic accounting documents to the Central Bank, reflecting their active and passive positions during the year and providing necessary information for both regulatory compliance monitoring and informing monetary authorities, using standard forms established by the Central Bank.

They must also transmit their balance sheet, income statement, and other annual documents to the Central Bank.

Accounting documents must be prepared in accordance with the applicable accounting framework and the standard forms approved by the Central Bank.

Periodic documents are provided on a quarterly basis and finalized on the following dates:

• March 31;
• June 30;
• September 30;
• December 31.

Documents must be submitted to the Central Bank no later than 30 days after the end of the aforementioned periods.

These documents notably include:

• the accounting position reflecting assets, liabilities, and off-balance sheet commitments towards residents and non-residents;
• a report on risks at the risk registry (direct and by endorsement) granted to customers. These declarations must be made in accordance with the categories and models defined by Instruction No. 005/GR/98 of December 14, 1998;
• a statement of payment incidents at the payment incident registry for non-performing loans and, where applicable, doubtful and litigious credits recorded for customers. These declarations are prepared in accordance with the categories and models defined by Instruction No. 004/GR/98 of December 14, 1998.

Annual documents include the balance sheet and income statement certified by an auditor and must be submitted to the Central Bank before June 30 of each year for documents relating to the previous fiscal year.

Article 11: The documents listed above must be communicated to the Central Bank bearing the signature of the person(s) authorized to do so. The signature must be accompanied by the name and function held by its author within the MFI.

Article 12: Certification of Accounts
Each MFI not affiliated with a network or MFI network is required to have its accounts certified by an auditor approved by the Central Bank.

The financial statements of Category A MFIs organized in networks are certified on a consolidated basis.

The Auditor must hold the status of a certified public accountant.

Furthermore, they must be registered on the list of auditors approved by the Central Bank for the certification of MFI accounts.

Article 13: Presentation of Periodic Financial Statements The consolidated financial statements to be submitted by mutualist MFIs organized in a network must include all network members.

However, upon a case-by-case derogation granted by the Central Bank at the request of the network's umbrella structure, consolidation may exclude a determined number of branches or service points, comprising a certain fraction of the total balance sheet, when these branches or points are located in rural areas where there is a proven lack of infrastructure (electricity and telecommunications/Internet, drivable roads).

The same derogation may be granted to non-mutualist MFIs for their rural branches and service points.

The total balance sheet and net banking income excluded from consolidation must not exceed 10% of the balance sheet and net banking income of the last closed fiscal year, and may only apply to periodic statements to be submitted on a quarterly frequency at most.

Article 14: The statutes of the MFI professional association notably provide for financial transparency as follows:

• The annual financial statements of MFIs are public documents consultable with the MFI professional association, which must retain them for a period of at least ten (10) years.
• MFIs must send to the MFI professional association, within six (6) months following the close of the fiscal year, their Balance Sheet, Income Statement, Annual Report including the calculation of prudential standards and management indicators, and the Auditor's Report, on paper and on electronic media. For mutualist networks, only consolidated financial statements are communicated.
• The MFI professional association will make them available to the public on its Website. All these documents will be freely accessible for download on said site.

SECTION III. TRANSPARENCY ON INTEREST RATES AND TERMS OF OPERATIONS

Article 15: MFIs must display the Annual Percentage Rate of Charge (APRC) for each financial product offered to their customers,

• in a visible location for all clients, within MFI branches,
• on contracts between the MFI and the client, for the rate applicable to that contract only.

The display rule applies to credit contracts as well as Islamic credit operations.

The APRC must be displayed in French and Arabic.

All terms of operations with customers, including account opening and closing fees, savings book sales fees, deposit account remuneration, etc., must be displayed under the same conditions in MFI premises and communicated to the MFI professional association within thirty (30) days following any modification.

The MFI professional association will make all information available to the public on its website, maintaining a ten (10) year historical archive.

Article 16: The APRC is calculated according to the formula set out in the Annex to this Instruction.

SECTION IV. MONITORING AND PERFORMANCE INDICATORS

Article 17: Monitoring Indicators to be Provided at Each Accounting Cut-off MFIs must calculate the ratios below according to the imposed frequency and are required to communicate them to the Central Bank simultaneously with the periodic financial statements.

Central Bank circulars may establish, as needed, standard forms for the calculation and presentation of ratios; the absence of a circular does not prevent MFIs from applying the obligations provided in this section.

Article 18: Average Amount
When an average amount is indicated for the numerator or denominator, the following average shall be calculated:
MM = (amount at date N + amount at date N minus 1 year) / 2

Article 19: Portfolio Quality Indicators
The six ratios indicating portfolio quality are:
1 to 3. Risk Portfolio
PAR 30 = (Outstanding amount of Credits with Unpaid installments exceeding 30 days + Outstanding amount of other receivables recently downgraded to non-performing) / Gross Portfolio Outstanding Total of Credits PAR 90 = Outstanding amount of Non-performing Credits for 2 months and more / Gross Portfolio Outstanding Total of Credits PAR 180 = Outstanding amount of Non-performing Credits for 5 months and more / Gross Portfolio Outstanding Total of Credits

In addition to calculating PAR 30, PAR 90, and PAR 180, the MFI must prepare an aging schedule distinguishing between: credits 30 to 90 days overdue, credits 90 to 180 days overdue, and credits 180 days and more overdue.

4. Provisioning Ratio
   DPr = Provisions for Non-performing Loans / Average Gross Portfolio Outstanding of Credits

5. Risk Coverage Ratio
   CRi = Provisions for Non-performing Loans / (Outstanding amount of Non-performing Credits)

6. Losses on Credits Ratio
   LCr = Credits Written Off / Average Gross Portfolio Outstanding of Credits

Article 20: Efficiency and Productivity Indicators The four efficiency and productivity indicators are:

1. Operating Expenses Ratio
   CEx = Operating Expenses (Personnel Expenses + Administrative Expenses + Depreciation) / Average Gross Portfolio Outstanding of Credits

Per diems and other expenses incurred for elected officials (directors, members of credit and control committees, etc.) are included in administrative expenses.

2. Cost per Borrower
   Cem = Operating Expenses (Personnel Expenses + Administrative Expenses + Depreciation) / Average Number of Borrowers

3. Staff Productivity
   Ppe = Number of Borrowers (excluding Consumer Credits and Pledged Credits) / Total Number of Staff

The following are not taken into account:

• consumer credits to employees, guaranteed by salary assignment/remuneration and/or salary domiciliation in favor of the MFI,
• real pledge loans with dispossession, particularly jewelry pledge loans, which can be processed and disbursed within the hour after asset estimation, without evaluating the debtor's potential economic project.

4. Credit Agent Productivity:
   PAC = Number of Borrowers (excluding Consumer Credits and Pledged Credits) / Number of Credit Agents

Article 21: Financial Management Indicators The three financial management indicators are:

1. Financing Costs Ratio
   Cfi = Interest and Commission Expenses / Average Gross Portfolio Outstanding of Credits

Interest and commissions paid to customers are included in the ratio calculation.

2. Financial Resources Cost Ratio
   CRF = Interest and Commission Expenses / Average Value of Financial Resources

3. Debt/Equity Ratio
   DFP = Total Liabilities / Total Equity

Article 22: Profitability Indicators
The three profitability indicators are:

1. Return on Equity
   ROE = Net Result before subsidies / Average Equity

Subsidies include operating & balance subsidies and the share of equipment & investment subsidies transferred to the income statement.

2. Return on Assets
   ROA = Net Result before subsidies / Average Assets

3. Portfolio Yield
   RRP = Interest and Commission Income / Average Gross Portfolio Outstanding of Credits

Article 23: Social Indicators
The three social indicators are:

1. Gender Indicator
   IG1 = Number of female borrowers / Number of credits granted during the year IG2 = Number of female clients / Total number of clients or members

For Category A MFIs, clients include all members.
For Category B and C MFIs, clients include all persons holding an account in the MFI.

2. Urban/Rural Indicator
   IRU = Number of "rural" clients / Total number of clients

3. Average Credit Amount
   MMe = Total outstanding amount of credits granted during the year / Number of credits granted during the year

SECTION V. INTERNAL CONTROL STANDARDS AND CERTIFICATION OF FINANCIAL STATEMENTS

Article 24: Internal Control Principles
MFIs are required to comply with the internal control principles applicable to credit institutions, making necessary adaptations for their activity, size, and locations, and, for Category A MFIs, for their management model involving customer representatives in management and control bodies.

Article 25: General Inspector of Mutualist MFIs Any Category A MFI, organized in a network or independent, with a total balance sheet exceeding two hundred fifty (250) million Ouguiyas must appoint a salaried general inspector. For networks, this inspector shall be located within the umbrella body.

The general inspector is appointed by the competent body of the umbrella body, then approved by the Central Bank. They cannot be dismissed from their functions by the MFI without the prior consent of the Central Bank.

The general inspector is responsible for implementing the inspection and supervision policy for network member entities, developed and adopted by competent bodies.

They have full authority to inspect any network member entity and have access to all accounting, legal, or other documents of the network. In the course of their duties, they have full hierarchical authority over inspectors assigned to their service.

They submit their reports to the Board of Directors, the General Management, and where applicable, the control body or supervisory board, and to the Central Bank, to which they report without delay any significant abnormal facts, including:

• any fact potentially qualifying as a criminal offense,
• any obvious accounting fraud, any misappropriation of funds by any means,
• any fictitious credit or any fraudulent collusion aimed at granting credit or avoiding repayment of ongoing credits.

They report on their actions to the control body or supervisory board, or in their absence, simultaneously to the general director and the board of directors of the umbrella body.

They produce an annual report, transmitted to the general management, board of directors, general assembly, auditors, and the Central Bank, within one month following the close of the accounting fiscal year. This report notably includes:

• the status of due diligence performed, including the list of inspections conducted,
• significant anomalies observed.

Article 26: Definition of a Corporate Officer, Role and Functions The officers of MFIs are those defined in Article 37, paragraph 2 of Ordinance No. 2007-005 regulating MFIs. They ensure the effective management of the MFI, including the hierarchical direction of all MFI or network employees, subject to:

• specific provisions regarding the general inspector and inspectors assigned to their service,
• respect for the functional authority of the different bodies of network member entities.

The statutes designate the responsible officers as per Ordinance No. 2007-005, specify the conditions for their appointment and dismissal, and outline the distribution of their respective powers, in compliance with applicable corporate law.

The first responsible officer of the MFI or network personally commits to the accounts of the fiscal year, which they sign.

SECTION VI: SUPERVISION OF MFIs BY THE CENTRAL BANK

Article 27: The Central Bank ensures permanent off-site and on-site supervision of MFIs.

Within the scope of its conferred powers, the Central Bank is authorized to:

• Analyze the documents, situations, and reports that MFIs are required to submit to it.
• Conduct on-site inspections in MFIs with the broadest powers;
• Request and receive from MFIs all documents and information requested by it and through its inspectors.

Article 28: Prudential Supervision
The main objective of prudential supervision is the security of members' or the public's savings. In this context, the Central Bank ensures, among other things, compliance with the principles of sound management established by regulation and commonly accepted practices in the sector.

Controls cover all aspects of MFI management and organization, particularly compliance with legal, regulatory, or statutory provisions, the rigor of accounting operations, the validity of assets on and off the balance sheet, financial equilibrium, and profitability.

Article 29: Supervision Focused on Financial Transparency Supervision focused on financial transparency aims to verify the quality of provided accounts to give actors, particularly the financial sector, the means to make informed decisions.

It relies on financial transparency standards, account certification, and limits on-site control missions to verifying the quality of auditors' work and the absence of criminal infractions.

It applies to Category C MFIs as well as Category B MFIs not authorized to receive public funds.

Article 30: Without prejudice to other sanctions, the fines that may be imposed on MFIs for committed infractions are as follows:

• 1,000 to 5,000 UM / day in case of delay in communicating a legal or regulatory document to the Central Bank;
• five thousand to one hundred thousand ouguiyas (5,000 UM to 100,000 UM) in case of refusal to communicate a document or information and any concealment of information or submission of knowingly inaccurate information to