Instruction No. 38 on the Determination of the Global Effective Rate (GER)

BANQUE CENTRALE DU CONGO

LE GOUVERNEUR

INSTRUCTION TO CREDIT INSTITUTIONS AND MICROFINANCE INSTITUTIONS NO. ....................
RELATIVE TO THE DETERMINATION OF THE GLOBAL EFFECTIVE RATE, SHORTENED AS "GER"

The Central Bank of Congo,

Having regard to Law No. 005/2002 of May 7, 2002, relating to the constitution, organization, and functioning 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 Title 1;

Having regard to Law No. 002/2002 of February 2, 2002, laying down provisions applicable to Savings and Credit Cooperatives, specifically Article 6;

Having regard to Law No. 11/020 of September 15, 2011, establishing rules relating to the microfinance activity in the Democratic Republic of Congo, in Articles 57 to 61;

Considering the need to promote transparency in the pricing of financial institutions in order to favor healthy competition in the sector and protect the client;

Considering the need to control the determinants of costs to ensure appropriate pricing allowing for the widening of access to financial services;

Considering the need to create the conditions for optimal development of the credit market through better cost transparency;

Considering the need to measure the real cost of a loan or financing and to make choices with full knowledge of the facts between the received cost proposals;

Considering the need to harmonize definitions for each fee and commission used by financial institutions in setting the cost of credit for better transparency and for reasons of comparability;

Considering the need to facilitate the determination of the Global Effective Rate in setting loan costs and its understanding by the clientele;

Hereby adopts the following regulatory provisions relating to the determination of the Global Effective Rate.

563, Boulevard Colonel Tshatshi - Kinshasa - Gombe Email: sgouverneur@bcc.cd / svicegouve@bcc.cd / cabgouv@bcc.cd - Website: http://www.bcc.cd

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Chapter 1: Scope of Application

Article 1:

This Instruction applies to Credit Institutions and Microfinance Institutions, hereinafter referred to as "subject institutions".

Chapter 2: Methods for Determining the GER

Article 2:

The Global Effective Rate (GER) of a loan is an annual rate, proportional to the interest rate of the period calculated in arrears and expressed as a percentage with two decimal places of accuracy.

The GER includes, in addition to the nominal interest rate of a credit, fees, commissions, or any other remuneration directly linked to the granting of the credit.

Article 3:

The formula for calculating the Global Effective Rate is annexed to this Instruction.

It is calculated no later than the date of signing the credit contract, based on the known and certain elements at that date.

Article 4:

The GER for the period is calculated actuarially, from a unit period corresponding to the periodicity of payments made by the borrower.

It ensures, according to the compound interest method, equality between, on the one hand, the amounts lent and, on the other hand, all payments due by the borrower under this loan, in capital, interest, fees, commissions, or remuneration of any nature occurring at the date of granting or during the repayment of the credit.

Article 5:

The determination of the Global Effective Rate is mandatory for subject institutions in the credit offer proposed to all their individual and corporate clients.

The determination of this rate is not applicable for loans whose interest rates are regulated or subsidized by the State and/or development partners.

563, Boulevard Colonel Tshatshi - Kinshasa - Gombe Email: sgouverneur@bcc.cd / svicegouve@bcc.cd / cabgouv@bcc.cd - Website: http://www.bcc.cd

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Article 6:

The following components are involved in the calculation of the GER:

• components related to product characteristics are:

  • the loan amount;
  • the loan duration;
  • the repayment frequency;
  • the grace period.

• components related to cost are:

  • the debtor interest rate;
  • fees and commissions listed in Article 8 of the instruction on the publication of bank conditions;
  • mandatory savings;
  • insurance.

The categorization of products is as follows:

• consumer loan;
• commercial loan;
• cash credit;
• investment loan.

Article 7:

The nominal interest rate is the price imposed by the subject institution on the borrower for the use of the lent money.

Article 8:

The file fee is the set of costs generated by the study of the credit file from the request until the credit is put in place.

Article 9:

Mandatory savings, otherwise called "guarantee deposit", is an amount deposited by the borrower against the disbursement of a loan, which amount is inaccessible to the borrower during the loan.

Article 10:

The following are excluded from the calculation of the global effective interest rate: taxes, duties, fees, and commissions levied by the lender in the capacity of tax collector for the benefit of the State or any other organism in accordance with current legislation and regulation.

563, Boulevard Colonel Tshatshi - Kinshasa - Gombe Email: sgouverneur@bcc.cd / svicegouve@bcc.cd / cabgouv@bcc.cd - Website: http://www.bcc.cd

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This notably includes elements relating to:

• value added tax;
• fees related to the establishment of guarantees (notary fees, notarial tax, land registry registration fee, release fee, commercial register registration fee, etc.);
• judicial procedure costs incurred for the recovery of outstanding debts;
• late penalties;
• interest that may be levied in case of early repayment of a loan;
• return fees for unpaid bills and direct debit notices;
• fees related to reminders to clients to honor unpaid bills and direct debit notices.

Also excluded from the calculation of the Global Effective Interest Rate are commissions and fees levied by the subject institution for its own account and having no direct or indirect link with operations resulting from the granting of credit.

The list of bank commissions and fees entering into the calculation of the Global Effective Interest Rate is reproduced in the Instruction relating to the publication of bank conditions.

Article 11:

Subject institutions are required to apply the declining balance method for the calculation of interest on any loan.

Article 12:

In the case of an account overdraft, the credit amount retained for the calculation of the Global Effective Rate is reported, according to the method of numbers, to a period of one day at the expiration of which it is deemed repaid, along with the related agio. To this end, each of the successive debit balances recorded in the account during the interval separating two contractual statements is multiplied by its own duration in days.

If the credit takes the form of a credit line, the GER is determined on the total of the draws made by the client.

Article 13:

The GER relating to discounting operations of bills or checks is calculated taking into account:

• the amount of interest strictly speaking, fees, commissions, or remuneration linked to said operations, with the exception of those mentioned in Article 5 of this Instruction;
• the amount of the discounted instrument; and
• the number of days elapsed between the date on which the client's account was credited and the effective date of recovery of the discounted value.

563, Boulevard Colonel Tshatshi - Kinshasa - Gombe Email: sgouverneur@bcc.cd / svicegouve@bcc.cd / cabgouv@bcc.cd - Website: http://www.bcc.cd

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Article 14:

The borrower may, at their own initiative, repay in advance, in part or in full, the credit granted to them. In this case, the penalties imposed on them by the subject institution are limited to 50% of the remaining interest due.

Article 15:

Subject institutions are free to grant remuneration on any deposit collected as savings from their clientele.

Article 16:

Subject institutions are required to determine and communicate monthly to the Central Bank of Congo/Direction of Financial Intermediaries Surveillance, electronically, the schedule of creditor interest rates, by maturity of deposits both in national currency and foreign currencies, as well as the average GER by credit category, based on the different individual GERs calculated on each loan, for the purpose of their publication.

Furthermore, subject institutions are required to permanently publish, notably by display, the different individual GERs on each loan.

Chapter 3: Sanctions

Article 17:

Any person violating the provisions of this Instruction is subject to the sanctions provided for by legal and regulatory texts.

Chapter 4: Transitional and Final Provisions

Article 18:

All provisions contrary to this matter are repealed, as of the entry into force of this Instruction.

Article 19:

This Instruction enters into force after a transitional period of six months running from the date of its signature.

Done in Kinshasa, on 03 JAN 2019

Déogratias MUTOMBO MWANA NYEMBO
Governor

563, Boulevard Colonel Tshatshi - Kinshasa - Gombe Email: sgouverneur@bcc.cd / svicegouve@bcc.cd / cabgouv@bcc.cd - Website: http://www.bcc.cd

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ANNEX TO INSTRUCTION NO. ....................

METHOD OF CALCULATION OF THE GLOBAL EFFECTIVE RATE

The Global Effective Rate is obtained by applying the following formula:

Σ (k=1 to k=m) [Ak / (1 + i)^tk] = Σ (p=1 to p=n) [Ap / (1 + i)^tp]

With:

• i: the annual Global Effective Rate;
• k: the order number of a loan;
• m: the order number of the last loan;
• Ak: the amount of loan number k;
• tk: the time interval between the date of loan n° 1 and the date of loan k;
• p: the order number of a repayment installment or a charge payment;
• n: the order number of the last installment or the last charge payment;
• Ap: the amount of installment number p;
• tp: the time interval between the first disbursement and installment number p.

Time intervals must be expressed in years and fractions of years.

The sums paid on both sides at different times are not necessarily equal and are not necessarily paid at equal intervals.

The initial date is that of the first loan.

The result of the calculation is expressed with two decimal places of accuracy.

563, Boulevard Colonel Tshatshi - Kinshasa - Gombe Email: sgouverneur@bcc.cd / svicegouve@bcc.cd / cabgouv@bcc.cd - Website: http://www.bcc.cd