Microfinance Activities Regulation

BANQUE DE LA REPUBLIQUE DU BURUNDI

REGULATION NO. 001/2018 RELATING TO MICROFINANCE ACTIVITIES

Having regard to Decree-Law No. 1/037 of July 7, 1993, revising the Labour Code in Burundi;

Having regard to Law No. 1/07 of March 15, 2006, on bankruptcy;

Having regard to Law No. 1/02 of February 4, 2008, on the fight against money laundering and the financing of terrorism;

Having regard to Law No. 1/34 of December 2, 2008, establishing the Statutes of the Banque de la République du Burundi;

Having regard to Law No. 1/06 of March 25, 2010, on the Legal Regime of Competition;

Having regard to Law No. 1/09 of May 30, 2011, on the Code of Private Companies and Publicly Participated Companies;

Having regard to Law No. 1/23 of December 30, 2011, establishing the organic framework for pre-cooperative groups;

Having regard to Law No. 1/02 of January 7, 2014, on the Insurance Code in Burundi;

Having regard to Law No. 1/01 of January 16, 2015, revising Law No. 1/07 of April 26, 2010, on the Commercial Code;

Having regard to Law No. 1/01 of January 5, 2016, revising Decree-Law No. 1/41 of July 9, 1993, defining credit-leasing operations and provisions applicable to credit-leasing contracts and regulating the conditions for exercising these activities;

Having regard to Law No. 1/10 of August 12, 2016, governing conventional movable security interests in Burundi;

Having regard to Law No. 1/02 of January 27, 2017, establishing the organic framework for non-profit associations;

Having regard to Law No. 1/12 of June 28, 2017, governing cooperative societies;

Having regard to Law No. 1/17 of August 22, 2017, governing banking activities;

Having regard to Law No. 1/27 of December 29, 2017, revising the Penal Code;

Having regard to Regulation No. 001/2017 relating to payment services and the activities of payment institutions;

Having regard to Regulation No. 002/2017 relating to the activities of commercial agents in banking and payment services operations;

The Banque de la République du Burundi

Enacts this Regulation,

CHAPTER I: SCOPE AND DEFINITIONS

Article 1: Scope

This Regulation establishes the rules regarding the approval of institutions exercising microfinance activities, the exercise and supervision of their activities by the Central Bank pursuant to Articles 1 and 49 of Law No. 1/17 of August 22, 2017, governing banking activities.

The National Post Office exercises its microfinance activities in accordance with the provisions of this Regulation.

Guarantee and/or refinancing funds exercising microfinance activities are governed by this Regulation.

Credit institutions exercising microfinance activities remain governed by the law governing banking activities and its implementing circulars.

Article 2: Definitions

For the purposes of this Regulation, the following terms are defined as:

Reference Shareholder, any shareholder, natural or legal person, who holds, directly or indirectly, at least five percent (05%) of the voting rights within the microfinance institution;

Qualified Shareholder, any group of shareholders resulting from an express agreement, who holds, directly or indirectly, a share of the capital of the microfinance institution conferring at least fifty percent (50%) of the voting rights or allowing them to control it;

Director, any person sitting on the Board of Directors of a microfinance institution and approved for this purpose by the Central Bank;

Non-executive Director, any Director not exercising management functions within an institution;

Independent Director, any Non-executive Director who does not have interest links with the institution or the group to which it belongs that could compromise their freedom of judgment, such as a shareholder holding at least one share, even symbolic, without being reference or qualified, who is elected to the Board of Directors for their expertise in banking or finance, particularly in accounting, management, economics, taxation, and law;

Branch, a structure without legal personality dependent on the registered office of a microfinance institution and endowed with management autonomy according to the modalities provided for in the statutes of a microfinance institution;

Commercial Agents, persons acting on behalf of and in the name of establishments subject to Law No. 1/17 of August 22, 2017, governing banking activities;

Professional Association, a non-profit association bringing together all microfinance institutions, charged, among other things, with promoting and defending the collective interests of its members;

Central Bank, Banque de la République du Burundi;

Categorization of institutions exercising microfinance activities:

• First category, Microfinance Enterprises, Financial Cooperative Societies, and other types of microfinance institutions having the legal form of a public limited company, public company, or mixed company that carry out deposit collection and credit granting operations and offer other financial services incidentally to their clients;

• Second category, Financing and/or Guarantee Funds exercising microfinance activities, Microcredit Programs affiliated with Non-Governmental Organizations (NGOs) and Non-Profit Associations (NPA) that grant credits but are not authorized to collect public deposits;

• Third category, Savings and Credit Cooperatives having the legal form of a Cooperative Society, which carry out deposit collection operations from their members and grant them credits and incidentally other financial services;

• Fourth category, Community Financial Groups such as cooperative societies, pre-cooperative groups, village savings and credit associations that collect contributions from their members and grant them credits according to the agreed approach. The exercise of activities by these associations does not require approval but registration with the Central Bank;

Value Chain, the set of actors (private, public, including service providers) and value-added activities that contribute to bringing a product from the production phase to the final consumer;

Confederation, an institution resulting from the grouping of at least two Federations;

Mortgage Credit, any loan secured by a mortgage on existing or to-be-acquired real estate in favor of the lending credit institution; it may aim at the purchase, construction, renovation, or repair of real estate or the satisfaction of any other financing need;

Non-performing Loan, any loan where a payment is overdue for at least 30 days;

Disenfranchisement, an act by which the Central Bank suspends the exercise of powers of Directors and Managers of a microfinance institution and, where applicable, the General Assembly of shareholders;

Manager, any person directly and daily exercising management (or directorship) functions within a microfinance institution or a Financial Body, approved for this purpose by the Central Bank;

Credit Institution, commercial banks and financial institutions;

Payment Institution, a legal person, other than the Public Treasury, the Central Bank, a credit institution, the National Post Office, or a microfinance institution, which is approved by the Central Bank to provide payment services as a regular profession;

Outsourcing, the transfer of all or part of a function of an institution (company, administration, or organization) to an external partner;

Federation, an institution resulting from the grouping of at least two Unions;

Rural Finance, financial transactions related to both agricultural and non-agricultural activities that take place in rural and semi-urban areas between households and financial institutions;

Group of Related Persons, any group consisting of two or more natural or legal persons having interrelations such as common management, commercial or financial interdependence, direct or indirect control, such that the difficulties of one necessarily affect the other or others;

Pre-cooperative Group, a structure organized alone or in federations, managed democratically, constituted by natural or legal persons who associate and freely decide to pool all or part of their resources and efforts to exercise activities to meet the needs of their trade covering all sectors of development of the country;

Counter, an economic unit of a microfinance institution, installed outside the headquarters, which carries out only cash operations;

Microfinance Institution, an entity approved and/or registered by the Central Bank to exercise the microfinance activity in Burundi;

Microfinance, credit operations, savings collection, payment services, and other specific financial services in favor of persons operating essentially outside the traditional banking circuit;

Payment Instruments, instruments such as checks, bills of exchange, promissory notes, electronic money stored on a prepaid card or server, transfers, direct debits, credit and debit cards, or any other means allowing persons to make payments, excluding banknotes and coins which, regardless of the support or technical process used, including by electronic, telephone, and other information and communication techniques, allowing a person, holder or not of a payment account, to make payments and/or transfer funds in favor of another person or in their favor;

Management Body, General Assembly, Board of Directors, Supervisory Board, Management, or Directorship;

Financial Body, an entity created by a network and endowed with legal personality whose main objective is to centralize and manage the cash flow of savings and credit cooperatives affiliated with a Head Structure or a Union;

Network, a set of savings and credit cooperatives affiliated with a Union, Federation, or Confederation;

Person Related to a Microfinance Institution, any natural or legal person having with the institution at least one of the following qualities or relationships:

• director or manager;
• qualified shareholder;
• company in which they hold, directly or indirectly, at least twenty-five percent (25%) of the voting rights;
• company in which the director, manager, or qualified shareholder mentioned in the first two points are managers, directors, or hold, directly or indirectly, at least twenty-five percent (25%) of the voting rights;
• spouse, direct line relative, or first-degree ally of any of the persons mentioned in the first and second bullet points, as well as the companies in which they are managers, directors, or hold, directly or indirectly, at least twenty-five percent (25%) of the voting rights;
• company that, alone or with others, the microfinance institution controls directly or indirectly;
• company controlled directly or indirectly by a person or entity that controls the microfinance institution;
• any other person or entity that the Central Bank deems related;

Payment Services, the following services:

• Services allowing the deposit of cash into a payment account and the management operations of a payment account;
• Services allowing the withdrawal of cash from a payment account and the management operations of a payment account;
• The execution of the following payment operations associated with a payment account:
  • direct debits, including authorized unit direct debits;
  • payment operations carried out with a payment card or similar device;
  • transfers, including standing orders;
• The issuance of payment instruments and/or the acquisition of payment orders;
• Funds transmission services;
• The execution of payment operations, when the payer's consent is given by means of any telecommunications, digital, or computer device and the payment is addressed to the operator of the telecommunications or computer system or network, acting solely as an intermediary between the payment service user and the supplier of goods or services;
• The issuance of electronic money;

Cooperative Society, any grouping of natural or legal persons, based on principles of union, solidarity, and mutual aid, whose members have voluntarily grouped together to achieve a common economic and social goal, by constituting a democratically managed enterprise, for their common advantages and risks, and to which they actively participate;

Financial Cooperative Society, a company acting as a first-category microfinance institution collecting savings and granting credits to the public;

Head Structure, the body that manages a Union, a Federation, or a Confederation of savings and credit cooperatives;

Usury Rate, the effective global rate that microfinance institutions cannot exceed in credit granting operations;

Union, an institution resulting from the grouping of two or more microfinance institutions.

CHAPTER II: AUTHORIZED OPERATIONS

Article 3: Deposit Collection

First and third-category microfinance institutions are authorized to collect deposits respectively from their clientele and their members.

Deposits are considered to be funds other than shares, partnership interests, and mandatory contributions collected by the institution from its members or clients, materialized or not by securities, with the right to dispose of them within the framework of its activity, but with the obligation to return them upon the depositor's request.

Second-category microfinance institutions are not authorized to collect deposits. For these institutions, the following funds are not considered deposits:

• guarantee funds, also called "mandatory savings," "pledge savings," or "forced savings," mobilized from members, clients, or beneficiaries to serve as collateral vis-à-vis a credit;
• sums left by the clientele, beneficiaries, or members to honor their commitments;
• credit lines from external donors and loans.

Guarantee funds collected by second and fourth-category microfinance institutions must be placed in an institution authorized to collect deposits until the moment of their return to the concerned beneficiaries or their seizure in case of non-repayment.

Article 4: Credit Granting

Microfinance institutions are authorized to carry out credit operations.

A credit operation constitutes any act by which a microfinance institution makes or promises to make, for consideration, funds available to a third party, with the latter obliged to repay them at the agreed maturity, or takes, in the interest of the latter, an engagement by signature such as a guarantee, surety, or other security.

However, credit operations carried out electronically, in partnership with payment institutions providing fund transfer platforms or payment instruments, must be previously authorized by the Central Bank.

Article 5: Investments, Subscription to Treasury Securities, and Participation in the Financial Market

Microfinance institutions with surplus financial resources may carry out investments with credit institutions or microfinance institutions operating in Burundi and grant credits to other microfinance institutions provided that the borrowing institution presents solid guarantees.

They may also allocate a part of their cash surpluses to the subscription of Treasury bills and bonds issued by the Central Bank or the State of Burundi under the conditions set by the Central Bank.

Microfinance institutions are authorized to participate in the financial market and the secondary market for Treasury securities within the limits determined by the Central Bank.

Article 6: Provision of Non-Financial Services

Microfinance institutions are authorized to provide non-financial services to their clients or members in proportions determined by the Central Bank.

In case of exceeding the prescribed standards, microfinance institutions may form a consortium to finance the non-financial service needs of their clients or members.

Article 7: Outsourcing of Activities

Microfinance institutions may outsource part of the activities and operations for which they have been approved by entrusting them to subcontractors or agents, under the conditions set by the Central Bank.

They may also carry out training or advisory assistance activities in favor of their clients or members or in favor of other partners.

Article 8: Taking Participations

Microfinance institutions may take or hold participations in existing or forming companies in Burundi.

The Central Bank sets the limits within which these participations may be carried out and may oppose any investment likely to compromise the financial solidity of the institution, prejudice the interest of depositors, or hinder the effectiveness of periodic supervision.

Article 9: Ancillary Activities

Microfinance institutions must obtain prior authorization from the Central Bank before carrying out, for the needs of the clientele or members, the following operations or services, ancillary to microfinance activities:

• the sale of insurance products to their clientele, on behalf of regulated insurance companies, and the subscription of insurance products for the benefit of the clientele, individually or collectively;
• the issuance and/or management of payment instruments;
• any other operation or service recognized as ancillary by the Central Bank.

Depending on the availability of long-term resources, microfinance institutions may carry out credit-leasing and real estate credit operations. These operations may be exercised, beyond the envisaged limits, by specialized microfinance institutions approved for this purpose.

CHAPTER III: PROHIBITIONS

Article 10: Prohibition on Other Natural or Legal Persons from Exercising Microfinance Activities

No one may exercise a microfinance activity without having been previously approved for this purpose by the Central Bank.

The Central Bank orders the immediate cessation of illegal operations in accordance with the provisions of Article 71 of the law governing banking activities.

Article 11: Prohibition on Naming, Advertising, or Other Confusing Practices

It is prohibited for any entity other than a microfinance institution to use a corporate name, advertising, or, in general, expressions making it appear that it is approved as a microfinance institution or to create confusion on this subject.

No one may use the expressions "microfinance enterprise," "microfinance institution," "microfinance establishment," "microfinance," "microcredit program," "microcredit," "savings and credit union," "savings and credit cooperative," "savings and credit mutual," or similar expressions in relation to their activities without the prior authorization of the Central Bank.

Article 12: Prohibited Operations

It is prohibited for microfinance institutions to carry out the following operations:

• foreign exchange operations;
• supply of foreign currency and traveler's checks.

Article 13: Incapacity of Managers, Auditors, and Members of Management Bodies

No one may administer, manage, or direct in any capacity a microfinance institution, a Head Structure, or a Financial Body, serve as an auditor or qualified shareholder, if:

1. they have not been approved by the Central Bank;
2. they have been declared personally bankrupt in Burundi or abroad and have not been rehabilitated;
3. they played a predominant role in a company that, under their leadership, was declared bankrupt;
4. they are being prosecuted or have been convicted, in Burundi or abroad, as an author or accomplice of any of the following offenses and have not been rehabilitated:
   • counterfeiting;
   • counterfeiting or falsification of public securities or commercial instruments, shares, bonds, interest coupons, or banknotes;
   • counterfeiting or falsification of seals, stamps, punches, or marks;
   • forgery and use of forgery;
   • offenses in matters of exchange and foreign trade;
   • corruption of a public official or extortion;
   • theft, extortion, misappropriation or abuse of confidence, fraud, or handling stolen goods;
   • issuance of checks without provision;
   • bankruptcy or offenses assimilated thereto;
   • money laundering, financing of terrorism, or any other economic and financial crime recognized as such;
5. they have violated the provisions of this regulation and other directives related thereto;
6. they are declared non-compliant with the regulations of the Central Bank.

Article 14: Prohibition on Cumulation of Functions for Managers and Members of Management Bodies

No one may simultaneously:

1. manage two microfinance institutions;
2. manage a microfinance institution and another company;
3. manage a microfinance institution and be a member of the management bodies in another microfinance institution;
4. be a member of the management bodies in two microfinance institutions.

CHAPTER IV: GRANTING OF APPROVAL, CHANGE OF INITIAL APPROVAL CONDITIONS, INSTITUTIONAL TRANSFORMATION, AND WITHDRAWAL OF APPROVAL

Article 15: Required Information and Documents

Before exercising their activities, microfinance institutions must obtain approval from the Central Bank.

The promoters or representatives of the microfinance institution in creation address to the Governor of the Central Bank a complete application file for approval containing the documents and information specified in a related circular.

Article 16: Duration of the Approval Process and Notification of the Decision

The Central Bank rules on an approval application and notifies its decision, approval or rejection, to the microfinance institution in creation within a period not exceeding three (03) months from the receipt of the complete file.

The three (03) month period indicated in the previous paragraph may be extended if, during the analysis of the file