RESERVE BANK OF MALAWI

MICROFINANCE - DEPOSIT TAKING INSTITUTIONS DIRECTIVES

(2014)

CONTENTS

1. FINANCIAL SERVICES (ASSET CLASSIFICATION REQUIREMENTS FOR MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014
2. FINANCIAL SERVICES (CAPITAL ADEQUACY REQUIREMENTS FOR MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014
3. FINANCIAL SERVICES (CORPORATE GOVERNANCE REQUIREMENTS FOR MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014
4. FINANCIAL SERVICES (LICENSING AND APPROVAL REQUIREMENTS FOR DEPOSIT TAKING MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014
5. FINANCIAL SERVICES (PRUDENTIAL LIQUIDITY REQUIREMENTS FOR DEPOSIT TAKING MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014
6. FINANCIAL SERVICES (PREMISES INSPECTION REQUIREMENTS FOR DEPOSIT TAKING MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014
7. FINANCIAL SERVICES (FINANCIAL REPORTING REQUIREMENTS FOR MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014

The Malawi Gazette Supplement, dated 26th September, 2014, containing Regulations, Rules, etc. (No. 17A)

GOVERNMENT NOTICE NO. 37

FINANCIAL SERVICES ACT, 2010
(No. 26 OF 2010)

FINANCIAL SERVICES (ASSET CLASSIFICATION REQUIREMENTS FOR MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014

ARRANGEMENT OF PARAGRAPHS

PARAGRAPH

PART I—PRELIMINARY

1. Citation
2. Application
3. Interpretation

PART II—OBJECTIVES
4. Objectives

PART III—BOARD OVERSIGHT
5. Board oversight

PART IV—ASSET CLASSIFICATION
6. Asset classification policy
7. Classification of credits
8. Classification categories
9. Review of credit facilities
10. Classification of restructured facilities
11. Classification of assets other than credits
12. Income recognition

PART V—PROVISION FOR LOAN LOSSES
13. Provision for loan losses
14. Write-offs of credit facilities
15. Acquisition of assets in lieu of repayment of credit

PART VI—RESTRICTIONS
16. Restrictions
17. Prior approval for large credits

PART VII—REPORTING REQUIREMENTS
18. Reporting requirements

PART VIII—ENFORCEMENT
19. Monetary penalties

SCHEDULE
FORM 1: Asset Classification Report
FORM 2: Portfolio Quality Report

IN EXERCISE of the powers conferred by section 34 (2) (a) of the Financial Services Act, 2010, I, CHARLES S. R. CHUKA, the Registrar of Financial Institutions, issue the following Directive—

PART I—PRELIMINARY

Citation 1. This Directive may be cited as the Financial Services (Asset Classification Requirements for Microfinance Institutions) Directive, 2014.

Application 2. This Directive shall apply to—
(a) deposit taking microfinance institutions;
(b) prudentially regulated non-deposit taking microfinance institution; and (c) microfinance portfolios of other licensed financial institutions engaged in microfinance services.

Interpretation 3. In this Directive, unless the context otherwise requires— "book value" means— (a) the value of an asset as stated on the books of account of an institution; or (b) the amount of an investment less any specific provisions for loss; "core capital" means the sum of— (a) issued and fully-paid shares; (b) share premium; (c) retained earnings; (d) 50% of current year to-date after tax profit or 100% of loss; (e) capital grants; or (f) any other distributable reserves, less investments in unconsolidated subsidiaries; "credit-facility-or-credit"-means-any-asset-or-off-balance-sheet-item-that contains credit risk, including loans, overdrafts, advances and all of the following— (a) financing by means of factoring; (b) leasing; (c) hire purchase; (d) accepting of trade and other bills; (e) discounting of such bills and notes; (f) the opening or confirming of documentary credit;

(g) the issue of other letters of standby, credit, guarantee or surety; (h) the undertaking to pay on account of another person; and (i) such other similar undertakings as may be prescribed by Registrar from time to time; "collateral" means security on a credit facility that is sufficient to partly or fully protect the institution from loss; "estimated recoverable amount" means the amount that an institution reasonably expects to recover on an asset, less costs of disposal or realization; "exposure" means the amount of an institution's exposure to a person or group of inter-related persons which is calculated as the sum of the following— (a) credits; (b) investment in equities; (c) debt securities; (d) securitized assets and other transactions with recourse; and (e) contingent liabilities, such as commitments to extend credit; "institution" means a deposit taking microfinance institutions, a prudentially regulated non-deposit taking microfinance institution, or other licensed financial institutions engaged in offering microfinance services; "large exposure" means an exposure, direct or indirect, of an institution to any person or group of inter-related persons which equals or exceeds ten per cent (10%) of the core capital of the institution; "net unsecured credit balance" means the outstanding principal balance of a credit, less the estimated recoverable amount of eligible collateral, as long as the institution's interest is fully enforceable; "non-performing loan" means any credit facility whose repayments are insufficient to meet principal, interest and other incidental charges due on it; "provision for loan losses" means a charge in the income statement to reflect an increase in the probability of losses due to uncollected loans; "Registrar" means the Registrar of Financial Institutions appointed under the Act; and "value-impaired asset" means an asset with an estimated recoverable amount or market value that is less than the book value.

PART II—OBJECTIVES

4. The objectives of this Directive are to ensure that institutions—
   (a) manage their credit risk;

(b) properly identify and make provisions on non-performing assets; and (c) present financial statements accurately.

PART III—BOARD OVERSIGHT

Board oversight 5. The board of directors of an institution shall— (a) adopt and implement a written policy covering the following— (i) classification of financial assets; (ii) establishment of adequate provisions for loan losses; (iii) types of lending that the institution may engage in; and (iv) practices relating to various types of collateral that the institution may hold; (b) adopt and implement sound risk management policies; (c) ensure that credit policies include detailed write-off policies and procedures in order to minimize potential abuse; and (d) review and approve policies as or when necessary or at least once every two (2) years.

PART IV—ASSET CLASSIFICATION

Asset classification policy 6.—(1) An institution shall have written procedures to ensure consistent compliance with the approved policy on asset classification which include the following— (a) an analytical framework for assessing credit quality; (b) appropriate valuation methods for determining fair value of a collateral; (c) realistic and conservative assumptions concerning the impact on obligors of potential future changes in general economic conditions; and (d) periodic reporting procedures to senior management staff and the board of directors about credit risks and its impact on the financial capital and earnings of the institution. (2) An institution shall— (a) promptly identify and classify problem assets in accordance with the classification criteria specified in this Directive; (b) make adequate provisions for potential losses; (c) where the institution has granted multiple loans to a single borrower, and any one of such loans is non-performing, evaluate every other loan to that borrower and place such loans on non-performing status accordingly; and (d) classify a group loan as past-due in its entirety, where any one of the members of the group defaults, but if the amount due is guaranteed by the members of the group, only the portion in arrears shall be accounted for as past-due until the group members pay up the guarantee.

7.—(1) The following facilities shall be categorized as non-performing Classification in line with classification categories as stipulated in paragraph 8 of this of credits Directive— (a) overdrafts and other extensions not having pre-established repayment programmes due to— (i) an overdrawn balance which exceeds the customer's approved limit for sixty (60) days or more; (ii) a customer's borrowing line which has expired for more than sixty (60) days; and (iii) an overdraft that is in excess at the review date, which has not been renewed or which has been renewed to a lower limit but remains in excess for more than sixty (60) days; (b) a seasonal credit facility without a pre-established repayment programme where— (i) no repayment is made for sixty (60) days or more after the end of the sales period; and (ii) repayments within sixty (60) days after the end of the sales period are insufficient to cover capital or accrued interest charged during the period of the credit facility; (c) a credit facility with principal or interest which is due and unpaid for sixty (60) days or more; and (d) a credit facility with interest payments which is due and unpaid for sixty (60) days or more which has been re-financed, or rolled over into a new loan. (2) In determining whether a financial asset or a group of financial assets is impaired under this Directive, the Registrar shall be guided by the international financial reporting standards.

8.—(1) An institution shall classify credit facilities into the following Classification categories— categories (a) standard, where— (i) it is current; (ii) the obligor is complying, and is expected to continue to comply, with all terms of the contract; and (iii) there is no reason to believe that the institution is being, or will be, subject to risk of loss; (b) special mention, where— (i) potential weaknesses exist in the obligor's financial position; or (ii) repayment installments are 30 days or more past-due; (c) substandard, where— (i) the obligor's financial condition, including net worth or repayment capacity, is unfavourable and is deteriorating; (ii) other adverse factors exist which cause concern regarding

the ability of the obligor to repay the credit in accordance with the existing repayment terms; or (iii) repayment installments are sixty (60) days or more past-due; (d) doubtful, where— (i) weaknesses exist which make collection or repayment in full highly questionable and improbable based upon currently existing circumstances, conditions, and the estimated recoverable amount of the pledged collateral, if any; (ii) the possibility of loss is very high, however, because of certain important and reasonably specific pending circumstances which could strengthen the asset, classification of the asset as loss is deferred until its exact status is determined; or (iii) repayment installments are ninety (90) days or more past-due; (e) loss, where— (i) the asset is deemed uncollectible and of such little value that it should not be included on the books of account and financial statements of the institution; or (ii) repayment installments are one hundred and eighty days or more past-due. (2) An institution shall closely monitor all assets which are special mention to minimize deterioration of the repayment prospects for the asset or the future position of the institution. (3) Where an asset is classified as loss, such classification does not cancel the obligor's obligation to repay and the institution shall continue to exercise its full legal right to collection or payment.

Review of 9.—(1) An institution shall review all credit facilities on a quarterly basis credit facilities for purposes of asset classification and for determining whether the credit facility has suffered a decline in, or impairment to value that is not expected to be temporary. (2) In addition to the quarterly review, an institution shall update the asset classification in between quarterly reviews on a monthly basis according to the days past due. (3) If between formal quarterly reviews, an institution establishes a significant deterioration in the quality of an individual credit or in a material part of the credit portfolio, the institution shall— (a) promptly assign the credit to a new classification category that accurately reflects the status of the credit; and (b) make applicable provisions to its income statement. (4) An institution shall review each large exposure on an individual item basis. (5) Where a credit facility is capable of being classified into two categories, the more severe classification of the two shall be applied.

(6) When an institution adds an asset to its books of account or moves an asset to a different account, the institution shall ensure that the quality and condition of that asset is accurately reflected.

10.—(1) An institution shall classify a renegotiated or restructured Classification nonperforming loan in the substandard category unless all past due principal of and interest is repaid in full at the time of the renegotiation, or restructuring restructured in which case it may revert to special mention classification. facilities (2) A renegotiated or restructured loan classified as doubtful or loss shall continue to be classified as doubtful or loss unless— (a) all past due principal and interest is repaid in full at the time of renegotiation, in which case it may revert to special mention classification; (b) all past due interest is repaid in full at the time of renegotiation in which case it may revert to substandard classification; or (c) all past due principal and interest is repaid in full at the time of renegotiation and there has been consistent repayment of three (3) installments in which case it may revert to standard classification. (3) Any loan or credit facility restructured for the second time shall be classified as substandard if all past due principal and interest is repaid in full at the time of renegotiation.

11.—(1) An institution shall review all other financial assets, other than Classification credits on a quarterly basis for purposes of classification and for determining of assets whether a financial asset has suffered impairment in, or impairment to value other than that is not expected to be temporary. credits (2) In the event of impairment to the book value of a noncredit asset that is not expected to be temporary, an institution shall— (a) reduce the book value of the asset to its estimated recoverable amount; and (b) classify the loss in value as an expense and charge it against income in the current period. (3) If, between formal quarterly reviews, an institution obtains new information or otherwise determines that the quality or condition of an asset has been impaired, the institution must promptly and accurately reduce the book value of the asset to its estimated recoverable amount.

12.—(1) An institution shall place all value impaired assets, Income including assets that are adversely classified, on non accrual status and the recognition institution shall— (a) cease to reflect in its income statement the accrual of interest; (b) reverse uncollected interest which has previously accrued; and (c) not classify interest as income except when received in cash. (2) An institution shall place an asset on non accrual status regardless of any collateral held against it.

(3) An institution shall restore an asset which has been placed on a non accrual status to an accrual status when the contractual amount of the principal and interest is deemed to be fully collectible in accordance with the terms of the contract where— (a) the borrower has made all payments of past-due principal and interest, the principal and interest payments are current and the institution expects repayment of the remaining contractual principal and interest as scheduled in the contract; or (b) the borrower has resumed paying the full amount of the scheduled contractual principal and interest and all remaining contractual payments, including compensation for past-due payments are deemed to be collectible in a timely manner. (4) An institution shall ensure that a determination to restore an asset to an accrual status is supported by a current and well documented evaluation of the obligor's financial condition and other factors affecting the prospects for repayment, including the obligor's repayment performance for the past three (3) months.

PART V—PROVISION FOR LOAN LOSSES

Provision for 13.—(1) An institution shall determine the amount of provision for loan loan losses losses using the standard percentage method. (2) An institution shall apply the following percentages to the sum of the classified net unsecured credit balances in each classification category— (a) special mention, twenty per cent (20%) of the sum; (b) substandard, fifty per cent (50%) of the sum; (c) doubtful, seventy five per cent (75%) of the sum; and (d) loss, one hundred per cent (100%) of the sum.

Write-offs of 14.—(1) An institution shall write off a loan or a portion of a loan from credit facilities its balance sheet when— (a) the institution loses control of the contractual rights that comprise all or part of the loan, as determined by a court of law; (b) the institution is unable to collect, or there is no longer any reasonable assurance that the institution will be able to collect all amounts due; (c) the borrower declares or is declared bankrupt; (d) efforts to collect debt are abandoned for any other reason; or (e) the loan has been non-performing for one hundred and eighty (180) consecutive days. (2) Any recoveries made from an account that was previously written off shall be credited to the provisions account in the income and expenditure statement.

15.—(1) If an institution acquires an asset in lieu of repayment of a Acquisition credit, the book value of the asset acquired shall be the lower of the net unpaid of assets in balance of the credit or the estimated recoverable amount of the asset lieu of acquired. repayment of (2) If the estimated recoverable amount of the asset acquired is less than credit the book value of the credit, then the institution shall write off the difference when the asset is added to the books of account.

PART VI—RESTRICTIONS

16.—(1) An institution shall not— Restrictions (a) renegotiate, roll-over, or modify the terms of a credit in order to avoid an adverse classification; or (b) advance additional funds to enable an obligor to meet existing payment obligations to the institution.

17. An institution shall apply for approval from the Registrar for any Prior credit facility in excess of ten per cent (10%) of core capital. approval for
    large credits

PART VII—REPORTING REQUIREMENTS

18.—(1) An institution shall— Reporting
(a) submit to the Registrar an asset quality report within fifteen (15) requirements days of the end of each month, in the format prescribed as Form 1 of the Schedule to this Directive; and (b) submit to the Registrar a quarterly portfolio quality report within fifteen (15) days of the end of each quarter, in the format prescribed as Form 2 of the Schedule to this Directive.

PART VIII—ENFORCEMENT

19.—(1) The Registrar shall impose the following monetary penalties for Monetary violation of this Directive— Penalties (a) for an institution, up to fifty million Kwacha (K50,000,000); and (b) for a natural person who are members of the board of directors or management, up to ten million Kwacha (K10,000,000). (2) An institution or natural person shall pay the respective penalties imposed under subparagraph (1) through a bank certified cheque payable to the Reserve Bank of Malawi within ten (10) working days after being notified of the violation. (3) In addition to the monetary penalty imposed in subparagraph (1), the Registrar may impose directions and administrative penalties as provided for under the Act and the Microfinance Act, 2010.

SCHEDULE
FORM 1:—ASSET CLASSIFICATION REPORT (para. 18 (1) (a))

Name of Institution:...................................................................................................
Month Ending:...........................................................................................................

CLASSIFIED ASSETS

Asset	Standard	Special Mention	Substandard	Doubtful	Loss	Total
	0%	20%	50%	75%	100%
Credit facilities	—	—	—	—	—	—
Securities	—	—	—	—	—	—
Real Estate Owned	—	—	—	—	—	—
Other Assets	—	—	—	—	—	—
Total Assets	—	—	—	—	—	—
Loan Loss	—	—	—	—	—	—
Provisioning for	—	—	—	—	—	—
Net Assets	—	—	—	—	—	—

PAST-DUE ASSETS: REPORT THE TOTAL AMOUNT OUTSTANDING FOR EACH ASSET CLASS.

Asset	Past Due 8-30 days (memo item) (1)	Past Due 30-59	Past Due 60-89 days (2)	Past Due 90 or more	Total Past Due (2)+(3)+(4)) days (4)
Credit Facilities
Other Assets
Total

CHARGE-OFFS AND RECOVERIES

Asset	Charge-Offs	Recoveries	Net Position
Credit Facilities
Other Assets
Total	—	—	—

CHANGES IN ALLOWANCE FOR LOAN LOSS

	Amount K'000
Balance from previous report	—
Recoveries	—
Charge-offs	—
Current provisions for losses	—
Prior period adjustments	—
Ending balance	—

FORM 2:—PORTFOLIO QUALITY REPORT (para. 18 (1) (b))

Name of Institution:...................................................................................................
Month Quarter Ending:.............................................................................................

PART I—PORTFOLIO AT RISK

	Current month	Previous month
CLIENT POPULATION
1. Number of new borrowers
2. Number of existing borrowers
3. Total number of borrowers
DEPOSITORS
4. Number of Savings Accounts
5. Number of Time Deposit Accounts
Total
PORTFOLIO STATUS
6. Number of loans disbursed
7. Value of loans disbursed (K'000)
8. Number of loans outstanding
9. Value of outstanding loan portfolio (K'000)
10. Average loan amount
11. Average loan term (in weeks)
13. Loans written off (K '000)
14. Loans recovered (K '000)
15. Portfolio at risk *(K'000)

*Portfolio at risk is calculated as the amount due not repaid for over sixty (60) days or more divided by value of loans outstanding.

PART II—AGING REPORT

	Number of Loans	Outstanding Balance	Minimum Provision (%)	Provision Amount (Kwacha)	Compulsory Savings/LIF	Required Provision
Current	—	—	0%	—
Overdue for 30 days or more but less than 60 days	—	—	20%	—	—	—
Overdue for 60 days but less than 90 days	—	—	50%	—	—	—

	Number of Loans	Outstanding Balance	Minimum Provision (%)	Provision Amount (Kwacha)	Compulsory Savings/LIF	Required Provision
Overdue for 90 days but less than 180 days	—	—	75%	—	—	—
Overdue for 180 days and above	—	—	100%	—	—	—
Rescheduled loans
Overdue for 30 - 59 days	—	—	20%	—	—	—
Overdue 60 - 89 days	—	—	50%	—	—	—
Overdue 90 - 179 days	—	—	75%	—	—	—
Overdue 180 days and above	—	—	100%	—	—	—
Total	—	—	—	—	—	—

PART III—PROVISIONS
SPECIFIC PROVISIONS

A provision is established against a presently identified loan or probable loss. Should the loan improve in status, its provision may be eliminated or reduced. If the loan remains classified as a loss it shall be written off from the books of the institution.

	Year to Date	Corresponding Quarter	Prior Year
Beginning balance
Transfer to provisions
Gross charge-offs (loan losses)
Recoveries on prior charge-offs
Other entries (describe)
Ending balance

PART IV—INTEREST IN SUSPENSE

For all value-impaired assets, including assets that are adversely-classified and assets that are 60 days or more past-due

	Year to Date	Corresponding Quarter	Prior Year
Opening Balance
Add: Current interest in suspense
Less: Write-Offs
Ending balance

PART V—CHARGE OFFS AND RECOVERIES BY SECTOR

Show, in the schedule below, gross amounts charged off and gross recoveries on such charge-offs by sector, for the year-to-date in the current financial year. The totals must agree with gross provisions established in the period and reductions due to improved status, again in the year-to-date column of the Specific Provisions in Part I of this Schedule. Year-to-date for the current financial year (K'000)

Sector	Charge-off	Recoveries	Net Position
1. Agriculture	—	—	—
2. Manufacturing	—	—	—
3. Trade and Commerce	—	—	—
4. Transport and Utilities	—	—	—
5. Building and Construction	—	—	—
6. Others	—	—	—
7. Total	—	—	—

PART VI— SUPPLEMENTARY DATA ON NON PERFOMING ADVANCES (K '000)

Sector	Total Outstanding	Non-performing as per definition	Percentage of Non-Performing
1. Agriculture	—	—	—
2. Manufacturing	—	—	—
3. Trade and Commerce	—	—	—
4. Transport and Utilities	—	—	—
5. Building and Construction	—	—	—
6. Others	—	—	—
7. Total	—	—	—

We have reviewed the above return, and we certify that the figures stated therein are in accordance with the institution's books and records.

Chief Executive Officer | Chief Financial Officer --- | ---
Name:.................................................................. | Name:..................................................................
Date:................................................................... | Date:...................................................................
Signature:............................................................ | Signature:............................................................

Made this 21st day of July, 2014.

(FILE NO. ST/2/120) | C. S. R. CHUKA
Registrar of Financial Institutions

GOVERNMENT NOTICE NO. 38

FINANCIAL SERVICES ACT, 2010
(No. 26 OF 2010)

FINANCIAL SERVICES (CAPITAL ADEQUACY REQUIREMENTS FOR DEPOSIT TAKING MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014

ARRANGEMENT OF PARAGRAPHS

PARAGRAPH

PART I—PRELIMINARY

1. Citation
2. Interpretation

PART II—OBJECTIVES
3. Objectives

PART III—MINIMUM CAPITAL REQUIREMENTS
4. Minimum paid up capital
5. Minimum capital adequacy ratios
6. Criteria for higher minimum capital ratios
7. Risk weighting of assets

PART III—MISCELLANEOUS REQUIREMENTS
8. Reporting requirements
9. Powers of the Registrar
10. Enforcement

SCHEDULE
Form: Computation of Capital Adequacy

IN EXERCISE of the powers conferred by section 34 (2) (c) of the Financial Services Act, 2010, I, CHARLES S. R. CHUKA, Registrar of Financial Institutions, issue the following Directive—

PART I—PRELIMINARY

Citation 1. This Directive may be cited as the Financial Services (Capital Adequacy Requirements for Deposit Taking Microfinance Institutions) Directive, 2014.

Interpretation 2. In this Directive, unless the context otherwise requires— "capital adequacy" refers to the maintenance of minimum on-going capital requirements as required by the Act or specified in this Directive; "contingent claims" (also known as "off-balance sheet items") include—

(a) direct credit substitutes, such as guarantees, acceptances and endorsements; (b) transaction-related items such as performance bonds; and (c) formal commitments, such as standby facilities, credit lines, and unused facilities; "core capital" consists of— (a) issued and fully-paid shares; (b) share premium; (c) retained earnings; (d) fifty per cent (50%) of current year to-date after tax profit or one hundred per cent (100%) of loss; (e) capital grants; or (f) any other distributable reserves, less investments in unconsolidated financial subsidiaries; "institution" means a deposit taking microfinance institution; "Registrar" means the Registrar of Financial Institutions appointed under the Act; "supplementary capital" consists of— (a) revaluation reserves on the assets of an institution that arise periodically from the independent valuation of those assets; (b) fifty per cent (50%) of current year to-date; or (c) any other form of capital as may be determined and approved by the Registrar from time to time; "total assets" means the amount reported under monthly statements of assets and liabilities submitted by an institution to the Registrar pursuant to the Financial Reporting Requirements for Microfinance Institutions) Directive, 2014; and "total capital" means the sum of core capital and supplementary capital.

PART II—OBJECTIVES

3. The objectives of this Directive are to— Objectives
   (a) ensure that an institution has adequate cushion of capital to absorb losses; and (b) protect the interests of depositors, creditors and the public in general by ensuring that deposit taking microfinance institutions are well capitalised.

PART II—MINIMUM CAPITAL REQUIREMENTS

4. An applicant for a licence to operate a deposit-taking microfinance Minimum institution shall have at least a minimum paid up capital of two hundred and paid up fifty million Kwacha (K250.0 million). capital

Minimum 5. Unless higher minimum ratios have been set by the Registrar for an capital individual deposit taking microfinance institution, the institution shall adequacy ratios maintain the following capital ratios at all times— (a) a core capital to total risk-adjusted assets plus risk-adjusted off-balance-sheet items of not less than ten per cent (10%); and (b) a total capital to total risk-adjusted assets plus risk-adjusted off-balance sheet items of not less than fifteen per cent (15%).

Criteria for 6. The Registrar may require an institution to maintain higher higher minimum capital ratios if the Registrar determines that such higher ratios are minimum necessary due to— capital ratios (a) high levels of losses (expected or realized); (b) significant exposure to credit risk, concentration risk, market risk, interest rate risk, liquidity risk, operational risk, reputational risk, legal risk, or any other risks; (c) poor quality of loan portfolio and other assets; (d) rapid growth without proper risk management systems or adequate capitalization in place or both; (e) a significant likelihood that the deposit taking microfinance institution may be adversely affected by the activities or condition of its holding company, associates or subsidiaries; or (f) for any other reason necessitating higher capital ratio as assessed by the Registrar.

Risk weighting 7.—(1) A risk-based approach to capital adequacy measurement shall be of assets applied to both on-balance sheet and off-balance sheet items. (2) An institution shall weight on-balance sheet assets, for purposes of computing capital adequacy ratios stipulated in paragraph 5, as follows— (a) zero per cent (0%) weight for the following— (i) cash in local currency; (ii) balances with the Reserve Bank of Malawi; (iii) treasury bills, bills and promissory notes issued by the Reserve Bank of Malawi or the Government of Malawi; (iv) loans fully secured by cash; (v) loans guaranteed by the Government of Malawi, as long as such guarantees are approved in accordance with the Public Finance Management Act; and (vi) advances guaranteed by the central governments of any member country of the Organisation for Economic Co-operation and Development (OECD); (b) twenty per cent (20%) weight for the following— (i) cash in foreign currency; (ii) deposits and balances in licensed local banks and other licensed financial institutions;

(iii) deposits and balances in licensed foreign banks and other licensed financial institutions; (iv) securities issued by the central government of any foreign country; and (v) claims guaranteed by any multilateral development bank; and (c) one hundred per cent (100%) weight for the following— (i) deposits and balances in banks and financial institutions that are under statutory management; (ii) fixed assets less depreciation; (iii) all loans and advances less net of provisions; (iv) other investments; and (v) all other assets and investments that have not been covered under subparagraph (a) and (b). (3) An institution shall weight off-balance sheet assets, for the purpose of computing the capital adequacy ratios stipulated in paragraph 5, as follows— (a) zero per cent (0%) weight for the following— (i) assets that are fully secured by cash or cash equivalents; (ii) assets that are guaranteed by the Government of Malawi; as long as such guarantees are approved in accordance with the Public Finance Management Act; and (iii) assets that are guaranteed by the central governments of any member country of the OECD; and (e) one hundred per cent (100%) weight for all other assets not covered under subparagraph (a).

PART IV—MISCELLANEOUS

8.—(1) An institution shall prepare and submit a monthly capital Reporting adequacy report to the Registrar demonstrating its compliance with the requirements capital adequacy requirements set out in this Directive. (2) The capital adequacy report shall be in format prescribed in the Schedule to this Directive.

9.—(1) The Registrar may call for adjustments to the capital of an Powers of institution if it is determined based upon returns or on-site inspection findings the Registrar that the institution is not complying with the provisions of this Directive. (2) The Registrar may use the powers under the Act to verify the accuracy of all returns and order an institution to amend any returns as the Registrar deems fit.

PART V—ENFORCEMENT

10.—(1) Where capital ratios of an institution fall below the ratios Enforcement stipulated in paragraph 5, the institution shall immediately—

(a) inform the Registrar;
(b) cease to—
(i) grant credit and make further investment;
(ii) pay dividends to shareholders; or
(iii) introduce new products; and
(c) submit, for approval, a board-approved recapitalization plan with specific time frames to the Registrar.
(2) If the plan submitted pursuant to subparagraph (1) is not approved by the Registrar, or the deposit taking microfinance institution fails to implement the plan within the stipulated period, the Registrar shall take any action provided for under the Act or the Microfinance Act.

SCHEDULE
CAPITAL ADEQUACY REPORT

(1) LEVERAGE CAPITAL RATIO:
Share Capital (Paid Up)
Share Premium
General Reserve
Retained earnings-Prior years
Net income (loss)-Current period ( ties to line 13. Sch. 02) Less: Investment in unconsolidated subsidiaries Total equity Total Assets- Book amount (line 23, schedule 01-Assets) Add: Provisions for loan losses (general only) Less: Revaluation reserves (fixed assets) Total assets (adjusted) Leverage ratio

(2) RISK-BASED CAPITAL RATIOS:
Share Capital (Paid Up)
Share premium
General Reserve
Retained earnings-Prior years
Net income (loss)-Current period (60%)
Less: Investment in unconsolidated subsidiaries Core Capital Add: Revaluation reserves (fixed assets) Provisions for loan losses (general only) Total Capital

RISK BASED ASSETS	Amount (K'000)	Risk Weight	Risk Weighted Assets
Currency & coin (domestic and foreign)
Balances with Reserve Bank of Malawi
Balances with other banks (excl. resid. maturity > 1 yr)
Cheques in the course of collection
Malawi Government securities
Malawi Government treasury bills
Reserve Bank of Malawi day bills
Other securities
Loans to or guaranteed by Malawi Government
Loans secured by cash deposits
Loans guaranteed by OECD incorporated banks
All other loans
Fixed assets
All other assets
Contingent Claims
Claims to or guaranteed by Government
Claims with cash collateral
Direct credit substitutes (guarantees, acceptances, etc.)
Transaction related contingency (perf. bonds, standbys )
Documentary credits etc (trade related & self liquidating)
Other commitments with maturity of over 1 year
Similar commitments of up to 1 year or which can be conditionally cancelled
TOTAL RISK-BASED ASSETS
Risk-Based Capital Ratio
TOTAL Risk-Based Ratio

Made this 21st day of July, 2014.

(FILE NO. ST/2/120) | C. S. R. CHUKA
Registrar of Financial Institutions

GOVERNMENT NOTICE NO. 39

FINANCIAL SERVICES ACT
(No. 26 OF 2010)

FINANCIAL SERVICES (CORPORATE GOVERNANCE REQUIREMENTS FOR MICROFINANCE INSTITUTIONS) DIRECTIVE, 2014

ARRANGEMENT OF PARAGRAPHS

PARAGRAPH

PART I—PRELIMINARY

1. Citation
2. Application
3. Interpretation

PART II—OBJECTIVES
4. Objectives

PART III—CORPORATE GOVERNANCE REQUIREMENTS
5. Rights and responsibilities of shareholders
6. Board composition
7. Board charter
8. Board oversight
9. Board and senior management
10. Other matters
11. Senior management oversight
12. Company secretary
13. Duties of a company secretary

PART IV—BOARD AND MANAGEMENT COMMITTEES
14. Board and management committees
15. Board audit committee
16. Asset and liability management committee
17. Nomination committee
18. Other committees

PART V—FINANCIAL REPORTING AND AUDITS
19. Internal audit
20. External auditor
21. Financial reporting

PART VI—REPORTING REQUIREMENTS
22. Ethics
23. General requirements

PARAGRAPH

PART VII—ENFORCEMENT
24. Monetary penalties
25. Other penalties

SCHEDULES
First Schedule: Minimum Qualifications for Senior Management of an institution Second Schedule: Fit and Proper Questionnaire

IN EXERCISE of the powers conferred by section 34 (2) (b) of the Financial Services Act, 2010, I, CHARLES S. R. CHUKA, Registrar of Financial Institutions, issue the following Directive—

PART I—PRELIMINARY

1. This Directive may be cited as the Financial Services (Corporate Citation Governance Requirements for Microfinance Institutions) Directive, 2014.

2.—(1) This Directive shall apply to— Application (a) deposit taking microfinance institutions; and (b) prudentially regulated non-deposit taking microfinance institution. (2) This Directive shall apply in addition to the Code of Best Practice for Corporate Governance in Malawi (the Malawi Code II), published by the Institute of Directors in Malawi. (3) Where this Directive is inconsistent with the Malawi Code II, this Directive shall prevail to the extent of such inconsistency.

3. In this Directive, unless the context otherwise requires— Interpretation
   "affiliate" means a company or enterprise that controls or is under common control with the institution; "board" means the board of directors of an institution; "group" means a group consisting of two or more institutions that have a common controlling party and the bodies corporate of which any of those institutions is a controlling party; "independent director" means a non-executive director that either— (a) is not related or affiliated to a shareholder that has the ability to control or influence management of an institution; (b) has not been employed by the an institution or its subsidiary in any executive capacity for the preceding three financial years; (c) is not a member of the immediate family of an individual who is or has been in any of the past three financial years employed by an institution or the group in an executive capacity; (d) is not a professional advisor to an institution or the group other than in a director capacity;

(e) is not a significant customer or supplier of the institution; (f) has no significant contractual relationship with the institution or group; or (g) is free from any business or other relationship which could be seen to materially interfere with the individual's capacity to act in an independent manner; "institution" shall refer to a deposit taking microfinance institution or any other prudentially regulated microfinance institution; "non-executive director" means a director who is not a member of the management of an institution; and "Registrar" means Registrar of Financial Institutions appointed under the Act.

PART II—OBJECTIVES

Objectives 4. The objectives of this Directive are to— (a) set minimum requirements for good governance of institutions; (b) promote corporate self-discipline in the management of institutions; and (c) ensure that institutions are managed in a sound and prudent manner by a competent board, which is capable of making reasonable and impartial business judgments.

PART III—CORPORATE GOVERNANCE REQUIREMENTS

Rights and 5.—(1) Shareholders of an institution shall— responsibilities (a) ensure that the board has clear policies for shareholder relations; of shareholders (b) ensure that the board annually reviews practices aimed at communicating the goals, strategies and achievements of the institution; (c) where deemed necessary, question external auditors on the auditors' opinion during the annual general meeting or extraordinary general meetings; (d) ensure that only competent and reliable persons who can enrich and add value to the institution are elected or appointed to the board; (e) ensure that the board is constantly held accountable and responsible for the efficient and effective governance of the institution; and (f) change the composition of a board that does not perform to expectations or in accordance with the mandate of the institution. (2) A shareholder with more than ten per cent (10%) shareholding in an institution shall not be an executive director or form part of the management of the institution. (3) Shareholders of an institution shall fix and approve director's remuneration and fees during annual general meetings or extraordinary general meetings.

(4) A shareholder may—
(a) participate in decisions concerning fundamental corporate changes including— (i) amendments to articles of association, memorandum of association or similar governing documents of the institution; and (ii) authorization of additional shares and extraordinary transactions, including the transfer of all or substantially all assets, that in effect results in the sale of the institution; (b) participate and vote in general meetings; (c) access information concerning rules and voting procedures governing a general meeting including information concerning the date, location and agenda; (d) ask the board any question and enquire about the annual external audit; (e) place items on the agenda of general meetings; (f) propose resolutions; and (g) vote in person or by proxy.

6.—(1) A board shall have a minimum of five (5) directors, the Board majority of which shall be independent directors. composition (2) A chairperson of a board shall be a non-executive director. (3) A chairperson of a board shall not be a person who has served in the position of a chief executive officer of the institution for the past two years before appointment as chairperson. (4) A chairperson of a board shall be responsible for— (a) fostering a constructive governance culture; and (b) applying appropriate governance principles among the directors and with management; (5) An institution shall have a transparent procedure for appointment of its board. (6) A majority of directors and the chairperson of the board shall ordinarily reside in Malawi. (7) The board shall comprise persons who, as a group, shall provide core competencies such as accounting, finance, business or management experience, industry knowledge, or strategic planning knowledge or experience.

7.—(1) The board shall have a formal charter that sets out its responsi- Board bilities, which shall— charter (a) at a minimum, confirm the board's responsibility for the formulation and adoption of a strategic plan, monitoring of operational performance and management; and (b) allow the board to determine appropriate policies and processes to ensure integrity of—

(i) the institution's risk management practices; (ii) internal controls; (iii) communication policy; and (iv) selection, orientation and evaluation of directors.

Board 8. The board shall— oversight (a) retain full and effective control over the institution and be responsible for monitoring of management in respect of implementation of the board's plans and strategies; (b) give strategic direction to the institution; (c) discuss and approve the organisational structure of the institution; (d) appoint and remove management of the institution; (e) ensure that there is a succession plan; (f) allocate time and resources for directors to acquire and retain a sound understanding of their responsibilities; (g) have a rigorous formal process for evaluating its performance along with that of board committees and individual directors; (h) ensure that the institution complies with all relevant laws and codes of business practice; (i) ensure that management maintains an effective compliance function that routinely monitors adherence to rules, regulations and policies to which the institution is subject and ensures that any deviations are reported to an appropriate level of management or, if necessary, the board; (j) have access to all the institution's information, records, documents and property; (k) have an agreed procedure and access to budget resources to enable the board, if necessary, to obtain independent professional advice at the institution's expense; (l) identify and monitor the non financial aspects relevant to the business of the institution including reputation risk; (m) ensure that senior management implements policies to identify, prevent or manage and disclose, as appropriate, any conflict of interest that may arise; and (n) ensure that the institution maintains a positive image within the industry and the economy as a whole.

Board and 9.—(1) Every member of the board shall be accountable to the Registrar senior for the sound and prudent management of the institution. management (2) The board may delegate authority to management to act on its behalf with respect to certain matters. (3) The board shall— (a) document any authority that it delegates to management;

(b) have mechanisms for monitoring delegated authority; and (c) not abrogate responsibility for delegated functions.
(4) The board may supplement its skills, knowledge and time constraints through the use of external consultants and experts.
(5) The board shall allow an appointed auditor, consultant or expert to raise matters directly with the board.
(6) Non-executive directors of the board shall meet with external auditors, head(s) of internal audit, compliance and legal functions at least once, annually in the absence of management. (7) Where the Registrar requests to meet the chairperson of the board or the entire board, they shall make themselves available to meet the Registrar.

10.—(1) A director of an institution shall not be a member of more than Other matters six (6) other boards within the microfinance sector. (2) The maximum amount of time that an independent non-executive director of an institution may serve on its board shall be ten years. (3) Where a director of an institution has resigned or has been removed, the board of directors of the institution shall report to the Registrar, within seven (7) days, of such resignation or removal. (4) Every director of a board shall attend all board meetings of the institution. (5) Where a director of a board has failed to attend at least seventy five per cent (75%) of board meetings in a year, the institution shall inform the Registrar and provide reasons for poor attendance and showing cause why the director should be permitted to continue in his or her office. (6) An annual report of an institution shall— (a) include information on the name, age, experience, education, affiliation, and committee membership of each director; (b) identify independent directors; (c) disclose attendance of board meetings by each director; (d) stipulate in summary the board's responsibilities; (e) include information on remuneration of individual directors as well as earnings, business or share options, restraint payments and any other benefits; (f) disclose remuneration bonuses and other benefits received by senior management on an aggregate basis; (g) include a statement describing the major risks of the institution and how these are managed; (h) include full financial statements, including comprehensive notes and auditor's opinion; and (i) disclose adherence to the code of ethics against the criteria in paragraph 22.

(7) The nominations committee of the board of an institution (in this Directive otherwise referred to as the "nominations committee") shall comprise non-executive directors only, the majority of whom shall be independent. (8) The nominations committee shall ascertain whether potential new directors are suitable for the position in terms of the Fit and Proper Test Requirements of the Act and the Microfinance Act, 2010; (9) Practising accountants of audit firms that audit an institution shall not be appointed as directors of that institution.

Senior 11.—(1) A member of senior management of an institution shall management ordinarily reside in Malawi. oversight (2) Where an institution is a local subsidiary owned by a foreign holding company, the management of the subsidiary shall report to the board of the subsidiary. (3) Senior management of an institution shall at a minimum comprise— (a) chief executive officer; (b) chief financial officer; and (c) chief operating officer. (4) An institution shall obtain approval of the Registrar prior to the appointment of senior management officers and such officers shall— (a) meet the minimum qualifications prescribed in the First Schedule to this Directive; (b) be subjected to a fit and proper test; (c) submit the fit and proper test questionnaire prescribed in the Second Schedule to this Directive. (5) The Registrar may prescribe higher minimum qualifications for a specific institution than the ones prescribe in this Directive where the Registrar deems necessary.

Company 12.—(1) A company secretary of an institution shall be— secretary (a) a chartered company secretary; (b) a lawyer or a firm which provides legal services; (c) an accountant or a firm which provides accounting services; or (d) a firm which provides company secretarial services. (2) A person shall not combine the roles of a company secretary and chief executive officer.

Duties of a 13. In addition to other duties, a company secretary shall provide— company (a) the board with detailed guidance on how to discharge their secretary responsibilities in the best interest of the institution and in compliance with laws, internal rules, and the Registrar's directives; and (b) a central source of guidance and advice to the board and within the company on matters of ethics and good governance.

PART IV—BOARD AND MANAGEMENT COMMITTEES

14. Every institution shall have board and management committees Board and which shall include— management
    (a) at board level— committees
    (i) an audit committee;
    (ii) a risk management committee;
    (iii) a nomination committee; and
    (iv) a credit committee; and
    (b) at management level—
    (i) an asset and liability management committee; (ii) a risk management committee; and (ii) a credit committee.

15.—(1) The Audit committee shall— Audit
(a) assist the board by providing an objective non-executive review committee of the effectiveness of the financial reporting and risk management framework of the institution; (b) have sufficient powers to enable it to obtain information necessary for the performance of its functions; (c) have a minimum of three (3) members and all of them, including the chairperson, shall be independent directors; (d) ensure adequacy and independence of the internal and external audit functions; (e) regularly review— (i) internal and external audit as well as risk management framework to ensure that they cover all material risks and financial reporting requirements of the institution; and (ii) findings of audits and ensure that issues raised are managed and rectified appropriately and promptly; (f) establish and maintain policies and procedures for the employees of the institution to submit confidential information to it about accounting, internal control, compliance, audit and other matters with which the employees have concerns; (g) have a process for ensuring that employees are aware of the established policies and procedures for dealing with matters raised by employees under the policies; and (h) invite an appointed external auditor of an institution to meetings of the committee. (2) An audit committee shall have a charter stipulating that the oversight responsibilities of the committee shall include— (a) statutory reporting requirements; (b) financial reporting requirements; (c) professional accounting requirements;

(d) internal and external audit;
(e) appointment and dismissal of an internal auditor; (f) remuneration and performance assessment of an internal auditor; and (g) appointment of an external auditor. (3) Person who is holding the position of chairperson of the board or holding the position of chief executive officer of an institution shall not be a member of the audit committee.

Asset and 16.—(1) An institution shall have an asset and liability management liability committee comprising a minimum of three (3) members of management, management including the head of finance. committee (2) The asset and liability management committee shall— (a) manage the institution's assets and liabilities in a manner that ensures that the investment activities of the institution and asset position are appropriate for the liabilities and risk profile of the institution; (b) have a written charter approved by the board; (c) be responsible for the following— (i) assessing the risk or reward structure of the institution; (ii) designing and implementing asset liability management strategies to modify risk; (iii) quantifying levels of risk exposure; (iv) monitoring risk exposure and revising asset and liability management strategies as appropriate; and (v) proposing risk tolerance limits for board approval; and (d) furnish a report to the board on the asset and liability management performance of the institution on a quarterly basis.

Nomination 17.—(1) The nomination committee shall have terms of reference, committee explaining the committee's role and authority which the board may delegate to the committee. (2) The nomination committee shall, in addition to its terms of reference— (a) consult the chairman of the board or the chief executive officer of the institution about its proposals relating to the remuneration of other executive directors; and (b) recommend and monitor the level and structure of remuneration for senior management. (3) The nomination committee may— (a) appoint consultants to set the remuneration of executive directors of the institution; or (b) delegate responsibility for proposing remuneration packages for executive directors of the institution and the chairperson of the board including pension rights and compensation payments.

(4) Where a remuneration consultant is appointed pursuant to subparagraph (3)(a), the institution shall make a statement to the Registrar on whether the consultant has any connection with the institution. (5) The nomination committee shall— (a) have a clear policy for proposing remuneration packages for executive and non-executive directors of institution at levels that are fair and reasonable in a competitive market for the skills, knowledge, experience, nature and size of the institution; (b) ensure that levels of remuneration for non-executive directors reflect the time, commitment and their responsibilities; and (c) ensure that remuneration for non-executive directors does not include share options or other performance related elements.

18. In addition to the Committees prescribed in this Part, an institution Other may set up other committees of the board or management, as it deems fit. committees

PART V—FINANCIAL REPORTING AND AUDITS

19.—(1) An institution shall have an independent and adequately Internal Audit resourced internal audit function.
(2) An institution shall have an internal audit charter which shall include, among other issues, the following— (a) an internal audit's role and responsibility for governance, risk management, consulting services, and fraud investigations; (b) the right for a chief internal auditor to have unrestricted access to the audit committee chairperson, employees, facilities and records of the institution; (c) reporting requirement which shall be direct to the board or its audit committee in order to ensure independence from management; and (d) authorisation of the chief internal auditor to attend audit committee meetings and meet the audit committee, at least once a year. (3) Where an institution is not in a position to have a dedicated internal audit function, the Registrar may approve alternative arrangements. (4) An institution shall put in place robust internal audit procedures, with appropriate reporting lines to the board and with oversight by the audit committee of the board. (5) An internal audit function of an institution shall develop an annual work plan which shall include for each assignment the scope, objectives, timing and resources. (6) The work plan must be approved by the audit committee. (7) The board shall ensure that management has follow up mechanisms to ensure that— (a) recommendations made in internal audit reports are dealt with in a timely manner; and

(b) corrective actions have been taken on deficiencies noted in the audit.
(8) An internal auditor of an institution shall not assume other operational responsibilities.

External auditor 20.—(1) The board shall—
(a) ensure that the shareholders of an institution appoint an external auditor annually in accordance with the requirements of the Act and this Directive; (b) advise the external auditor to use this Directive in conjunction with provisions of sections 57, 58 and 59 of the Act; (c) ensure that financial statements are prepared in accordance with international financial reporting standards; (d) ensure rotation of the lead audit partner for the institution every five (5) years; (e) facilitate full and frank dialogue among its audit committee, external auditors, and management; (f) include in the annual report the amount of fees paid to the external auditors by the institution and its affiliates and clearly distinguish audit and non-audit fees; and (g) explain in the annual report all non-audit work undertaken, if any, and why this did not compromise auditor independence. (2) An appointment of an external auditor to an institution shall not take effect unless the institution obtains written approval from the Registrar in accordance with section 56 (1) of the Act. (3) An auditing firm that provides auditing services may be engaged to provide other non-audit work subject to prior approval by the audit committee.

Financial 21.—(1) An institution shall prepare financial statements, on individual reporting basis and, where applicable, on group basis. (2) The board shall ensure that the external auditor of the institution has audited the financial statements prepared under subparagraph (1). (3) Management of an institution shall require that the audited financial statements under this paragraph, together with an external auditor's report be exhibited at a conspicuous place in all business places of the institution.

PART VII—REPORTING REQUIREMENTS

Ethics 22.—(1) An institution shall—
(a) conduct business on the principles of utmost good faith and sound microfinance principles; (b) promote and observe the customary practices relating to microfinance; and

(c) engage stakeholders in determining standards of ethical behaviour of the institution.
(2) An institution shall demonstrate commitment to organisational integrity by codifying and publishing standards of ethical behaviour in a code of ethics by— (a) availing a copy of the code of ethics to the Registrar and any amendments thereto; (b) articulating acceptable behaviour in the code of ethics of the institution; and (c) disallowing unacceptable behaviour that may result in the institution engaging in illegal activity such as money laundering, fraud, bribery or corruption. (3) A code of ethics shall— (a) bind all directors, senior management, employees, officers and agents of the institution; (b) ensure that the institution complies with relevant laws, regulations and directives of the Registrar; (c) create systems and procedures to introduce, monitor and enforce the code of ethics; (d) assign high level individuals to oversee compliance with the code of ethics; (e) assess the integrity of new appointees in selection and promotion procedures; (f) exercise due care in delegating discretionary authority; (g) communicate with, and train, all employees regarding enterprise values, standards and compliance procedures; (h) provide, monitor and audit safe systems for reporting of unethical or risky behaviour; (i) enforce appropriate discipline with consistency; and (j) respond to offences and prevent re-occurrence of the offences. (4) The board shall ensure that senior management implements policies that prohibit or appropriately limit activities and relationships that diminish the quality of corporate governance, including— (a) lending to directors and employees or officers from affiliated companies on non-arms length basis; (b) providing preferential treatment to insiders; (c) improper use of property or information; (d) unfair dealing with clients, employees, suppliers, competitors and other stakeholders; (e) allowing the delinquency of loans to board members; and (f) permitting directors with an interest in a transaction to which the institution is an actual or potential party to vote on those transactions.

General 23.—(1) The institution shall have procedures for assessing, at least requirements annually, the performance of the board, board committees and individual directors. (2) An institution shall train directors on various aspects of microfinance business and critical processes particular to that institution. (3) The institution shall have a formal policy on board appointments which shall include— (a) details of how the board members will update themselves with knowledge, skills and expertise relevant to doing business of the institution; and (b) consideration of whether directors have served on the board for a period which may materially interfere with their ability to act in the bestinterests of the institution. (4) The audit committee, and any other committee established by the board shall meet at least two (2) times a year and shall keep minutes of all proceedings. (5) An institution shall have in place a succession plan for its chief executive officer. (6) A corporate governance framework of an institution shall have— (a) adequate provisions to allow for whistle-blowing if a person believes that untoward activity is taking place within the institution; and (b) a policy providing that a person, acting in good faith, cannot be discriminated against for providing information to its committees, or the Registrar. (7) A prospective, current, or former officer, employee or contractor of an institution shall not be constrained by confidentiality clauses or otherwise from— (a) disclosing information to the Registrar; (b) discussing issues of relevance to the management and supervision of the institution with the Registrar; (c) providing documents under the control of the employee to the Registrar; and (d) providing information to auditors and other persons who have statutory responsibilities in relation to the institution. (8) An institution shall ensure that its internal policies and contractual arrangements do not restrict or discourage auditors or other parties from communicating with the Registrar.

PART VII—ENFORCEMENT

Monetary 24.—(1) The Registrar shall impose the following monetary penalties for penalties violations of this Directive—

(a) for an institution up to fifty million Kwacha (K50,000,000); and (b) for natural persons who are members of the board of directors or management, up to ten million Kwacha (K10,000,000). (2) An institution or natural person shall pay the penalty in subparagraph (1) through a bank certified cheque payable to the Reserve Bank of Malawi within ten (10) working days of being notified of the violation.

25. In addition to the monetary penalty imposed in paragraph 24 (1), Other the Registrar may impose directions and administrative penalties as provided penalties for under the Act and the Microfinance Act, 2010.

SCHEDULE
MINIMUM QUALIFICATIONS FOR SENIOR MANAGEMENT OF AN INSTITUTION

	Academic Qualification	Experience
Chief Executive Officer	Master's Degree in Accounting, Administration, Economics, Finance, Banking or Microfinance	3 years experience at senior level in a financial institution
	Bachelors' Degree in Accounting, Administration, Economics, Finance, Banking or Microfinance	5 years experience at senior level in a financial institution
	Diploma in Accounting, Administration, Finance, Banking or Microfinance	10 years experience at middle level in a financial institution
Chief Financial Officer	Master's Degree	2 years experience at middle level in a financial institution
	Bachelor's Degree in Accounting, Finance or Administration and professional qualification i.e ACCA or CFA	5 years experience in the accounting profession
	Diploma in Accounting, Finance or PAEC	6 years experience in the accounting profession
Chief Operations Officer	Master's Degree	2 years experience at middle level in a financial institution
	Bachelor's Degree in Administration, Economics	3 years experience at middle level in a financial institution
	Diploma in Accounting, Administration, Banking or Microfinance	6 years experience at middle level in a financial institution

SECOND SCHEDULE (para. II (4) (c))
FIT AND PROPER QUESTIONNAIRE

This form shall be submitted to the Registrar of Financial institutions and the information listed below shall be submitted in the order requested. The information requested in this fit and proper questionnaire is required of all persons proposed to be Directors and Senior Management officials of Deposit Taking Microfinance Institutions.

1. Name of Director/Officer:.......................................................................................
2. Proposed Position in the Microfinance Institution:................................................
3. Postal address:........................................................................................................
4. Physical address:.....................................................................................................
5. Highest academic qualifications:............................................................................
6. Amount, type and percentage of shareholding, if any, in the Microfinance Institution.

Name	Type of Shareholding	Amount of Shareholding	Percentage of Shareholding

7. Share- holding in other companies

Company's name	Date of incorporation	Amount of shareholding	Percentage of Shareholding	Past Shareholding	Remarks
				A	B

A. Refers to date of closure or surrender of shares B. Refers to reasons for closure or surrender
8. Employment/Business record (Please include positions you are holding, or may have held as a director, shareholder or senior management official at any financial institution anywhere in the world)

Name of Director or Officer	Name of Employer	Positions held and dates	Responsibilities (where applicable)	Reasons for Leaving

9. Provide a name (or names) of your bankers for the last five (5) years.
   ...................................................................................................................................
   ................................................................................................