Non-Deposit Taking Microfinance Institutions Directive 2018

608 9th July, 2018

SIXTH SCHEDULE (para.29)

FRAUD REPORT FORM

Date of Incident	Name of suspect (Staff or Member of Public)	Branch Involved	Brief Description of Incident	Magnitude (Amount Involved)	Action Taken and/or envisaged	Current Status

Dated this day 29th of June, 2018

(FILE NO. FIN/PFSPD/03/04)

D. KABAMBE, PhD
Registrar of Financial Institutions

GOVERNMENT NOTICE No. 50

MICROFINANCE ACT
(CAP 46:08)

MICROFINANCE (NON-DEPOSIT TAKING MICROFINANCE INSTITUTIONS) DIRECTIVE, 2018

ARRANGEMENT OF PARAGRAPHS

PARAGRAPH

1. Citation
2. Application
3. Interpretation

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PARAGRAPH

PART II—OBJECTIVES

4. Objectives

PART III—LICENSING REQUIREMENTS

5. Requirements for licensing
6. Invitation to interview
7. Subsequent changes
8. Communication of Registrar’s decision
9. Refusal of licence
10. Issuing of licence
11. Cessation of business
12. Revocation of licence

PART IV—OPERATING REQUIREMENTS

13. Permissible services
14. Insider loans
15. Confidentiality
16. Reporting to Credit Reference Bureaus
17. Quarterly reports
18. Annual reports
19. Governance standards

PART V—MARKET CONDUCT

20. Lending policies
21. Customer due diligence
22. Record keeping
23. Reporting of suspicious transactions
24. Take home pay
25. Effective Interest Rate
26. Interest calculation
27. Loan prepayments
28. Compulsory savings
29. Complaints procedures
30. Fraud reports

PART VI—PRUDENTIAL REGULATION

31. Prudential thresholds
32. Prudential requirements

PART VII—ENFORCEMENT

33. Penalties and administrative sanctions
    Schedules

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IN EXERCISE of the powers conferred by section 57 (1) of the Microfinance Act, I, DR. DALITSO KABAMBE, Registrar of Financial Institutions, make the following Directives—

PART I—PRELIMINARY

Citation 1. This Directive may be cited as the Microfinance (Non-Deposit Taking Institutions) Directive, 2018.

Application 2. This Directive shall apply to all non-deposit taking microfinance Cap. 44:05 Institutions licensed under the Financial Services Act

Interpretation 3. In this Directive unless the context otherwise requires— Cap. 46:08 "Act"means the Microfinance Act;

"balloon loan" means a type of loan which does not fully amortize over its term;

"institution" means a non-deposit taking microfinance institution;

"insider" includes any of the following—
(a) principal shareholder;
(b) member of the board of directors or audit committee; (c) executive officer; and (d) senior management official.

"insider loan" means loan an insider or related party;

"reducing balance method" means a method of computing interest amount on the principal balance and not on the original loan amount that reduces with repayment of each loan instalment;

"related party" includes any the following—
(a) a person who is related to an insider of licensed institution by marriage or consanguinity to the second degree; (b) a legal person in which an insider has a business interest, including as a partner, director, manager or guarantor; (c) an individual person for whom an insider is a guarantor; (d) a subsidiary of the licensed institution or of an insider; (e) a company or undertaking in which at least a ten percent (10%) interest is held by the licensed institution or by an insider; (f) a parent company of the licensed institution or of insider; (g) a company that is under common control with licensed institution or of an insider; (h) a company that hold at least 10% interest of another company in which the licensed institution or an insider holds at least 10% interest; (i) a company that has common management or common directors with the licensed institution, an insider, or another related party of the licensed institution; and

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(j) a political party that is controlled by an insider or related party or whose funds or services shall benefits an insider or related party.

PART II—OBJECTIVES

4. The objectives of this Directive are—
   (a) to prescribe licensing requirements for a non-deposit taking microfinance institution; (b) to specify operating requirements for a non-deposit taking microfinance institution; and (c) to ensure that non-deposit taking microfinance institutions adhere to high standards of market conduct.

PART III—LICENSING REQUIREMENTS

5.—(1) An application for a licence to operate a non-deposit taking microfinance institution shall be made to the Registrar in the form set out in the First Schedule to this Directive.

(2) Only a non-deposit taking microfinance institution that is a member of a national association of microfinance service providers shall be eligible for licensing.

(3) All non-deposit taking microfinance institutions shall be incorporated as companies limited by shares or guarantee, with a minimum capital or guarantee of MK100,000,000.

(4) Every applicant shall provide, in support of an application for licensing, all of the information required in the application form, including— (a) a copy of a business plan of the institution, with scope of operations, description and rationale of services to be offered and presentation of applicant’s capacity for such services; (b) a projected statement of financial position and statement of profit or loss and other comprehensive income for at least 3 years, based on assumptions supported by a feasibility analysis; (c) written documentation of the applicant’s risk management systems, and ability to identify, measure, monitor and control the level and types of risks assumed; (d) name and address of applicant’s auditors, who shall be subject to the approval of the Registrar; (e) Curriculum Vitae of the Chief Executive Officer or Chief Finance Officer, as the case may be, and the directors, as well as shareholders’ information requested in the application form; (f) in the case of a foreign-owned or partially foreign-owned and controlled non-deposit taking microfinance institution, a copy of the resolution of the parent company’s Board of Directors approving the establishment and functioning of the subsidiary in Malawi;

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(g) in the case of a foreign-owned or partially-owned and controlled Microfinance Institution, a letter of consent from the home supervisory authority allowing the parent company to invest in, and operate in, Malawi; (h) the memorandum of association and articles of association or by-laws of the applicant, which shall contain specific provisions on corporate governance, particularly with regard to the appointment of directors and senior managers; (i) a non-refundable application fee of K200,000; and (j) source and proof of funds.

Invitation to 6. The Registrar, may, where necessary, invite an applicant for an interview interview in order to verify and assess an application, and any such invitation shall be in writing, stating specific objectives of the interview.

Subsequent 7. The applicant shall obtain prior approval from the Registrar for any changes subsequent changes to the contents of the documents submitted at the time of seeking registration.

PART IV—LICENSING PROCESS

Communication 8. The Registrar shall communicate his decision on the application of Registrar’s for licensing within 60 days from the date of receipt of a complete decision application.

Refusal to 9.—(1) The Registrar may refuse to issue a licence to an applicant on the licence following grounds— (a) non-submission of required documents within the stipulated time; (b) submission of misleading information; (c) submission of information deemed suspicious; (d) a feasibility or business plan that is judged not to be viable; (e) a person designated as executive management has been convicted of a criminal offence related to mismanagement of financial institution; and (f) a person designated as executive management is liable for losses caused by their activity at another financial institution or organization.

(2) The applicant may make a re-submission at any time in the event that the reason for refusal has been addressed.

Issuing of 10.—(1) Where the Registrar approves an applicant, the Registrar shall a licence issue a licence in the form set out in the Second Schedule in this Directive.

(2) A licence issued to a Non-Deposit Taking Microfinance Institution, may not be transferred, assigned or encumbered in any way except in the event of an amalgamation or similar corporate re-structuring transactions, on such terms and conditions as the Registrar shall approve.

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(3) A licence shall automatically expire if the licensee fails to commence his business within a period of one year following the issuing of the licence.

11. A microfinance institution shall not voluntarily cease from carrying Cessation of on business without the approval of the Registrar. business

12.—(1) The Registrar may vary, suspend or revoke the licence of a Revocation of non-deposit taking microfinance institution if— licence (a) it is in breach of this Directive, the Act, or the Financial Services Cap. 44:05 Act; and (b) it ceases to operate for more than three months.

(2) Upon revocation of a licence, the Registrar shall revoke the licence and cause public notices to be placed in the local media informing the public that the licence is revoked.

PART IV—OPERATING REQUIREMENTS

13. A Non-Deposit Taking Microfinance Institution may offer all Permissible microfinance services allowed under the Act. services

14. A Non-Deposit Taking Microfinance Institution shall limit its Insider loans insider loans to 10 percent of the loan portfolio.

15.—(1) A non-deposit taking microfinance institution shall maintain Confidentiality confidentiality of relation and dealings between the agency and its customers.

(2) Where disclosure of information is required, such disclosure must be pursuant to the law, a court order or the Registrar.

16. A non-deposit taking microfinance institution shall report to Reporting to licensed Credit Reference Bureaus on a monthly basis in the manner Credit prescribed in the Regulations issued under the Credit Reference Bureau Act. Reference Bureaus

17. A Non-Deposit Taking Microfinance Institution shall submit to the Registrar quarterly reports of its operations in the form set out in the Third Schedule to this Directive, not later than two weeks after the end of each quarter.

18. A Non-Deposit Taking Microfinance Institution shall, within four Annual months after the close of the financial year, submit to the Registrar audited reports annual financial statements.

19.—(1) A Non-Deposit Taking Microfinance Institution shall have the Governance following governance standards— standards (a) a Board of Directors whose majority is resident in Malawi; (b) the management which at minimum shall comprise— (i) a Chief Executive Officer; and (ii) any other senior management officer, such as a Chief Financial Officer or Head of Operations;

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(c) the officers specified in paragraph (b) shall possess one of the following qualifications and the relevant number of years of experience—

Qualification	Experience in Financial Sector
Master’s Degree in Business or Accounting or Finance or Banking or Economics or any other relevant field.	3 years
Bachelor’s Degree in Business or Accounting or Finance or Banking or Economics or any other relevant field.	5 years
Diploma in Business or Accounting or Finance or Banking or Economics or any other relevant field.	10 years

(d) A Non-Deposit Taking Microfinance Institution shall obtain approval of the Registrar prior to the appointment of a board member, Chief Executive Officer or any other senior management officer.

PART V—MARKET CONDUCT

Lending 20. A Non-Deposit Taking Microfinance Institution shall have a policies lending policy that specifies— (a) the maximum amounts that can be approved at every level of discretion; (b) documentary and procedural requirements; and (c) internal controls to be maintained.

Customer due 21. In accordance with the Financial Crimes Act an institution shall— diligence (a) identify a customer who is a natural person and a resident of Act No. 14 of Malawi using— 2014 (i) letter from the chief; (ii) letter from employer; (iii) Malawi Electoral Commission identity card; (iv) Citizen identification card; and (v) stamped letter from church or the clergy, understand the nature of the customers’ business, beneficial ownership, control structure, proof of existence and address.

Record 22. In accordance with the Financial Crimes Act, an institution shall keeping keep the following information for a customer who is a natural person and a resident of Malawi— (a) full names; (b) national identity card, passport or driving licence, indicating the person’s date of birth; (c) physical address including street names and plot numbers, or a

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detailed description of the location named in Malawi where the physical address is not available; (d) village, traditional authority and district of origin where applicable; (e) postal address, e-mail address and telephone contacts where applicable; (f) occupation or source of income and expected level of monthly income; (g) nature and detailed description of the location of business activities or place of employment, whichever is applicable; and (h) purpose and intended nature of business relationship.

23 In accordance with the Financial Crimes Act, an institution shall Reporting report suspicious transactions to the Financial Intelligence Authority. suspicious transactions

24. Non-Deposit Taking Microfinance Institution shall limit monthly Take home loan repayments of salaried employees to the percentage of the borrower’s pay take-home salary prescribed by the Employment Act. Cap 55:01

25. The loan contract shall prominently disclose effective interest rate Effective (EIR) calculated as illustrated in the Fourth Schedule to this Directive. interest rate

26. Interest on all loans, except for balloon loans, shall be calculated Interest using the reducing balance method. calculation

27.—(1) A borrower shall be permitted to make partial or total Loan pre-payments on their loans. prepayments

(2) An institution shall—
(a) disclose penalty for pre-payment, if any, in the loan contract; and (b) not charge interest, for the period after the customer has repaid the full amount of the loan.

28.—(1) A Non-Deposit Taking Microfinance Institution may collect Compulsory compulsory savings up to 20% of the loan amount. savings

(2) Compulsory savings shall not be used for intermediation.

(3) Compulsory savings shall be invested in a licensed bank, licensed deposit taking institution or in government securities.

(4) interest earned on compulsory savings shall be passed to the client.

29.—(1) A Non-Deposit Taking Microfinance Institution shall have in Complaints place complaints handling procedures to guide clients in the event of procedures complaints in line with Financial Services (Internal Complaints Handling Requirements) Directive, 2016.

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(2) A Non-Deposit Taking Microfinance Institution shall maintain a Complaints Register where the following details shall be recorded— (a) date complaint is received; (b) nature of complaint; (c) steps taken to resolve the complaint; and (d) date and resolution of complaint.

(3) A Microfinance Institution shall report to the Registrar all complaints received on a quarterly basis in the form set out in the Fifth Schedule to this directive.

Fraud 30. A Microfinance Institution shall report to the Registrar all frauds, reports forgeries and losses incurred by an institution on a quarterly basis in the form set out in the Sixth Schedule to this directive.

PART I—PRUDENTIAL REGULATION

Prudential 31.—(1) A Non-Deposit Taking Microfinance Institution that reaches any thresholds of the following thresholds, shall be subject to prudential regulation by the Registrar— (a) asset base of MK3,000,000,000; or (b) annual revenues in excess of MK2,200,000,000

(2) The threshold in sub-paragraph 1 shall have to be maintained over a period of twelve months.

Prudential 32. In addition to requirements set out in this Directive, a prudentially requirements regulated Non-Deposit Taking Microfinance Institution shall be subject to the following prudential Directives— (a) Financial Services (Asset Classification Requirements for Microfinance Institutions) Directive, 2018; (b) Financial Services (Corporate Governance Requirements for Microfinance Institutions) Directive, 2018; and (c) Financial Services (Financial Reporting Requirements for Microfinance Institutions) Directive, 2018 except for liquidity statement and statement of deposits.

PART VII—ENFORCEMENT

Penalties and 33.—(1) A Non-Deposit Taking Microfinance Institution which fails to administrative submit a report to the Registrar, required under this Directive commits an sanctions offence and is liable to a penalty of MK10,000.00 for each day of such non-compliance.

Cap. 44:05 (2) A Non-Deposit Taking Microfinance Institution that does not meet the requirements of this Directive, the Act or the Financial Services Act shall be liable to a monetary penalty of up to MK5,000,000.

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(3) In addition to the monetary penalty imposed in sub-paragraphs 1 and 2, the Registrar may impose directions, administrative penalties and enforcement action as provided under the Financial Services Act and the Cap.44:05 Act.

FIRST SCHEDULE (para. 5(1))

APPLICATION FOR A LICENCE TO OPERATE A NON-DEPOSIT TAKING MICROFINANCE INSTITUTION

1. Name of Applicant:...................................................................................................

2. Physical address of head office:................................................................................

3. Contact details:
   Postal address................................................................................................................
   .......................................................................................................................................
   Telephone number.........................................................................................................
   Email address................................................................................................................

4. Legal structure:
   4.1 Date of registration:................................................................................................
   4.2 Registration number:...............................................................................................

5. Places of business (if already in operation)

Name of business place	Start date	Years in operation

6. Indicate former name(s) by which the Applicant has been known:
   .......................................................................................................................................
7. State whether the Applicant is affiliated to any organisation:
   .......................................................................................................................................
   .......................................................................................................................................
8. Shareholder details (in case of a company limited by shares)

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Present and former names	Nationality	Address	Shareholding
			No. of shares	Amount (MW)	Percentage of total

Total Capital ............................ ............................

9. Guarantors details (in case of company limited by guarantee)

Present and former names	Nationality	Address	Guarantor ship
			Amount (MW)	Percentage of total

Total Capital ............................

10. Customers and market:
    Describe your target market
    Details of price for each type of credit facility:
    Describe market research, if any, conducted to undertake the microfinance business in terms of lending, loan terms and charges etc. in the context of existing competition Detail the institution’s main components of microfinance business in the wake of existing and anticipated competition.

11. Financial services and products:
    List and briefly describe current and envisaged financial products, credits or interest rates, periods, payment frequencies, amounts, requirements. Describe methodologies of delivering products and services Describe mechanisms for loan collection Describe policies for monitoring & recovering delinquent loans

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12. Details of board of directors:

Name	Nationality	Address	Date of Appointment	Other Directorships	Qualifications

12.1 In addition, submit the following for each of the directors—
(a) Curriculum Vitae; and
(b) certified copies of educational certificates.

13. Details of capital—
    (a) authorized Capital MWK......................................................................................
    (b) issued/Paid up Capital MWK..............................................................................
    (c) guarantee amount MWK .....................................................................................

14. State source and evidence of capital—
    (a) borrowed from commercial banks........................................................................
    (b) own sources..........................................................................................................
    (c) other Sources........................................................................................................
    (d) retained earnings from past business....................................................................

NOTE:
14.1 Evidence of capital should be in the form of certified bank statements and confirmation letter from an external auditor.
14.2 If part of the paid-up capital is in the form of fixed assets, the Registrar may appoint a valuer to assess the value of such assets at the applicant’s expenses. Such assets must be essential to the operation of a microfinance business. Documentary evidence of title to the assets must be made available to the Registrar on demand.
14.3 Provide documentary proof of Registration of Capital and in case of foreign investment, documentary proof of registration with Exchange Control Authorities.

15. Indicate whether the business activity is confined to micro-lending business or the applicant is engaged in multi-business activities and give details accordingly:

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.......................................................................................................................................

NOTE:
15.1 It is a condition for licensing NOT to solicit and/or accept funds from the public. If members of the public wish to invest in a micro lender, they do so by acquiring a stake in the business and become a member or a shareholder of the business.
16. In this case, the Registrar must be notified in writing of such an arrangement with all details and conditions pertaining to the partnership and/or shareholding within 21 days of such an arrangement being made.
17. Indicate businesses or companies associated or affiliated with directors or their immediate family members, including any commercial, employment, ownership, or directorship relations:

Name of Director	Name of Business or Companies

18. Provide particulars of any business relationship that the Applicant has or expects to have with any of its officers, shareholders or directors:
    .......................................................................................................................................
    .......................................................................................................................................

19. In case of a foreign owned of controlled Applicant that has, if more than 50% of voting shares are held by non-Malawian residents, corporations registered outside Malawi and are part of an international banking, financial or microfinance group—
    (a) have you provided certified copy of the resolution of the directors of the parent company authorizing the establishment of the subsidiary in Malawi?...................................
    (b) declare who is going to perform the consolidated supervision of the group and whether the said supervisor is aware of the applicant’s plan to set up business in Malawi................................................................................................................................
    (c) have you provided an organization (organization chart) showing how the Applicant fits in the group?.......................................................................................................

20. Details of proposed senior executives:

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	Chief Executive Officer	Chief Finance Officer
Present (and former) name
Nationality
Academic/Professional qualifications
Professional and business experience
Date of appointment

In addition, submit the following for each of the senior executive— (a) curriculum vitae; and (b) certified copies of academic and professional certificates.

21. Provide details of banker—
    (a) name of banker ...................................................................................................
    (b) branch and address...............................................................................................
    (c) details of bank account.........................................................................................

22. Provide details of external auditor:

Name of external auditor	Physical and Postal address	Telephone and email address

23. Does the Applicant hold, or has it ever held any authority from a supervisory body to carry out any business activity in Malawi or elsewhere?..........................................
    If yes, give particulars:..................................................................................................
    .......................................................................................................................................
    If any such authority has been revoked, give particulars:
    .......................................................................................................................................
    .......................................................................................................................................

24. Has the Applicant been put under receivership in the past or made any compromise or arrangement with its creditors in the past or otherwise failed to satisfy creditors in full?..
    If yes, give particulars:..................................................................................................
    .......................................................................................................................................

25. Has the applicant or any of its directors, shareholders or executive officers ever been subjected to any form of disciplinary proceedings or action by any professional or regulatory body?
    .......................................................................................................................................

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If yes, give particulars:..................................................................................................
.......................................................................................................................................

26. Has the applicant or any of its shareholders ever had a petition presented in a court for its winding up? ....................................................................................................
    If yes, provide particulars:............................................................................................

27. Have the directors, shareholders or executive officers ever had judgment entered against them involving findings of fraud, dishonesty, violence, misrepresentation, breach of contract, breach of fiduciary duty or professional negligence in any civil proceedings, or are there any proceedings now pending that may lead to such a judgment or finding?...................................................................................................................
    If yes, please provide details:.......................................................................................

28. Has the applicant or any of its directors, shareholders or executive officers ever contravened any written law designed for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of financial services or the management of companies or against financial loss due to the conduct of discharged or un-discharged bankrupts?.......................................................................................................................................
    If yes, provide details:..................................................................................................

29. Is an examiner or other authorized officer of any government ministry, department or institution, professional association, or other regulatory body investigating the affairs of the Applicant or has such an investigation ever previously taken place into the affairs or the Applicant?
    If yes, provide details:..................................................................................................

30. Do you have a lending policy that satisfies the requirements of paragraph 20 of the Microfinance (Non Deposit Taking Microfinance Institutions) Directive, 2018?............
    31 Do you have proposed complaints handling procedures in line with paragraph 29 of the Microfinance (Non Deposit Taking Microfinance Institutions) Directive, 2018? .........

31. Submit the following supporting documentation together with the application form—
    (a) registration fee – K200,000.00 in the form of a cheque payable to the Reserve Bank of Malawi; (b) curriculum vitae and certified copies of academic and professional certificates of directors; (c) curriculum vitae andcertified copies of academic and professional certificates of senior executives; (d) organisation chart showing names, designation and reporting lines; (e) certified copy of Memorandum and Articles of Association;

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(f) certified copy of certificate of incorporation; (g) copy of Income Tax Registration number; (h) latest Financial Statements of the business (if already conducting micro lending business) or business plan for the following two years; (i) copy of lending policy; (j) where applicable, copy of board resolution of parent company approving establishment and functioning of the subsidiary in Malawi; (k) where applicable, letter of consent from the country of authority allowing the parent company approving establishment and functioning of the subsidiary in Malawi; (l) documentary evidence of risk management systems; (m) documentary evidence of minimum capital of MK100,000,000, in form of bank statement or letter from external auditors; and (n) copy of complaints handling procedures to guide clients in the event of complaints.

DECLARATION:
We, the undersigned, being Directors of the Applicant, declare that to the best of our knowledge and belief, the information given in this form and the supporting documentation submitted together with this form are true, correct and complete:

NAME	DESIGNATION	SIGNATURE	DATE

SECOND SCHEDULE (para.10(1))

LICENCE FORMAT

REGISTRAR OF FINANCIAL INSTITUTIONS

FINANCIAL SERVICES ACT

NON-DEPOSIT TAKING MICROFINANCE INSTITUTION LICENCE

A LICENCE is hereby issued to.......................................... of .............................. to operate as a Non-Deposit Taking Microfinance Institution in Malawi. This certificate is issued subject to the provisions of the Financial Services Act, and the Microfinance Act.

ISSUED THIS.......... DAY OF ........................................... 20....

......................................................................
REGISTRAR OF FINANCIAL INSTITUTIONS

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THIRD SCHEDULE (para. 17)

QUARTERLY REPORT FORM

PART 1—FINANCIAL ANALYSIS

Institution......................................................................................................................
Financial Year................................................................................................................
Start Date.................................................. End Date..................................................

PART 2—BALANCE SHEET

	AMOUNT
LIABILITIES AND EQUITY CAPITAL
1. Capital Employed
1. Equity capital (sum of a,b,c,d,e,f)
(a) Paid up Share capital
(b) Share premium
(c) General Reserve
(d) Revaluation reserves (fixed assets)
(e) Retained earnings-prior years
(f) Net income (loss)-for current period (Form II (a))
2. Non-Current Liabilities (sum of a,b,c)
(a) Shareholders loans
(b) Long term loans from banks
(c) Other Long-term liabilities (Specify) i.e deferred tax, long-term provisions
3. Current Liabilities (sum of a,b,c,d)
(a) Trade and other payables
(b) Short-term borrowings (Bank overdrafts)
(c) Other Short-term liabilities (Specify)
(d) Current tax payable
Total equity capital and liabilities (sum of 1, 2 and 3)
ASSETS
1. Non-Current Assets (sum of a,b,c,d)
(a) Property, Plant & Equipment
(b) Investments and securities
(c) Accrued interest receivables (Non Current Asset)
(d) Net Long-term Loans receivables (i-ii)

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	AMOUNT
(i) Gross long term loans and advances
(ii) Provision for loan losses (Long Term)
(e) All other non-current assets
2. Current Assets (sum of a,b,c,d,e,f)
(a) Cash, cash equivalents
(b) All other short term investments
(c) Trade receivables
(d) Accrued interest receivables (Current Assets)
(e) Net Short-term Loans receivables (i-ii)
(i) Gross Short Term loans and advances
(ii) Provision for loan losses (Short Term)
(f) All other current assets (specify)
Total assets (sum of 1 and 2)
INCOME STATEMENT	AMOUNT
INCOME AND EXPENSES
(a) interest income from loans
(b) income from administration fees
(c) commissions
(d) other loan related income
(e) gross income from money lending (a+b+c+d)
(f) interest expense on borrowed funds
(g) provision for loan losses
(h) recoveries on loans written off
(i) net income from Micro-credit operations (E-f-g+h)
(j) other incomes (Specify)
(k) total income (i+j)
(l) operating expenses (Form II(b))
(m) income (loss) before taxes and extraordinary items (K-L)
(n) taxation
(o) income (loss) after taxes before extraordinary items (M-n)
(p) dividends proposed
(q) extraordinary items
(r) net income (loss) (O-p-q)

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	AMOUNT
BREAKDOWN OF OPERATING EXPENSES
(a) Finance costs (excluding interest and provisions on loans in Form II (a))
(i) Interest on overdraft
(ii) Interest on collateral loans
(iii) Other finance costs (specify)
Total finance costs (i+ii+iii)
(b) Personnel expenses
(i) Salaries and employee benefits
(ii) Other personnel expenses
Total personnel expenses (i+ii)
(c) Administration expenses
(i) Rent, Electricity, Water, Telephone expenses
(ii) Travel expenses
(iii) Office expenses
(iv) Training expenses
(v) Maintenance and repair
(vi) Other administration expenses
Total administration expenses (i+ii+iii+iv+v+vi)
(d) Depreciation
(e) Foreign exchange (gain)/loss
(f) Other operating expenses
TOTAL OPERATING EXPENSES (a+b+c+d+e+f)
SPECIFICATIONS OF OTHER ASSETS & LIABILITIES
	Amount
2c. Other Long-term liabilities

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	Amount
3c. Other Short-term liabilities
Operating lease liabilities
Intercompany loans
1e. All other non-current assets
2f. All other current assets

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PART 2—REPORTING PERIOD ANALYSIS

PART 2A	Current Quarter
Total number of loans requested during the period
Total value of loans requested during the period
Total number of loans disbursed during the period
Total value of Loans disbursed during the period
Total number of clients in loan book at end of period
Total value of loan book at end of period
PART 2B
Total no. of employees on last day of period
Total no. of loan officers on last day of period
Total no. of executive managers on last day of period-Males
Total no. of executive managers on last day of period-Females
Total no. of board members on last day of period-Males
Total no. of board members on last day of period-Females
PART 2C
Total number of agents and brokers (if any)
Total number of loans disbursed through agents and brokers
Total value of loans disbursed through agents and brokers
Total number of people employed by agents and brokers
PART 2D:
Names of the product:	Interest Charged as at last day of the period
Cash Express 1
Cash Express 3
Cash Express 6
Cash Express 9
Cash Express 12
Cash Express 24

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PART 3—LOANS ANALYSIS

3.1. Loans disbursement breakdown by length of repayment period
	7 days	14 days	30 days	60 days	90 days	180 days	over 180 days	Total
Number of Loans
Value of Loans
Percentage of value to Total
3.2. Loans disbursement breakdown by frequency of repayments
	Weekly	Fortnightly		Monthly		Other		Total
Number of Loans
Value of Loans
Percentage of value to Total
3.3. Loans disbursement by loan size (MK'000)
								Total
Number of Loans
Value of Loans
Percentage of value to Total

PART 4—LOAN RISK ANALYSIS

4.1. Portfolio Aging Schedule (Monthly repayments)	Outstanding Number of Loans	Value of loans (MK)	Provision amount (MK)	Provision rate (%)
Current
1 to 30 days past due

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4.1. Portfolio Aging Schedule (Monthly repayments)	Outstanding Number of Loans	Value of loans (MK)	Provision amount (MK)	Provision rate (%)
31 to 60 days past due
61 to 90 days past due
91 to 180 days past due
Over 180 days past due
TOTAL
4.2. Portfolio Aging Schedule (Fortnight repayments)	Outstanding Number of Loans	Value of loans (MK)	Provision amount (MK)	Provision rate (%)
Current
2 to less than 2 weeks past due
2 to less than 4 weeks past due
4 to less than 8 weeks past due
8 - less than 16 weeks past due
Over 16 weeks past due
TOTAL

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4.3 Analysis of loans written off and rescheduled (renegotiated)

	Current Quarter	Previous Quarter
Number of Loans Written Off
Value of Loans Written Off
Number of Renegotiated Loans
Value of Renegotiated Loans

PART 5—BORROWER INFORMATION

5.1. Breakdown of Borrowers by Gender	Current Quarter	Previous Quarter
	Number of loans	Value (MK)	Number of loans	Value (MK)
Disbursements to female borrowers
Disbursements to male borrowers
TOTALS

5.2. Breakdown of Savers by Gender	Current quarter	Previous quarter
	Value (MK)	Value (MK)
Female savers
Male savers
TOTALS

5.3. Loan Break-down by Purpose of Borrowing	Agriculture	Business	Other	Total
Number
MK Value

5.4. Percentage of Loans Secured and Unsecured	% of total	MK Value
Secured
Unsecured

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EXPLANATORY NOTES TO ANNEXURE II

PART 1—FINANCIAL ANALYSIS
The income statement should be completed from the management accounts of the business for the reporting period. The accountant, accounting officer or auditor would normally complete this exercise. Year to date will mean the figures carried forward from the previous return.

PART 2—REPORTING PERIOD ANALYSIS
Particulars of transactions relating to lending activities during the period

PART 3—LOANS ANALYSIS
3.1 Loan Disbursement Breakdown by length of Repayment
Show the number and value of loans, where the term of the loans fall within each of the different categories e.g. how many loans are one month loans, two month loans etc. The totals should balance back to the total value of Loan Book at end of period as shown in PART 2 (a).
3.2 Loans Disbursement Breakdown by Frequency of Repayments
Show the number and value of loans repayments. The repayments frequencies are weekly, fortnightly, monthly and ballon
3.3 Loan Disbursement Breakdown by Loan size
Show the Malawi Kwacha value of repayments that have fallen behind and are now overdue, e.g. how many loans were less than MWK........., between MWK............ and MWK....

PART 4—LOAN RECEIVABLES RISK ANALYSIS
4.1 Age analysis of repayment receivable (capital plus interest earned)
Show the Malawi Kwacha value of repayments that have fallen behind and are now overdue, e.g. 30 to 60 days and 60 to 90 days overdue etc., of the total outstanding, i.e. how much is overdue including capital and interest.
4.2 Age analysis of receivables balances (the capital part only)
Exactly as above, but only show the capital outstanding—No interest. We want to know how much of the lender’s capital is at risk.
4.3 Age analysis by number of receivables (as at reporting date)
Show the number of loans that have fallen behind i.e. 30 to 60 days overdue, 60 to 90 days overdue.
4.4 Analysis of debtors by repayment method
How do you collect payments from debtors, show what percentages of your loans are collected by each of the indicated methods?
4.5 Analysis of loans written off and rescheduled
How many and what value of loans did you write off during the period?

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PART 5—BORROWER INFORMATION
5.1 Breakdown of borrowers by gender
Indicate the number and Malawian Kwacha value of loans disbursed to male and female borrowers.
5.2 Loan breakdown by purpose of borrowing
Indicate the number and Malawian Kwacha value of loans given for each of the categories, i.e. what was the loan needed for?
5.3 Indicate percentage of loans secured in each of the categories
What percentage of total loans given where secured by the lender by taking a cession or pledge of any of the type of security?

PART 6—LENDERS’ OTHER BUSINESS INTERESTS
6.1 Indicate what other business the shareholders and or directors are involved in other than micro lending.
6.2 Indicate the lenders number of active branches as at the end of the reporting period.

PART 7—LOAN PORTFOLIO REPORT

I	II	III	IV	V
Serial No.	Description	Month 1*	Month 2*	Month 3*
I	Total value of loans disbursed during the period
II	Total number of loans disbursed during the period
III	Number of active borrowers (at the end of the period)
IV	Average number of active borrowers
V	Value of loans outstanding (end of period)
VI	Average outstanding balance of loans
VII	Value of payments in arrears. (end of period)
VIII	Value of outstanding balance of loans in arrears
IX	Value of loans written-off during the period
X	Average loan size
XI	Average loan term
XII	Average number of loan officers during period
XIII	Value of loans outstanding for which repayment is yet to begin

*Month 1, 2 and 3 – Months in the quarter under review.
NOTE: Explanation of Portfolio Report is given below:

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(i) Total value of Loans disbursed during the period refers to the volume (in currency) of loans disbursed during the specified time period regardless of whether they are performing, non-performing or written off. This should not be confused with Gross Loan Portfolio, which can be several times less than the value disbursed. (ii) Total number of loans disbursed during the period refers to the total number of loans disbursed in a specific time period. (iii) The number of active borrowers (as at the end of the period) refers to the number of borrowers with one or more loans in force that have neither been fully repaid nor written off. Borrowers who have repaid their loans in full are not considered in this number. (iv) Average number of active borrowers: This can be estimated by taking the number of active borrowers at the first date of the period and adding the number of active borrowers at the last date of the period and dividing the sum by two. (v) Value of loans outstanding refers to the current value (in currency) of loans still not paid at a specific date. It differs from the “Total value of loans disbursed during the period “and it considers just the amount currently owed to the organization. In other words, only the unpaid principal balance of the loan is included in the value of the loans outstanding over a period. (vi) Average outstanding balance of loans refers to the average value (in currency) of loans outstanding over a period. Average outstanding balance can be estimated by taking the opening balance of loans outstanding at the first date of the period and adding the closing balance of the loans outstanding at the last date of the period and dividing the sum by two. (vii) Value of payments in arrears (end of the period) refers to the value (in currency) of payments in arrears; payments that have been due and not paid. This figure includes principal only that has become due but has not been received as at the end of the period. (viii) Value of outstanding balance of loans in arrears (end of the period) refers to the value (in currency) of loans that have one or more payments in arrears. This includes principal amount only, but covers the total amount outstanding, not just the amount of principal that has fallen due and not been received. Also referred to as Risk ratio when divided by the outstanding portfolio. (ix) Value of Loans written- off during the period refers to the value (in currency) of loans that have been recognized for accounting purposes as non-recoverable and is removed from the outstanding balance of the loan from gross loan portfolio and from the loan loss reserves in the Balance Sheet, without affecting balance of the net loan portfolio, total assets, or any equity account. (x) Average loan term refers to the amount of time the loans on average are outstanding. In other words, it’s average period in which borrowers are supposed to pay back the entire sum of money lent by the institution. (xi) Number of Loan Officers
refers to the field personnel or Line Officers who deal directly with clients in disbursing loans and collecting loan repayments. (xii) Value of Re-scheduled Loans outstanding refers to the value of loans that have been re-scheduled; all outstanding loans whose terms have been changed but no new loans have been given additionally.

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(xiii) Value of loans outstanding for which repayment is yet to begin refers to the value of loans outstanding for which the repayment schedule is yet to begin. These could include loans that have longer moratorium periods as well as the loans that have been recently disbursed.

FOURTH SCHEDULE (para. 25)

EFFECTIVE INTEREST RATE (EIR)

Effective interest rate = Total interest and other charges x Periods in a year Average loan outstanding Periods in loan term

Example
A client borrows K60, 000 from a microfinance institution for twenty weeks and the interest rate is charged at 3.0%/ month. The microfinance institution charges 2% of the loan amount as processing fee and 1% of the loan amount as insurance. The Effective Interest Rate (EIR) is calculated as follows—

Interest to be calculated on Declining Balance Method PMT f(x) was used to calculate total payments

Period	Installment (MWK)	Capital Repayment (MWK)	Capital Balance (MWK)	Interest Payment (MWK)
0			60,000.00
1	13,101.27	11,301.27	48,698.73	1,800.00
2	13,101.27	11,640.31	37,058.41	1,460.96
3	13,101.27	11,989.52	25,068.89	1,111.75
4	13,101.27	12,349.21	12,719.68	752.07
5	13,101.27	12,719.68	0.00	381.59

Calculation of Interest = K1, 800.00+K1, 460.96+K1, 111.75+K752.07+K381.59 = K5, 506.37 Calculation of Processing fee = Loan amount x processing rate /100 = K60, 000 x 2 /100 = K1, 200 Calculation of Insurance premium = Loan amount x insurance premium rate = K60, 000 x 1 /100= K600 Average loan outstanding= K60,000+K48,698.73+K37,058.41+K25,068.89 +K12,719.68 = K36, 709.14 Periods in a year = 12 months Periods in a loan term = 5 months

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Total interest and other charges = K5, 506.37+K1, 200+K600 = K7, 306.37 Therefore Effective interest rates = K7, 306.37/ K36, 709.14 x 12/5 = 48% Explanations to the schedule; (a) Calculation of installment amount This is calculated using the following formula; Installment amount = P x r 1 - (1+r) ^-n where P = the loan amount r = the interest rate per month n = number of periods or months over which the loan is repayable For example, in the schedule above, Installment amount = 60,000 x 0.03 1-(1+(0.03)) ^-5 = 1,800 1 - 0.862608784384163 = 13,101.27 (b) Calculation of Interest Payment The interest payment is based on the capital balance of the prior period. For example, the interest payment for period 2 = 0.03 x 48,698.73 = 1,460.96 (c) Calculation of Capital Repayment This is the difference between the installment amount and the interest payment for the particular period. For example, the capital repayment for period 2 = 13, 101.27 - 1,460.96 = 11, 640.31

FIFTH SCHEDULE (para. 29(3))

COMPLAINTS REPORT FORM

No.	Date Received	Description	Date Resolved	Notes

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SIXTH SCHEDULE (para. 30)

FRAUD REPORT FORM

Date of Incident	Name of suspect (Staff or Member of Public)	Branch Involved	Brief Description of Incident	Magnitude (Amount Involved)	Action Taken and/or envisaged	Current Status

Made this 29th day of June, 2018.

(FILE NO. FIN/PFSPD/03/04)

D. KABAMBE, PhD
Registrar of Financial Institutions

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