Order No. 9777-2019 on the Conditions for Exercise and Supervision of Microfinance Operations under Article 2.3 of Law No. 2017-026 on Microfinance

MINISTRY OF ECONOMY AND FINANCE
ORDER NO. 9777-2019
On the Conditions for Exercise and Supervision of Microfinance Operations under Article 2.3 of Law No. 2017-026 on Microfinance

THE MINISTER OF ECONOMY AND FINANCE
Having regard to the Constitution;
Having regard to the Malagasy Penal Code;
Having regard to Ordinance No. 60-133 of October 3, 1960 on the general regime for associations; Having regard to Law No. 95-030 of February 22, 1996 on the activity and supervision of credit institutions, as amended; Having regard to Law No. 96-030 of August 14, 1997 on the specific regime for Non-Governmental Organizations in Madagascar; Having regard to Law No. 2003-042 of September 3, 2004 on collective debt clearance procedures; Having regard to Law No. 2004-020 of August 19, 2004 on money laundering, asset tracing, confiscation, and international cooperation regarding proceeds of crime; Having regard to Law No. 2014-006 of July 17, 2014 on the fight against cybercrime; Having regard to Law No. 2014-038 of January 9, 2015 on the protection of personal data; Having regard to Law No. 2016-056 of February 2, 2017 on electronic money and electronic money institutions; Having regard to Law No. 2017-026 of February 8, 2018 on microfinance; Having regard to Decree No. 2019-016 of January 21, 2019 on the appointment of the Prime Minister, Head of Government; Having regard to Decree No. 2019-026 of January 24, 2019 amended and supplemented by Decree No. 2019-360 of March 20, 2019 on the appointment of members of the Government; Having regard to Decree No. 2019-093 of February 13, 2019 fixing the functions of the Minister of Economy and Finance as well as the general organization of its Ministry.

ORDER:
CHAPTER I: OPERATIONAL CONDITIONS
Article 1: Object
In application of Article 2 of Law No. 2017-026 of February 8, 2018 on microfinance, this Order aims to set the conditions for exercise and supervision of microfinance operations under Article 2.3 of said law.

Article 2: Scope of Application
The provisions of this Order govern all private entities that have adopted the legal form of an association or non-governmental organization and which carry out, on a regular basis, repayable credit operations for members or clients. The entities covered by this Order carry out regular and principal microfinance activities. Entities under Article 2.3 of the Microfinance Law may not collect deposits. However, they may receive guarantee deposits related to granted loans, limited to 20% of the loan amount. These entities may become distribution agents for credit institutions upon prior authorization from the Banking and Financial Supervision Commission (CSBF) and in compliance with current regulations. These entities may only grant short-term loans, with a maximum duration of 1 year. The threshold for loans granted by said entities is capped at:
Six million Ariary (6,000,000 Ariary) for individual loans; Twenty-four million Ariary (24,000,000 Ariary) for group loans.
Where the entity's total balance sheet exceeds 4 billion Ariary, the entity must apply for approval from the Banking and Financial Supervision Commission (CSBF) as a Microfinance Institution (MFI).

Article 3: Application for Authorization to Operate
Any authorization application, using the model provided in Annex 1 of this Order, is submitted to the Minister in charge of Finance for processing. Any authorization application must be produced in two (02) copies, signed by a duly authorized person, and include:

• A business plan validated by the administrative body or members of the entity;
• A preventive recovery plan;
• The constitutive act of the entity (statutes, internal regulations);
• A minutes of the constituent general meeting;
• A minimum operating structure;
• All information on the qualification, integrity, and experience of directors and promoters, as set out in the annex, and, where applicable, on their guarantors;
• Justification of the source of funds used.

Article 4: Processing of Authorization Application
When studying the authorization application, the ministerial control structure takes into account:

• The viability and sustainability of the entity's creation project;
• The integrity and qualification of promoters and persons responsible for leading the project;
• The general organization of the entity and its operating structure;
• The exercise of microcredit/microfinance activities as a principal activity.

Article 5: Authorization to Operate
Upon receipt of the completed file, the Ministry in charge of Finance issues a receipt to the applicant and has a period of 04 months to process the file and communicate its decision to the aforementioned entities. The Ministry in charge of Finance may, even after issuing the receipt, request supplementary information. The authorization to operate and the withdrawal of said authorization are pronounced by order of the Minister in charge of Finance. The Ministry in charge of Finance notifies the promoter of a reasoned refusal decision in the following cases:

• The source of funds is not justified in accordance with regulations on combating money laundering and terrorist financing;
• The business plan does not demonstrate the viability, solidity, and sustainability of the entity;
• The preventive recovery plan is not adapted to risks related to the nature of the activity in case of potential entity failure;
• The authorization application file presents repeated gaps or inconsistencies reflecting the promoter's lack of professionalism.
  An authorization application is deemed refused if the Ministry in charge of Finance does not rule within four (04) months from receipt of said application.

Article 6: Authorization in Case of Modification
The following operations are subject to prior authorization by the Minister in charge of Finance:

• Any modification of legal form, name or trade name;
• Any merger or split;
• Any early dissolution.
  Prior authorization is granted as provided for in Article 3 regarding the authorization to operate.
  The opening and closing of service points, as well as the transfer of the registered office, must be notified to the Minister in charge of Finance within one (01) month from the decision to close or transfer. The change of director or legal representative of the entity must also be notified to the Minister in charge of Finance. Furthermore, the aforementioned entities may obtain financing from public or private entities, upon presentation of justification for the source of funding, with prior authorization from the Ministry in charge of Finance. The aforementioned entities wishing to form a network must apply for approval from the CSBF.

Article 7: Publication of Authorization to Operate or Withdrawal of Authorization
The authorization to operate for entities carrying out credit operations under Article 2 of this Order is published in the Official Journal. The aforementioned entities publish the authorization at their expense in at least two (2) legal announcement newspapers and display a copy of said decision at the registered office and in the operating premises of said entities. Thus, the withdrawal of said authorization is subject to publication in the Official Journal.

CHAPTER II: OPERATIONAL AND SUPERVISION RULES
Article 8: Scope of Intervention
The aforementioned entities must have a structure that ensures internal control of their organization and operations.

Article 9: Support for Internal Control
The internal auditor must submit an annual report on the control system, attached to the year-end financial statements, to the Ministry in charge of Finance.

Article 10: Internal Control Report
Any intervention regarding supervision is subject to a report, accompanied by recommendations, addressed to the administrative and management bodies of the concerned entity. To this end, a semi-annual report must be submitted to the Ministry in charge of Finance consolidating inspections, controls, related recommendations carried out during this period, and the audit plan for the next semester.

Article 11: Statutory Auditor
The aforementioned entities must have a statutory auditor registered in the Order of Chartered Accountants and Financial Experts of Madagascar, in order to:

• Control and certify the regularity and fairness of annual accounts, information intended for competent authorities and the public;
• Detect anomalies or irregularities in the management of the activities of said entities.
  Entities may collaborate to share statutory auditor services through cost mutualization.

CHAPTER III: CONSUMER PROTECTION RULES
Article 12: Consumer Protection
The Service responsible for the supervision of financial institutions, as provided by Article 15 of this Order, ensures compliance with ethics and applicable rules for said entities to guarantee member protection, particularly regarding:

• The offer of products and services adapted to the needs and repayment capacity of members and clients, and the implementation of related procedures;
• Activities undertaken to promote financial education;
• The freedom of informed choice regarding offered products;
• Respectful and equitable treatment of members;
• Transparency of pricing, contract conditions with the member, procedures, and complaint handling;
• Communication to clients and members of the annual effective global rate (AEG/TAEG) applied to credit with a standard calculation method;
• The use of simple and easy-to-understand communication means adapted to members and clients;
• The dissemination of clear, simple, and accurate information related to provided services;
• Respect for client data confidentiality;
• The correction of any inaccurate information;
• The implementation of complaint handling mechanisms;
• The recourse rights offered to clients and members;
• Non-discrimination of members and clients, particularly based on race, gender, political opinion, religion, or physical condition in the context of microfinance service offerings;
• The prohibition of unfair clauses in contracts between parties.
  In case of non-compliance by said entities with these rules, one of the administrative measures provided for in Article 18 of said Order is applicable.

Article 13: Annual Effective Global Rate (AEG/TAEG)
The annual effective global rate (AEG/TAEG) is the price of credit borne by the client throughout the loan duration; it is expressed as an annual percentage of the borrowed amount. The AEG/TAEG integrates all costs related to credit (interest, mandatory deposit, processing fees, insurance fees, as well as all other fees imposed for obtaining credit). It is composed of five elements:

• General costs (GC) or operating cost;
• Irrecoverable debts (ID);
• Cost of resources;
• Desired capitalization rate (K);
• Investment income (II).
  The calculation method for the AEG/TAEG is expressed as follows:
  TAEG = (GC + ID + CR + K - II) / 1 - ID
  Each element is expressed as a percentage of the loan/credit portfolio balance.

Article 14: Professional Code of Conduct Rules
The professional code of conduct rules to which the non-subjected entities (NSE) covered by this Order must comply are as follows:

• NSE must comply with current regulations in Madagascar;
• NSE are prohibited from engaging in anti-competitive practices regarding pricing or service offerings, unless contrary legal provisions exist;
• NSE must have management and control procedures and comply with them;
• NSE must have an information and management system (IMS) enabling them to control all their activities, particularly portfolio management;
• Management, staff, and members of the governing bodies must preserve the confidentiality of all documents related to their clients, particularly concerning client account information;
• NSE must annually prepare financial statements according to the standards established by this Order and attest to the good faith, authenticity, and accuracy of documents;
• NSE are obligated to inform, exchange, and monitor the loan portfolio vis-à-vis clients;
• The interest rate applied by NSE must be a strictly positive rate that progressively covers operational and financial costs while respecting the usury rate;
• NSE are obligated to ensure the viability and sustainability of their operations;
• NSE must respect professional ethics and guarantee transparency in operations conducted within the scope of their activities.

CHAPTER IV: FUNCTIONS OF THE MINISTRY IN CHARGE OF FINANCE
Article 15: Ministry Supervision
The Ministry in charge of Finance supervises said entities through the Service responsible for the supervision of Financial Institutions under the Directorate attached to the General Treasury Directorate.

Article 16: Document-Based Supervision
Document-based supervision is based on documents periodically communicated by said entities to the Ministry in charge of Finance.
To fulfill its supervision mission, the responsible control service may request any additional elements from the documents in its possession.

Article 17: On-Site Supervision
The control service may conduct on-site operations or verification techniques within said entities to ensure the accuracy of information periodically communicated to it. To fulfill its supervision mission, the responsible control service may hear directors of concerned entities or any person whose assistance proves useful.

Article 18: Administrative Measures
In case of non-compliance with the professional code of conduct rules under Article 14, compromising financial equilibrium or in case of any deficiency or failure, the Ministry in charge of Finance may address to the concerned entity:

• Either a warning;
• Or an injunction to take, within a specified period, necessary recovery measures or any appropriate conservatory measures.
  An entity that fails to comply with this injunction is deemed to have infringed this Order.
  The Ministry may convene the directors of the concerned entity for an hearing to present measures taken or envisaged to regularize its situation. The Ministry may apply all appropriate measures to this entity, aiming at close monitoring of the implementation of an injunction or its recommendations. Otherwise, any non-compliance with this Order's provisions allows the Ministry to impose the following disciplinary sanctions:
• A warning;
• A reprimand;
• The suspension of all or part of microfinance operations;
• The suspension of authorization to operate microfinance activities;
• The withdrawal of authorization to operate microfinance activities.
  Sanctions are enforceable upon notification to the interested parties and are taken without prejudice to common law criminal sanctions. Depending on the severity of committed irregularities, withdrawal of authorization may be pronounced by order of the Minister in charge of Finance. The withdrawal of authorization is enforceable upon notification to the concerned entity and entails the immediate cessation of granting new loans.

Article 19: Resolution Measures
The Ministry in charge of Finance, in addition to the provisions under Article 18, may resort to implementing one or more of the operations listed below according to the degree of difficulty to which the entity is exposed:

• The transfer of all or part of the entity's assets or liabilities to a healthy and solid entity or any potential acquirer;
• The merger-acquisition of the entity;
• The creation of a new entity that takes over healthy assets;
• All measures necessary to absorb losses;
• The transformation or consolidation of debts into shares;
• The concession to favor the sale of the entity;
• Recapitalization;
• The initiation of legal proceedings against any person involved in fraud or malpractice;
• The waiver of all or part of debts;
• Financial support from technical and financial partners;
• The liquidation of the entity.

Article 20: Other Disciplinary Provisions
In case of illegal exercise of microfinance activities, the Ministry in charge of Finance may refer to the President of the Banking and Financial Supervision Commission (CSBF) to order the closure of the concerned entity in accordance with Article 09 of the Microfinance Law.

CHAPTER V: OBLIGATIONS OF ENTITIES
Article 21: Accounting
The aforementioned entities must maintain accounting of operations at their registered office in accordance with the Chart of Accounts for Credit Institutions.

Article 22: Communication of Documents
In the context of monitoring and supervision by the Ministry in charge of Finance, those subject to it are obligated:

• To complete the quarterly monitoring table of their operations in Annex II of this Order, and transmit it within 30 days after the concerned quarter;
• To file a declaration of risk portfolios within 30 days after the concerned semester, following the model provided in Annex III;
• To transmit all information, documents, and details required by the Ministry in charge of Finance related to their activity;
• To communicate certified annual financial statements.

Article 23: General Information
The aforementioned entities must make public, in case of modification, general information concerning them, particularly:

• The modification of legal statutes;
• The change of executive directors.

Article 24: Membership in the Professional Association of Microfinance Institutions
The entities covered by this Order join the Professional Association of Microfinance Institutions upon obtaining the authorization to operate issued by the Ministry in charge of Finance, under penalty of administrative sanctions provided for in Article 18 of this Order.

Article 25: Transitional Provisions
Microfinance institutions in operation, approved as level 1 microfinance institutions under Law No. 2005-016 of September 29, 2005 on the activity and supervision of microfinance institutions, comply with the provisions of this Order within a period of twelve (12) months from its publication. The documents to be provided by the concerned operating microfinance institutions under this Order will be notified to the interested parties.

Article 26: Criminal Proceedings
Notwithstanding the application of this Order's provisions, in case of established criminal offenses, proceedings are initiated by the Public Prosecutor upon referral by the Minister in charge of Finance or any other complainant, in application of current common law texts.

Article 27: Miscellaneous and Final Provisions
Due to urgency and in accordance with the provisions of Articles of Ordinance 62-041 of September 19, 1962 on general provisions of internal law and private international law, this Order enters into force immediately upon publication via radio or television, independently of its insertion in the Official Journal of the Republic. Done in Antananarivo, on May 13, 2019. The Minister of Economy and Finance

ANNEX I: APPLICATION FOR AUTHORIZATION
A. MODEL OF APPLICATION FOR AUTHORIZATION
Madam/Sir the Minister of Finance and Budget,
In my capacity as [1], I have the honor to request from the Ministry of Finance and Budget authorization under the title of an entity exercising microfinance activities provided by Article 2 of the Microfinance Law. I hereby submit the attached file, prepared in accordance with Order No. ___ of ___. Please accept, Madam/Sir the Minister, the assurance of my high consideration. Legalized signature (and possibly seal) 1 Indicate the signatory's capacity: social director, authorized representative of the institution. Then attach a certified justification of this authorization.

B. DESCRIPTION OF THE ENTITY
I - GENERAL INFORMATION
Name:
Acronym:
Share capital (if any):
Corporate purpose: ...........................................................................................
Tel.:
Registered office address:
Fax:
Email:
If institution to be created
Existence of statutes yes [ ] (attached) no [ ] Existence of internal regulations yes [ ] (attached) no [ ] Planned date of commencement of activity:
If institution already operational
Date of commencement of activity:
Minutes of the constituent general meeting yes [ ] (attached) no [ ] Extract from the commercial and companies register yes [ ] (attached) no [ ]

II - INFORMATION ON ACTIVITY
Targeted clientele ...................................................................................................
Intervention zones ...................................................................................................
(current and envisaged)
Client structure:
Categories | Actual Number | Forecast Evolution Year 1 | Year 2 | Year 3 Individuals Internal resources:
Type of resources | Amount in MGA | Characteristics Social shares (if applicable) Membership fees
Others: .......................

External resources:
Nature of funding sources | Amount in MGA or currency | Conditions | Allocation Grants (subsidies) Reimbursable subsidies Non-reimbursable subsidies Loans
Others: ............

Nature of credits:
Types of loans | Effective rate | Global duration (months) | Maximum amount per beneficiary | Characteristics For ac[quisition/operation]...