Requirements for Licensing and Renewal of Microfinance Business Directives No. MFI/23/2013

TELAGRAl'HI C ADDRES S
NATIO N BAN K
TELE X 2102 0
CODE S USE D
PETERSO N 3tJ & 411' ED.
BEN T LEY' S 2"" PHRAS E
A. B C. 6"' EDITION .
NATIONA L BAN K O F ETHIOPI A
PLEAS E ADDRES S AN Y REPL Y T O
P.O.Bo x 5550
ADDI S ABAB A
LICENSING AND SUPERVISION OF
THE BUSINESS OF MICROFINANC1NG INSTITU1QNS Requirements for Licensing and Renewal of Microfinance Business Directives No. MFI/23/2013 Whereas, promoting strong and viable microfmance sector in Ethiopia is crucial for financial inclusion and economic growth; Whereas, proper licensing and supervision of microfinance institutions and the microfmance sector is important to ensure the safety and soundness of the microfinance business; Whereas, establishing clear, objective and transparent requirements for licensing and renewal is essential to promote the sector; Now, therefore, in accordance with, Articles 5( 1 a & b), 5 (2), 6 (2), 27 (2) and 28 of Microfinance Business Proclamation No. 626/2009, the National Bank of Ethiopia hereby issues these directives.

1. Short Title
   These directives may be cited as "Requirements for Licensing and Renewal of Microfmance Business Directives No. MFI/23/2013"
2. Definitions
   For the purpose of these directives, unless the context requires otherwise:
   2.1 "chief executive officer" means a person, by whatever title that person may be
   referred to, who is primarily responsible for the day-to-day management of the affairs of a microfmance institution;
   2.2 "director" refers to any member of the board of directors of a microfinance
   institution, by whatever title he/she may be referred to;
   2.3 "National Bank" refers to the National Bank of Ethiopia;
   2.4"organizers" means persons who have initiated plans or facilitated the formation of a microfinance institution and who shall jointly and severally be liable to third parties in respect of commitments entered iijto- during microfinance institution formation process; !/•?.;

2.5 "persons with significant influence" are, directors and chief executive officer
of a microfinance institution;
2.6 "project manager" means a person who shall be in charge of the whole process
of obtaining business license of a microfinance institution;
2.7 "related party of a microfinance institution or a microfinance institution
under formation" means
On the one hand, an organizer, a project manager, a shareholder, a director or a chief executive officer of that microfinance institution and/or the spouse or relation in the first degree of consanguinity or affinity of such organizer, project manager, shareholder, director or a chief executive officer, and On the other, a partnership, a common enterprise, a private limited company, a share company, a joint venture, or any other business in which the organizer, project manager, shareholder, director or chief executive officer of the microfinance institution and/or the spouse or relation in the first degree of consanguinity or affinity of such organizer, project manager, shareholder, director or chief executive officer has a business interest as owner, partner, shareholder, director chief executive officer, or in any other way or form;
3. Scope of Application
The provisions of these directives shall be applicable to those who desire to obtain or renew microfinance business license.
4. Organizers and Project Manager
4.1 Organizers shall appoint a project manager.
4.2 The project manager shall have:
4.2.1 first degree from recognized higher learning institution, and
4.2.2 business experience preferably in designing microfinance related
project.
4.3 Project manager and the organizers shall be honest, reputable and diligent. In
determining the integrity of organizers and project manager, all relevant factors shall be considered, including but not limited to:
4.3.1 whether the person has a record or evidence of previous conduct and
activities where he/she/it has been convicted for a criminal offence under any law designed to protect members of the public from dishonesty or fraud whether in Ethiopia or elsewhere;
4.3.2 whether the person has a record of withholding information from
public authorities, submission of incorrect financial or other statements, prior refusal of regulatory/supervisory approval an -^

failure to comply with requirements of regulatory/supervisory body, other corrective actions or interventions by public authorities; and
4.3.3 whether the person has a record of disciplinary measures or any
dispute with previous employers, or compliance with a code of conduct which has led to the imposition of a penalty under employment law or any other disciplinary measures imposed by trade or professional associations.
5. Licensing Requirements
Requirements to obtain microfinance business license include the following:
5.1 Pre-application phase
5.1.1 Evidence of registration of trade name from Ministry of Trade and/or
Regional Trade Bureau.
5.1.2 Signed minutes of first meeting of organizers along with attendance
sheet.
5.1.3 Submission of prospectus, which is a printed statement that describes
and forecasts the course or nature of the company along with expected risks, to be distributed to prospective investors.
5.1.4 Written application requesting to open blocked subscription account
indicating the name of the bank(s)/branch (es).
5.1.5 Duly completed application form, as specified under Attachments !
and II of these Directives, for organizers and project manager.
5.1.6 Properly completed propriety test questionnaire, as specified under
Attachment III of these Directives, for organizers and project manager.
5.1.7 Evidences of payment of investigation fee.
5.2 Application phase
5.2.1 Duly completed application form, as specified under Attachment IV
of these Directives, shall be submitted, together with all enclosures as stated herein, to Microfinance Institutions Supervision Directorate.
5.2.2 Evidence of paid-up capital which includes certificate of deposits in
a blocked account and evidence for valuation of contribution in kind (if any).
5.2.3 Signed minutes of subscribers meeting with attendance sheet.
5.2.4 List of names, nationality, address, number and value of subscribed
shares of founders to be published in newspaper.
5.2.5 Articles and memorandum\o/ associations written in Amharic and
preferably in English.

5.2.6 Authenticated ownership certificate and/or lease agreement for
building, land, vault, equipment, fixtures and professional services.
5.2.7 Evidence for insurance coverage for premises acquired or leased.
5.2.8 Description of actual purchases made or proposed purchase of goods
and services or lease of real estate by the microfinance institution (under formation) from related parties and organizers.
5.2.9 Duly completed general information and propriety test
questionnaires for directors, and chief executive officer as per ANNEXES I and II of these Directives.
5.2.10 Business plan stating at least the following:
a) executive summary, b) introduction, c) macroeconomic analysis, d) financial sector analysis, e) micro finance sector analysis, f) business environments, g) organization charts of the institution with brief description of the functions of the main organizational units, h) strategic and operational plans, i) source of capital and finances, j) products and services, k) accounting policies, I) assumptions for financial projections, m) financial projections for the first three years including balance sheet, income statement, cash flow projections and sensitivity analysis, and n) conclusion /recommendation.
5.2.11 Evidence of payment of licensing fee.
6. Conditions for Commencement of Operation
To commence operation, a licensed microfinance institution shall:
6.1 put in place at a minimum comprehensive policies, procedure manuals,
programs and guidelines for^
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6.1.1 credit,
6.1.2 human resource management,
6.1.3 procurement;
6.1.4 liquidity management,
6.1.5 internal audit/control,
6.1.6 management information system/MIS,
6.1.7 finance and budgeting,
6.1.8 risk management,
6.1.9 fixed assets,
6.1.10 corporate governance,
6.2 hire, train and place adequate and appropriate staff;
6.3 ensure that the microfinance institution meets the following requirements:
6.3.1 business operating area include:
a) proper ventilation and circulation of fresh air. b) suitable and clean sanitary service, c) sufficient and suitable lighting, d) displays of working hours,
6.3.2 insurance policy for the following at a minimum:
a) burglary and theft, and b) cash and valuables in premise and in transit. 7 Display of License A licensed microfinance institution shall at all time display in a conspicuous place its valid original business license in its head office and copy of the business license in its branches. 8 Renewal of License
8.1 A microfinance institution shall renew its business license every year.
8.2 A microfinance institution applying for renewal of business license shall
present the following:
8.2.1 application requesting renewal of business Mcejise and any changes
in the particulars of the existing licensaTX t- j\ Px ,:, :• \ ,• "".. :

8.2.2 original business license of the microfinance institution; and
8.2.3 evidence of payment of renewal fee and/or penalty.
9 Fees
9.1 A company applying to obtain new microfinance business license shall pay:
9.1.1 investigation fee of birr 1,000; and
9.1.2 licensing fee of birr 1,000.
9.2 A microfinance institution applying for renewal of its business license shall
pay renewal fee of birr 1,000.
10 Repeal
NBE Directives No. MF1/04/96 and the provisions of articles 3 and 4 of NBE Directives No. MFI/01/96 are hereby repealed and replaced by these directives. 11 Effective Date These Directives shall enter into force as of the 1st day of March 2013 l\ tEKLEWOLD ATNAF ^

Attachment I
Application form for Organizers
General information
Photo of organizing committee's chairperson

1. Proposed name of the microfmance institution (under formation)
2. Name of organizing committee's chairperson
   2.1 Address
   No.
   1
   2
   3
   Full 'name Nationality Address
   City Sub-city Wereda House No. Tel.
3. I hereby confirm that the above particulars and the information provided in the attached enclosure are true and correct.
   Date Signature of organizing committee's chairperson Including grand father

Attachment II
Application form for project manager
General information
Full 'name Nationality Address
City Sub-city Wereda House No. Tel.

1. Proposed name of the MFI (under formation)_ 2. Present position of project manager
2. I hereby confirm that the above particulars and the information provided in the attached enclosure are true and correct.
   Date Signature
   Including grand father

Attachment III: PROPRIETY TEST QUESTIONAIRE (Organizer, project manager-underline) Please give yes or no answers for the following questions and if your answer is "yes" please give particulars. Full Name: - - — - (Organizer, project manager - Underline) Name of MF1: — - - Yes No

1. Have you been charged or convicted of any criminal offence, particularly an offence
   relating to dishonesty, fraud, under any law whether in Ethiopia or elsewhere? | | | | If yes, give particulars
2. Have you ever been imposed with corrective actions or interventions by pubic authority
   due to withholding information or submission of incorrect financial or other statements? | | If yes, give particulars
3. Have you ever been refused approval by any regulatory/supervisory body or failed
   to comply with requirements of regulatory/supervisory body?
   If yes, give particulars
   Have you ever been in dispute with previous employees concerning fulfillment of position or compliance with a code of conduct which has led to the imposition of a penalty under employment law or ever been dismissed or requested to resign from any office of employment or disciplinary measures imposed by trade or professional associations? | | | | If yes, give particulars^
4. Have you ever been refused, whether in Ethiopia or elsewhere, the right to carry
   on any trade, business or profession for which a specific license, registration or other authority is required? > ; If yes. give particulars
5. I lave you ever been bankrupt whether in Ethiopia or elsewhere or have your
   assets been sequestrated because of bankruptcy or foreclosed by a bank/MFI due to failure to repay a loan? r I j If yes, give particulars

D
7. Have you ever been convicted of default on repayment of bank or other
credits or tax payment? | | | |
If yes, give particulars
8. Have you ever been carrying non-performing loans or account been closed and not
reinstated by any bank in line with relevant directives of the National Bank? , t If yes, give particulars Declaration I am aware that under sub-article l(b) of Article 26 of Micro Financing Business Proclamation No. 626/2009, it is an offense to provide false or misleading statement. 1 certify that the information and/ or statements given above are complete and accurate to the best of my knowledge, and that there are no other facts relevant to this application of which the National Bank would be aware. I also undertake to inform the National Bank of any changes material to the application. Name Signature _ Date .-.,>

Attachment IV

Photo
APPLICATION FORM TO UNDERTAKE MICROFINANCING BUSINESS

1. Name of applicant and designation
2. Name of the Micro finance Institution (under
   formation)
3. Name of the contact person
   Address:
4. Address of the Micro finance Institution (under formation)

• Street (location):
• Building:
  Postal address:
  Telephone no.:
  Fax:
  E-mail

5. Names and Address of Board Members
   No.
   1
   2
   Full name1 Nationality City Sub-city Wereda House No. Tel.
   Grand Total
   Subscribed capital
   Number of shares
   Amount in bin- Paid up Capital Number of shares Amount in birr 1 Including grandfather )

6. Products and Services of the Microfinance Institution
   6.1 Products and services the Microfinance Institution intends to carry out:
   6.1.1
   6.1.2
   6.1.3
   6.1.4
   6.1.5
   .

• 6.2 The manner in which the company proposes to carry out its transactions and operations:
  6.2.1
  6.2.2
  6.2.3
  6.2.4
  6.2.5 _

7. Paid-up capital contribution
   7.1 In cash birr
   7.2 In kind (specify the type of property and value in birr and the manner of valuation, if
   any)

8. Initial capital of the Microfinance Institution (under formation) in birr
   8.1 Subscribed capital birr . (
   8.2 Paid-up capital birr . (
   birr) birr)
   I

9. Shares
   9.1 Number of shares subscribed_ 9.2 Par value of the share in birr
   10.Provide the following with respect to:
   10.1 In cash birr
   Item a. Building b. Land
   c. Vault
   d. Equipment e. Fixture f. Professional services Manner of acquisition Cost Total
   10.2 Indicate if any of items herein above is acquired from related parties.
   2 Lease, purchase, rent. . .etc, and attach agreements as per the manner of acquisition < I

1 1 .Types and extent of proposed insurance coverage_ 12.Please give statement that members of board of directors and chief executive officers are vetted to fulfill the requirements stated in
Article 11(3) of Micro financing Business Proclamation No. 692/2009, and Requirements for Persons with Significant Influence in a
Microfmance Institution Directives No.MFI/21/2012.
13.Any additional comments:
14. I hereby confirm that the foregoing statements, particulars, enclosures, and information are true and correct to the best of my
knowledge.
Date Signature^
Name and official designation of the applicant

CONFIDENTIAL
NATIONAL BANK OF ETHIOPIA
ANNEX I: GENERAL INFORMATION (director or chief executive officer - Underline)
NB: In case the space provided is inadequate, use additional paper.

1. Name of the Microfinance institution:
2. Personal information
   a. Fuil Name: — b. Date of birth: —- --
   c. Place of Birth: —- —
   d. Nationality:
   e. Identification Card Number and Date of Issue:
   f. Passport Number and Date of Issue:
   g. Tax Payer Identification Number: — h. Address: City: Sub-City:- Kebele: House No.: Postal Address: Telephone No.:
   i. Educational Qualification:
   j. Summary of Work Experience:
   No. Organization Position Duration | Number of years k. Name(s) of your bankers/MFIs for the Last 5 Years:
   Please list financial institutions in which you currently (as of completing this form) own shares in the following
   table.
   Name of financial institution Subscribed shares owned In number Share in the financial institution's total subscribed capital (%) Remarks
3. Description of your past and current business activities in Ethiopia and abroad (if applicable)
   a) Current shareholding or ownership in a company Company name Date of incorporation Amount of shareholding % of shareholding (in total shares of the company) Remark

b) Past shareholding or ownership in a company (shares you owned in the past but had been relinquished) Company name Date of incorporation Amount of shareholding % of shareholding (in total shares of the company) Reason for termination of shareholding Remark 0 Borrowings (directly or indirectly) ~ * OJ 0 O .0 C 4J E cc 2:
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  ''Including all companies 10% or more owned by the applicant, the applicant's spouse and children less than 18 years.

5. Please provide details of the actual source(s) of funds that you, as a shareholder, would like to invest or use in
   the acquisition of the shares in a MFI.

ANNEX II: PROPRIETY TEST QUEST1ONA1RE
Please give yes or no answers for the following questions and if your answer is "yes" please give particulars. Full Name:
( director or chief executive officer - Underline) Name of MF1:
Yes No

1. Have you or the legal person in which you were a director, chief executive officer i i -i
   or senior executive officer or owner been charged or convicted of any criminal offence, particularly an offence relating to dishonesty, fraud, under any law whether in Ethiopia or elsewhere? If yes. give particulars 2 Have you or the legal person in which you were a director, chief executive officer i i or senior executive officer or owner ever been imposed with corrective actions or interventions by pubic authority due to withholding information or submission of incorrect financial or other statements? If yes. give particulars
2. Have you or the legal person in which you were a director, chief executive officer I—, ,-- -,
   or senior executive officer or owner been refused approval by any regulatory/ supervisory body or failed to comply with requirements of regulatory/supervisory body? If yes. give particulars Have you ever been in dispute with previous employees concerning fulfillment of | ~| position or compliance with a code of conduct which has led to the imposition of a penalty under employment law or ever been dismissed or requested to resign from any office of employment or disciplinary measures imposed by trade or professional associations? If yes, give particulars_
3. Have you ever been refused, whether in Ethiopia or elsewhere, the right to carry
   on any trade, business or profession for which a specific license, registration or other authority is required9 If yes, give particulars
4. Have you or the legal person in which you were a director, chief executive officer

or senior executive officer or owner been declared bankrupt whether in Ethiopia or elsewhere or have your assets been sequestrated because of bankruptcy or foreclosed by a bank/MFl due to failure to repay a loan? If yes. give particulars
7. Have you or the legal person in which you were a director, chief executive officer
or senior executive officer or owner been convicted of default on repayment of bank or other credits or tax payment? If yes. give particulars
8. 1 lave you or the legal person in which you were a director, chief executive officer ,
or senior executive officer or owner been carrying non-performing loans or account been closed and not reinstated by any bank in line with relevant directives of the National Bank? If yes. give particulars_
9. Has your purchase of shares in a financial institution been funded or to be funded | | | |
by another person or legal entity who is actually bankrupted or technically insolvent because of irresponsible or reckless management, fraud or illegal business practice? If yes. give particulars
10. Has your minimum net worth at the time of acquisition of shares at least greater | | | |
than the shares acquired or to be acquired from a financial institution9 If yes. give particulars
11. Are you currently member of board of directors or chief executive officer in any of the | |
financial institutions?
If yes, give particulars

Declaration
1 am aware that under sub-article l(b) of Article 26 of Micro Financing Business Proclamation No. 626/2009, it is an offense to provide false or misleading statement. I certify that the information and/ or statements given above are complete and accurate to the best of my knowledge, and that there are no other facts relevant to this application of which the National Bank would be aware. I also undertake to inform the National Bank of any changes material to the application. Name Signature Date