Resolution of the Board of the National Bank of the Kyrgyz Republic No. 2024-P-12/66-1-(NPA) of December 11, 2024 on Amendments to the Resolution on Approving the Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations Based on Islamic Principles of Banking and Financing

BOARD OF THE NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of December 11, 2024 No. 2024-P-12/66-1-(NPA)

On Amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approving the Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations Based on Islamic Principles of Banking and Financing" dated May 30, 2014 No. 24/11

In accordance with Articles 5, 9 and 64 of the Constitutional Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic resolves:

1. Make amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approving the Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations Based on Islamic Principles of Banking and Financing" dated May 30, 2014 No. 24/11 (attached).

2. This Resolution shall enter into force upon the expiration of 15 (fifteen) days from the date of its official publication.

3. The Legal Department:

• from the date of receipt of the relevant documents, within 3 (three) working days, publish this Resolution on the official website of the National Bank of the Kyrgyz Republic;

• after official publication, send this Resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Regulatory Legal Acts of the Kyrgyz Republic.

4. The Supervision Methodology Department, within 3 (three) working days from the date of official publication, bring this Resolution to the attention of the Association of Legal Entities "Association of Microfinance Organizations" and microfinance organizations.

5. The "Secretariat of the Board" Department, within 3 (three) working days, bring this Resolution to the attention of the Non-Bank Organizations Supervision Department, regional departments, and the Representation of the National Bank of the Kyrgyz Republic in the Batken Region.

6. Control over the implementation of this Resolution is entrusted to the Member of the Board of the National Bank of the Kyrgyz Republic overseeing the Supervision Methodology Department.

Chairman of the National Bank of the Kyrgyz Republic		M. Turgunbaev

		Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 11, 2024 No. 2024-P-12/66-1-(NPA)

AMENDMENTS
to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approving the Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations Based on Islamic Principles of Banking and Financing" dated May 30, 2014 No. 24/11

1. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approving the Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations Based on Islamic Principles of Banking and Financing" dated May 30, 2014 No. 24/11:

in the Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations Based on Islamic Principles of Banking and Financing, approved by the aforementioned Resolution:

in Chapter One:

• paragraph 1 is to be worded as follows:

"1. These Rules regulate the activities of licensed and regulated by the National Bank of the Kyrgyz Republic microfinance organizations carrying out operations based on Islamic principles of banking and financing (hereinafter - Rules), including microfinance organizations having an 'Islamic window' (hereinafter - MFO).";

• paragraph 3 is to be worded as follows:

"3. MFOs may establish higher requirements for economic indicators, according to their internal risk management policy, without violating the values established for MFOs in the regulatory legal acts of the National Bank of the Kyrgyz Republic.";

• in paragraph 6, replace the words "Microfinance organizations" with the word "MFO";

• the second paragraph of paragraph 8-2 is to be worded as follows:

"Under an MFO engaged in wholesale financing is meant an MFO in which the share of wholesale financing exceeds 70 (seventy) percent of its financing portfolio.";

in Chapter Two:

• in the title, replace the words "attraction of funds" with the words "acceptance of deposits";

• the fifth paragraph of paragraph 9 is to be worded as follows:

"- the maximum total amount of financing provided to the same client or a group of related persons, in an amount not exceeding 3 (three) percent of the minimum size of authorized capital for a newly created MFC (not attracting term deposits from individuals and legal entities);";

• the ninth paragraph of paragraph 12 is to be recognized as having lost force;

• Chapter is to be supplemented with paragraph 12-1 of the following content:

"12-1. The value of the minimum own capital indicator must be maintained at a level of not less than 100 (one hundred) percent of the minimum size of authorized capital.

The minimum own capital indicator is determined by the formula:

SK / UK * 100%,

where:

SK - own capital of the MFC on the assessment date (in accordance with paragraph 12 of these Rules);

UK - minimum authorized capital for newly created MFOs not accepting deposits, established by the Resolution of the Board of the National Bank "On the Minimum Size of Authorized Capital of Non-Bank Financial and Credit Organizations" dated 05.10.2022 No. 2022-P-33/61-2-(NFKU).";

• in paragraph 13, replace the word "transaction" with the word "contract";

• Chapter is to be supplemented with paragraph 13-4 of the following content:

"13-4. The maximum size of investments in property (fixed assets) must not exceed 80 (eighty) percent of the own capital of the MFC.

Property is understood as property (including construction/installation of real estate, vehicles, etc.), which belongs to the MFC or is at the disposal of the MFC under a lease agreement and/or is used/will be used as a fixed asset.";

• paragraph 15 is to be worded as follows:

"15. MFOs not accepting deposits have the right to borrow funds from legal and individual persons - founders (shareholders) of the MFC and legal entities.

The markup/yield rate on funds borrowed from founders (shareholders) must not exceed the key rate of the National Bank by more than 5 (five) percentage points.";

• Chapter is to be supplemented with paragraph 15-2 of the following content:

"15-2. Forms of financial reporting and information on investments, borrowings from founders, must be signed by the Chairman of the Board of the MFC or another person officially having the right of first signature, as well as by the person responsible for preparing and submitting information.";

in Chapter Four:

• in the title, replace the words "attraction of funds" with the words "acceptance of deposits";

• paragraph 22 is to be worded as follows:

"22. MFOs carrying out operations for the acceptance of deposits are obliged to comply with the economic indicators established by the National Bank, including:

• minimum size of paid-up authorized capital;

• minimum size of own capital (M1);

• capital adequacy ratio (M2);

• maximum risk size per one client (M3);

• liquidity ratio (M4);

• restriction ratio for deposit return risk (M5);

• maximum total risk size for operations with affiliated and related persons;

• maximum total debt of one MFC employee for financing provided by the company;

• maximum total size of investments in MFOs, leasing companies and banks;

• size of investments in non-state debt securities;

• maximum size of investments in property (fixed assets).";

• Chapter is to be supplemented with paragraph 22-1 of the following content:

"22-1. Microfinance companies have the right to attract only term deposits from individuals and legal entities for a period of not less than 30 days.";

• the first paragraph of paragraph 23 is to be worded as follows:

"23. MFOs carrying out operations for the acceptance of deposits do not have the right:";

in Chapter Five:

• in the title, replace the words "attraction of funds" with the words "acceptance of deposits";

• paragraph 24 is to be worded as follows:

"24. Requirements for the authorized capital of microfinance companies carrying out operations for the acceptance of term deposits are established by the Resolution of the Board of the National Bank "On the Minimum Size of Authorized Capital of Non-Bank Financial and Credit Organizations" dated 05.10.2022 No. 2022-P-33/61-2-(NFKU).";

• paragraph 25 is to be worded as follows:

"The value of the minimum own capital indicator (M1) must be maintained at a level of not less than 100 (one hundred) percent of the minimum size of authorized capital.

The minimum own capital indicator of the MFC (M1) is determined by the formula:

M1 = SK / UK * 100%,

where:

SK - own capital of the MFC on the assessment date (paragraph 12 of these Rules);

UK - minimum authorized capital for newly created MFOs carrying out the acceptance of deposits, established by the Resolution of the Board of the National Bank "On the Minimum Size of Authorized Capital of Non-Bank Financial and Credit Organizations" dated 05.10.2022 No. 2022-P-33/61-2-(NFKU).";

• in paragraph 27:

in the fourth paragraph, replace the word "transaction" with the word "contract";

in the eleventh paragraph, replace the word "one" (одни) with the word "one" (один) in the official language;

• in paragraph 28:

in the second paragraph, replace the words "funds" with the word "deposits";

the fifth paragraph is to be worded as follows:

"OB - liabilities of the MFC, including attracted deposits, the settlement of which occurs within 30 days from the moment of assessment.";

the eighth paragraph is to be worded as follows:

"- the structure and stability of the deposit base (terms of deposit return, concentration of sources, policy for determining the yield rate magnitude)";

• in paragraph 29:

in the first paragraph, replace the words "funds" with the word "deposits";

in the fourth paragraph, replace "funds" with the word "deposits";

• paragraph 30 is to be worded as follows:

"30. MFOs attracting deposits must carry out operations with affiliated and related persons in accordance with the Instruction "On Requirements for Operations of Microfinance Companies Attracting Deposits with Affiliated and Related Persons of the Microfinance Company and Housing Savings Credit Company", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 15, 2017 No. 2017-P-12/25-6-(NPA). The maximum total size of risk for operations with affiliated and related persons, expressed as the size of the total debt of affiliated and related persons to the MFC, must not exceed 60 (sixty) percent of the own capital of the MFC;

The total debt of one MFC employee, to whom the MFC provided financing, must not exceed 5 (five) percent of the size of the own capital of the MFC and is determined by the formula:

SZS / SK * 100% ≤ 5%,

where:

SZS - total debt of one MFC employee, to whom the MFC provided financing on the assessment date;

SK - own capital of the MFC on the assessment date.

The MFC is not entitled to provide financing to affiliated or related persons if the total amount of all financing and their substitutes provided to all affiliated and/or related persons exceeds 60 (sixty) percent of the own capital of the MFC.

Operations on the provision of financing to officials and employees of the MFC may be carried out only upon compliance with the requirements specified in the Instruction "On Requirements for Operations of Microfinance Companies Attracting Deposits with Affiliated and Related Persons of the Microfinance Company and Housing Savings Credit Company", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 15, 2017 No. 2017-P-12/25-6-(NPA).";

• in paragraph 31:

the first paragraph is to be worded as follows:

"31. The following requirements are established regarding the total size of investments in MFOs, leasing companies and banks:";

in sub-item 2, replace the word "transaction" with the word "contract";

• Chapter is to be supplemented with paragraph 32-1 of the following content:

"32-1. Maximum size of investments in property (fixed assets) for MFOs carrying out the acceptance of deposits.

The maximum size of investments in property (fixed assets) must not exceed 20 (twenty) percent of the size of the own capital of the MFC.

Property is understood as property (including construction/installation of real estate, vehicles, etc.), which belongs to the MFC or is at the disposal of the MFC under a lease agreement and/or is used/will be used as a fixed asset.";

• Chapter is to be supplemented with paragraph 32-2 of the following content:

"32-2. MFOs attracting deposits have the right to borrow funds from legal and individual persons – founders (shareholders) of the MFC and legal entities.

The markup/yield rate on funds borrowed from founders (shareholders) must not exceed the key rate of the National Bank by more than 5 (five) percentage points.";

in Chapter Six:

• the title is to be worded as follows:

"Chapter 6. Procedure for MFOs to comply with economic indicators and requirements and submit information to the National Bank";

• paragraph 35 is to be worded as follows:

"35. MFOs must submit information to the National Bank on the execution of economic indicators in accordance with the requirements and deadlines established within the framework of periodic regulatory reporting.";

• Chapter is to be supplemented with paragraph 35-1 of the following content:

"35-1. Annually, after conducting an independent external audit by independent external auditors, the MFC is obliged to submit one copy of the full external auditor's report without changes, including the management letter, to the National Bank within 30 (thirty) days from the moment the report is submitted by the external auditor to the MFC.";

• Chapter is to be supplemented with paragraph 38-1 of the following content:

"38-1. MFOs must submit to the National Bank within 5 (five) working days after publication, with an attached copy of the publication, and/or indicate a link to the official website of the MFC (portal of the information agency), where the financial report was published, with an attached copy of the publication. A link to the official website/portal of the information agency must also be sent by email to the authorized structural unit of the National Bank.";

• Chapter is to be supplemented with paragraph 38-2 of the following content:

"38-2. In the event that the MFC has obligations to third parties, as well as in the event of the presence of one of the following threats to the stability of the MFC's activities, the National Bank may restrict the payment of dividends by the MFC if:

1) this will lead to a violation of the economic indicators established by the National Bank;

2) the minimum size of authorized capital and/or the minimum size of own (regulatory) capital established by the National Bank is not ensured;

3) in the presence of past losses, as well as in the event of non-compliance with the requirements of the regulatory legal acts of the National Bank.

Note: Obligations to third parties are understood as funds attracted by the MFC from unrelated legal and individual persons and directed to the main activity.";

in Chapter Seven:

• in paragraph 39, replace the word "transactions" with the word "contracts";

• paragraph 40 is to be worded as follows:

"40. The maximum total size of financing issued to the same person or group of related persons by the MCC must be determined in an amount not exceeding 10 (ten) percent of the minimum size of authorized capital for newly created MCCs, established by the Resolution of the Board of the National Bank "On the Minimum Size of Authorized Capital of Non-Bank Financial and Credit Organizations" dated 05.10.2022 No. 2022-P-33/61-2-(NFKU).";

• in paragraph 42-1:

in the first paragraph, replace the word "transaction" with the word "contract";

in sub-item 3, replace the word "transaction" with the word "contract";

• the chapter is to be supplemented with paragraph 43-1 of the following content:

"43-1. The MCC, including the MCC engaged in wholesale financing, has the right to borrow funds from legal and individual persons - founders (shareholders) of the MCC and legal entities.

The markup/yield rate on funds borrowed from founders (shareholders) must not exceed the key rate of the National Bank by more than 5 (five) percentage points.";

• paragraph 44 is to be worded as follows:

"44. MCCs engaged in wholesale financing and having obligations to creditors (including FCOs) must comply with the capital adequacy ratio.

The value of the capital adequacy ratio M2 must be maintained at a level of not less than 15 (fifteen) percent.

The capital adequacy ratio is determined by the formula:

M2 = SK / SA * 100%,

where:

SK - own capital of the MCC on the assessment date;

SA - sum of balance sheet assets on the assessment date minus the sum of deposits from clients placed in FCOs as collateral in the amount of attracted funds in deposits in national currency for the purpose of hedging currency risks.";

• Chapter is to be supplemented with paragraph 45-1 of the following content:

"45-1. The value of the minimum own capital indicator must be maintained at a level of not less than 100 (one hundred) percent of the minimum size of authorized capital.

The minimum own capital indicator of the MCC is determined by the formula:

SK / UK * 100%,

where:

SK - own capital of the MCC on the assessment date in accordance with paragraph 45 of these Rules;

UK - minimum authorized capital for newly created MCCs, established by the Resolution of the Board of the National Bank "On the Minimum Size of Authorized Capital of Non-Bank Financial and Credit Organizations" dated 05.10.2022 No. 2022-P-33/61-2-(NFKU).";

• the chapter is to be supplemented with paragraph 45-2 of the following content:

"45-2. In the event that the MCC has obligations to third parties, as well as in the event of the presence of one of the following threats to the stability of the MCC's activities, the National Bank may restrict the payment of dividends/distribution of profit by the MCC if:

1) this will lead to a violation of the economic indicators established by the National Bank;

2) the minimum size of authorized capital and/or the minimum size of own (regulatory) capital established by the National Bank is not ensured;

3) in the presence of past losses, as well as in the event of non-compliance with the requirements of the regulatory legal acts of the National Bank.

Note: Obligations to third parties are understood as funds attracted by the MCC from unrelated legal and individual persons and directed to the main activity.";

• in paragraph 47, replace the word "transaction" with the word "contract";

• Chapter is to be supplemented with paragraph 47-1 of the following content:

"47-1. Issuance of financing, including under a contract of ijara muntahiy bitamlik, exceeding the maximum size of financing issued by the MKA to the same client or group of related persons, established by paragraph 47 of these Rules, taking into account the goals of Article 2 of the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic", is allowed in an amount of not more than 2 (two) percent of the own capital (book value of capital) of the MKA, for the following purposes:

a) creation of a business (acquisition of fixed and working capital for organizing entrepreneurial activity) or a new direction in activity;

b) expansion and development of an existing business/activity, upon fulfillment of one of the following conditions:

• implementation of new technologies aimed at technological renewal, implementation of innovative equipment and machinery;

• automation of business processes;

• creation of additional jobs;

• increase in production scale.

When issuing financing by the MKA, including under a contract of ijara muntahiy bitamlik, specified in the first paragraph of this paragraph, the following conditions must be met:

1) presence of a financing policy developed by the MKA in accordance with its goals and objectives, with the definition of specific product types and the procedure for subsequent monitoring of the targeted use of the provided financing;

2) presence of information about the client (credit report) and, at the discretion of the MKA, about persons related to the client (if they consent in accordance with the legislation of the Kyrgyz Republic) in existing credit bureaus;

3) presence of necessary documentary evidence of the applicant's solvency (rights to assets generating the applicant's income, salary certificate from the place of work, patent, or decision of the tax authority on the application/refusal of tax payment in a zone with a special regime, or certificate, etc.), as well as the conduct of an assessment of the applicant's solvency, confirmed by the conclusion of a responsible financing specialist or employee in accordance with the financing policy and/or other internal documents of the MKA;

4) presence of a business plan for obtaining financing by the applicant, in which the goals of using the financing must be indicated with corresponding calculations and forecasts.

In the event that in the financing portfolio of the MKA, the share of the aforementioned financing is 70 (seventy) percent or more, the restrictions specified in paragraph 47 do not apply to such MKA.

In the event that in the financing portfolio of the MKA, the share of the aforementioned financing is less than 70 (seventy) percent, then financing up to 100 thousand som must constitute 20 (twenty) percent or more of the total financing portfolio of the MKA.".