Resolution of the Board of the National Bank of the Kyrgyz Republic No. 4/6 of January 20, 2016 on Amendments to Certain Regulatory Legal Acts

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of January 20, 2016 No. 4/6

On Amendments and Additions to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

In accordance with Articles 7 and 43 of the Law "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. Make amendments and additions to the following resolutions of the Board of the National Bank of the Kyrgyz Republic (attached):

• On "Temporary Rules for regulating the activities of microfinance companies in the territory of the Kyrgyz Republic" dated February 19, 2003 No. 4/2;

• On approval of the Regulation "On the periodic regulatory report of a microcredit company/microcredit agency and pawnshop" and the Regulation "On the periodic regulatory report of a microfinance company" dated May 27, 2009 No. 25/3;

• "On the new edition of the Rules for regulating the activities of credit unions in the Kyrgyz Republic" dated May 4, 2005 No. 14/2;

• On approval of the "Rules for regulating the activities of microfinance companies carrying out operations in accordance with Islamic principles of banking and finance" dated May 30, 2014 No. 24/11;

• On approval of the "Rules for regulating the activities of credit unions carrying out operations in accordance with Islamic principles of banking and finance" dated July 16, 2014 No. 32/5;

• On approval of the provisions of the National Bank of the Kyrgyz Republic dated October 17, 2014 No. 45/1;

• On approval of the new edition of the Regulation "On the classification of assets and corresponding provisions for potential losses and losses" dated July 21, 2004 No. 18/3.

2. This resolution enters into force on February 10, 2016, except for the amendments and additions to the resolutions of the Board of the National Bank of the Kyrgyz Republic "On the periodic regulatory report of microfinance companies carrying out operations in accordance with Islamic principles of banking and finance", and "On the periodic regulatory report of microcredit companies and microcredit agencies carrying out operations in accordance with Islamic principles of banking and finance", dated October 17, 2014 No. 45/1, which enter into force on June 1, 2016.

3. The Legal Department:

• 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 and Licensing Methodology Department to bring this resolution to the attention of the Association of Microfinance Organizations, LLC "Association for the Development of Islamic Economy, Finance and Industry", credit unions, microfinance organizations, JSC "EcoIslamicBank", LLC "Barakat" Center, JSC "Financial Company of Credit Unions", commercial banks, LLC "Union of Banks of Kyrgyzstan".

5. Control over the execution of this resolution is entrusted to the Deputy Chairman of the National Bank L.Dz.Orozbayeva.

Acting Chairman	N. Zhenish

Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated January 20, 2016 No. 4/6

AMENDMENTS AND ADDITIONS to certain resolutions of the Board of the National Bank of the Kyrgyz Republic

1. Make the following amendments and additions to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Temporary Rules for regulating the activities of microfinance companies in the territory of the Kyrgyz Republic" dated February 19, 2003 No. 4/2:

in the title and throughout the text of the Resolution, replace the words "Temporary Rules" with the word "Rules" in the appropriate case;

in the Rules for regulating the activities of microfinance companies in the territory of the Kyrgyz Republic, approved by the aforementioned resolution:

• in the title, replace the words "microfinance companies" with the word "microfinance organizations";

• in point 1.2.:

replace the words "microfinance companies" with the words "microfinance organizations (hereinafter - MFO)";

replace the words "microfinance company" with the words "microfinance organization";

• in points 1.3., 1.4., 1.7., 1.8., replace the words "microfinance companies" with the word "MFO";

• points 1.5., 1.6. are recognized as having lost force;

• point 1.9. is formulated in the following edition:

"1.9. A microfinance organization conducts internal audit to verify the accuracy of accounts, to check and assess the adequacy and effectiveness of its internal control system in accordance with the regulatory legal acts of the Kyrgyz Republic. For this purpose, a microfinance company (hereinafter - MFC) is obliged, and a microcredit company (hereinafter - MCC)/microcredit agency (hereinafter - MCA) may create its own internal audit service.";

• add point 1.10. of the following content:

"1.10. Systemically important MFOs are those that have systemic significance for the microfinance sector. Criteria for systemic significance are determined by the regulatory legal acts of the National Bank. A special regulatory and supervisory regime established by the National Bank applies to systemically important MFOs.";

• add point 1.11. of the following content:

"1.11. For the purposes of these Rules, a wholesale loan is understood as a loan provided to financial and credit institutions for subsequent provision of microcredits, for the purpose of promoting financial services in regions and supporting entrepreneurial activity.

An MFO engaged in wholesale lending is understood to be an MFO in which the share of wholesale loans constitutes more than 70 percent of the loan portfolio.";

• in point 2.1.:

rephrase the eighth paragraph in the following edition:

"Microfinance companies must have an internal credit policy approved by the Board of Directors. This internal credit policy must determine the main region of activity, as well as the maximum total size of a microcredit issued to the same person, but no more than three percent of the minimum size of the authorized capital established by the National Bank for a newly created MFC (not attracting term deposits from individuals and legal entities).";

rephrase the ninth paragraph in the following edition:

"For MFOs engaged in wholesale lending, the maximum total size of a microcredit issued to the same person must not exceed 20 percent of the size of the own capital.";

• point 2.1.-1. is formulated in the following edition:

"2.1.1. Issuance of a microcredit exceeding the maximum total size of a microcredit issued by an MFC to the same borrower or group of related persons, established by point 2.1. of these Rules, except for microfinance companies carrying out acceptance of term deposits from individuals and legal entities and/or engaged in wholesale lending, is permitted for the purpose of expanding/developing existing business, including creating additional jobs, in accordance with Article 2 of the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic", according to the following lending directions:

• trade;

• agriculture (including crop production, animal husbandry, preparation/processing of agricultural products);

• services;

• transport;

• financial leasing (leasing);

• industry;

• construction.

When issuing microcredits specified in the first paragraph of this point, the following conditions must be met:

1) the microfinance company must have a financing policy developed in accordance with the goals and objectives of microfinance, specifying specific types of products and the procedure for subsequent monitoring of the targeted use of the provided financing;

2) the amount of such a microcredit, subject to the established conditions, must not exceed 3,000,000 (three million) som (or equivalent in foreign currency);

3) there is relevant information from the Credit Information Bureau (CIB) regarding the applicant's credit history, including overdue loans previously obtained by the applicant, as well as information on whether the applicant acts as a guarantor on any other loans;

4) there are necessary documentary confirmations of the applicant's solvency (rights to ownership of assets generating the applicant's income, salary certificate from the place of work, patent, certificate, etc.), and an assessment of the applicant's solvency has been conducted, confirmed by the conclusion of a responsible credit specialist or employee in accordance with the credit policy and/or other internal documents of the microcredit company;

5) an Application Form for obtaining a loan by the applicant is provided, and in the Application Form for obtaining a loan, the purposes of using the loan must be indicated with corresponding calculations and forecasts;

6) the debt coverage ratio of the borrower, equal to the ratio of the borrower's total income to the monthly loan payment (principal and interest), must be at least 130 percent.";

• subpoint 2.2.2. of point 2.2. is formulated in the following edition:

"2.2.2. MFOs not carrying out deposit-taking operations must comply with the corresponding requirements for the minimum size of authorized capital and the conditions for its formation, established in the Regulation "On Licensing the Activities of Microfinance Companies", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2015 No. 78/26 (hereinafter in the text - Regulation "On Licensing the Activities of Microfinance Companies").";

• add point 2.4.-3 of the following content:

"2.4.-3. Maximum total size of funds borrowed from legal entities and founders (shareholders).

The maximum total size of funds borrowed by an MFC, including those engaged in wholesale lending, from legal entities and founders (shareholders) must not exceed 500 percent of the size of the own capital and is determined by the formula:

SZ/OC * 100% ≤ 500%, where:

SZ - total size of funds borrowed by an MFC from legal entities and founders (shareholders) on the assessment date;

OC - own capital of an MFC on the assessment date.

This indicator includes the indicators specified in subpoints 2.4.-1., 2.4.-2.";

• in the first paragraph of subpoint 2.5.1. of point 2.5., replace the digits "12" with the digits "20";

• add point 2.6. of the following content:

"2.6. MFOs must conduct office work in the state and/or official languages. All internal documents, including contracts, agreements with counterparties, must be drawn up in the state or official languages. At the same time, the conclusion of contracts with counterparties in the state and/or official and in foreign languages, having equal legal force, is permitted. Drawing up contracts in a foreign language is permitted only if there is a certified translation into the state or official language in the established manner.";

• Section 3 of the Rules is recognized as having lost force;

• in the first paragraph of point 6.3., replace the digits "12" with the digits "20";

• The Rules are supplemented by Section 7 of the following content:

"7. Regulation of the activities of microcredit companies and microcredit agencies.

7.1. An MCC or MCA has no right to issue securities, except for shares issued by an MCC in the form of joint-stock companies, and also has no right to carry out other banking operations not provided for by Article 33 of the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic", except for financial leasing operations.

7.2. The maximum total size of a microcredit issued by a microcredit company to the same person or group of related persons must be determined at no more than 10 percent of the minimum size of the authorized capital established by the National Bank for a newly created MCC. This restriction also applies to factoring operations.

7.3. For MCCs engaged in wholesale lending, the maximum total size of a microcredit issued to the same borrower or group of related persons must be no more than 20 percent of the size of the own capital.

7.4. Issuance of a microcredit exceeding the maximum total size of a microcredit issued by a microcredit company to the same borrower or group of related persons, established by point 7.2. of these Rules, except for microfinance organizations engaged in wholesale lending, is permitted for the purpose of expanding/developing existing business, including creating additional jobs, in accordance with Article 2 of the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic", according to the following lending directions:

• trade;

• agriculture (including crop production, animal husbandry, preparation/processing of agricultural products);

• services;

• transport;

• financial leasing (leasing) of equipment, agricultural machinery;

• industry;

• construction.

When issuing microcredits specified in the first paragraph of this point, the following conditions must be met:

1) the MCC must have a policy developed in accordance with the goals and objectives of microfinance, specifying specific credit products and the procedure for subsequent monitoring of the targeted use of the issued financing;

2) the amount of such a microcredit, subject to the established conditions, must not exceed 1,000,000 (one million) som, except for a microcredit for financial leasing (leasing);

3) the maximum total size of a microcredit for financial leasing (leasing) must not exceed 10 percent of the own capital;

4) there is relevant information from the Credit Information Bureau (CIB) regarding the applicant's credit history, including overdue loans previously obtained by the applicant, as well as information on whether the applicant acts as a guarantor on any other loans;

5) there are necessary documentary confirmations of the applicant's solvency (rights to ownership of assets generating the applicant's income, salary certificate from the place of work, patent, certificate, etc.), and an assessment of the applicant's solvency has been conducted, confirmed by the conclusion of a responsible credit specialist or employee in accordance with the credit policy and/or other internal documents of the MCC;

6) an Application Form for obtaining a loan by the applicant is provided, and in the Application Form for obtaining a loan, the purposes of using the microcredit must be indicated with corresponding calculations and forecasts;

7) the debt coverage ratio of the borrower, equal to the ratio of the borrower's total income to the monthly loan payment (principal and interest), must be at least 130 percent.

7.5. Establish the following indicators for MCCs:

7.5.1. The indicator of the maximum total size of funds borrowed from legal entities and founders (shareholders), at no more than 500 percent of the own capital.

This indicator also applies to MCCs engaged in wholesale lending and includes the following indicators:

• the indicator of the maximum total size of funds borrowed from founders (shareholders) - individuals, at no more than 100 percent of the own capital;

• the indicator of the maximum total size of funds borrowed from founders (shareholders) - legal entities, at no more than 100 percent of the own capital;

The interest rate on funds borrowed from founders (shareholders) must not exceed the National Bank's key rate by more than 5 percentage points.

7.6. For MCCs engaged in wholesale lending (apex institutions) and having obligations to creditors (including FCU), establish a capital adequacy (sufficiency) indicator.

The value of the capital adequacy (sufficiency) indicator M2 must be maintained at a level of at least 15%.

The capital adequacy indicator is determined by the formula:

M2 = OC / SA * 100%, where:

OC - own capital of an MCC on the assessment date;

SA - total balance sheet assets on the assessment date minus the sum of deposits placed in financial and credit institutions as collateral in the amount of attracted funds in national currency for the purpose of hedging currency risks.

7.7. Calculation of the own capital of an MCC (on the assessment date) is carried out based on the following indicators:

• paid-up authorized capital (cost of ordinary and preferred shares, or equity capital);

• capital contributed above par (for joint-stock companies);

• additional capital contributed by individuals and legal entities;

• reserves for future needs;

• undistributed profit/losses of previous years;

• current year losses;

• minus investments in capital (shares, equity participation) of other microfinance organizations, leasing companies, and banks.

At the same time, investments in capital (shares, equity participation) are understood as the balance of actually invested funds in the capital of MFOs, leasing companies, and banks.

7.8. An MCA issues microcredits (secured and unsecured microcredits) in national currency from its own funds and borrowed funds, including from financial and credit institutions and/or international financial organizations, on terms agreed with the borrower in accordance with the statutory goals of the non-profit organization determined by the participants of the microcredit agency.

7.8.1. The maximum total size of a microcredit issued by a microcredit agency to the same borrower or group of related persons must be determined at no more than 50 thousand som, the effective interest rate on which must not exceed the National Bank's key rate at the time of loan issuance by more than 5 percentage points.

7.9. An MCC/MCA must conduct office work in the state and/or official languages. All internal documents, including contracts, agreements with counterparties, must be drawn up in the state or official languages. At the same time, the conclusion of contracts with counterparties in the state and/or official and in foreign languages, having equal legal force, is permitted. Drawing up contracts in a foreign language is permitted only if there is a certified translation into the state or official language in the established manner.";

• in the Appendix in the table "Form for compliance with economic indicators for MFCs licensed by the National Bank":

replace the words "at least 18%" with the words "at least 8%";

supplement the table with the thirteenth paragraph of the following content:

"

Maximum total size of funds borrowed from legal entities and founders (shareholders)				no more than 500%

";

• add a paragraph of the following content:

"SZ - total size of funds borrowed from legal entities and founders (shareholders)".

2. Make the following amendments and additions to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation "On the periodic regulatory report of a microcredit company/microcredit agency and pawnshop" and the Regulation "On the periodic regulatory report of a microfinance company" dated May 27, 2009 No. 25/3:

in the Regulation "On the periodic regulatory report of a microfinance company", approved by the aforementioned resolution:

• in Appendix 2:

1) Section 1. "Regulatory report on financial status" in the article "17 Received loans" of the subsection "B. Liabilities" after the line "17-4. including in foreign currency"; add lines 17-5. - 17-6." of the following content:

"17-5. Funds borrowed by an MFC from legal entities and founders (shareholders)

17-6. including in foreign currency";

2) Section 1. "Regulatory report on financial status" subsection "G. Breakdown of liabilities" after the line "5. Funds borrowed by an MFC from founders (shareholders) - legal entities" add the line "6" of the following content:

"6. Funds borrowed by an MFC from legal entities and founders (shareholders)";

3) Section 2. "Report on total income" subsection "B. Interest expenses" after the line "11-2. Interest expense on funds borrowed by an MFC from founders (shareholders) - legal entities" add the line "11-3." of the following content:

"11-3. Interest expense on funds borrowed by an MFC from legal entities and founders (shareholders)";

4) Section 6 subsection "Liabilities" subsection "6.A. Sensitivity analysis of assets and liabilities to interest rate changes (GAP_ANALYSIS)" in the article "9. Loans received:" after the line "including in foreign currency" add the line "9-2. Liabilities on funds borrowed by an MFC from founders (shareholders) - legal entities" with the line "9-3." of the following content:

"9-3 Liabilities on funds borrowed by an MFC from legal entities and founders (shareholders)

including in foreign currency";

5) In Section 10 "Information on compliance with economic indicators" subsection "Economic indicators for MFCs not attracting deposits" is formulated in the following edition:

"

Economic indicators for MFCs not attracting funds
Minimum size of authorized capital				at least 100%
Maximum total size of investments				no more than 30%
Maximum size of financing issued to the same person, MFCs engaged in wholesale financing				no more than 20%
Maximum total size of funds borrowed from founders (shareholders) - individuals				no more than 100%
Maximum total size of funds borrowed from founders (shareholders) - legal entities				no more than 100%
Maximum total size of funds borrowed from legal entities and founders (shareholders)				no more than 500%

";

in Appendix 2 to the Regulation "On the periodic regulatory report of a microcredit company/microcredit agency", approved by the aforementioned resolution:

1) Section 1 "Regulatory report on financial status" subsection "Liabilities" after the line "21-2 Funds borrowed by an MCC from founders (shareholders) - legal entities" add the line "21-3 "of the following content:

"21-3 Funds borrowed by an MCC from legal entities and founders (shareholders)";

2) Section 6. "Disclosure" subsection "A. Obligations" after the line "2-2 Funds borrowed by MKCs from founders (shareholders) - legal entities" add the line "2-3" as follows:

"2-3 Funds borrowed by MKCs from legal entities and founders (shareholders)";

3) Section 7. "Information on compliance with economic standards" after the line "Maximum total amount of funds borrowed by MKCs from founders (shareholders) - legal entities" add lines as follows:

"| | | | | | |

---	---	---	---	---	---
Maximum total amount of funds borrowed by MKCs from legal entities and founders (shareholders)				Not more than 500%
MKC capital adequacy ratio	M2			Not more than 15%

"; add paragraphs as follows:

"SZ - total amount of funds borrowed from legal entities and founders (shareholders)";

3. Make the following changes to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On the new edition of the Rules for regulating the activities of credit unions in the Kyrgyz Republic" dated May 4, 2005 No. 14/2:

in the Rules for regulating the activities of credit unions in the Kyrgyz Republic, approved by the aforementioned resolution:

• rephrase the third paragraph of point 4.3 as follows:

"b) for credit unions possessing a license to attract deposits (deposits) from credit union participants - not less than 2,000,000 (two million) som."

4. Make the following additions and changes to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On approving the new edition of the Regulation "On the classification of assets and corresponding allocations to the reserve for covering potential losses and damages" dated July 21, 2004 No. 18/3:

in the Regulation "On the classification of assets and corresponding allocations to the reserve for covering potential losses and damages", approved by the aforementioned resolution:

• recognize the fifth paragraph in point 5.1.3. as having lost force;

• add a point as follows:

"7.1.-1. Re-structured loans must be immediately classified as "substandard" until the conditions specified in point 7.1 are confirmed."

5. Make the following changes and additions to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On approving the Rules for regulating the activities of microfinance companies carrying out operations in accordance with Islamic principles of banking and finance" dated May 30, 2014 No. 24/11:

• rephrase the title of the resolution as follows:

"On approving the "Rules for regulating the activities of microfinance organizations carrying out operations in accordance with Islamic principles of banking and finance";

in the Rules for regulating the activities of microfinance companies carrying out operations in accordance with Islamic principles of banking and finance, approved by the aforementioned resolution:

• rephrase the title as follows:

"Rules for regulating the activities of microfinance organizations carrying out operations in accordance with Islamic principles of banking and finance";

• in point 1:

replace the words "microfinance companies" with "microfinance organizations";

replace the words "(hereinafter - microfinance companies/MFCs)" with "(hereinafter - MFOs)";

• in points 2, 6, 7, replace the words "microfinance companies", "MFCs" with "microfinance organizations" in the appropriate cases;

• rephrase point 3 as follows:

"3. Microfinance organizations, in order to comply with the economic standards specified in these Rules and to reduce risks, may establish internal limits for economic standards in their internal policies, which must be lower than the maximum and higher than the minimum limits established by the National Bank.";

• recognize point 4. as having lost force;

• rephrase point 5 as follows:

"5. Permitted types of transactions (contracts) of MFOs for placing and attracting funds (if specified in the license) in accordance with Islamic principles of banking and finance are carried out in accordance with standard contracts approved by the Shariah Council and the requirements of the regulatory legal acts of the National Bank.";

• rephrase point 8 as follows:

"8. MFOs conduct internal audits to verify the accuracy of accounts, assess the adequacy and effectiveness of their internal control system, and ensure compliance with the regulatory legal acts of the Kyrgyz Republic. For this purpose, a microfinance company (hereinafter - MFC) is obliged, and a microcredit company (hereinafter - MKC) and microcredit agency (hereinafter - MKA) may create their own internal audit service.";

• add points 8-1, 8-2 as follows:

"8-1. Systemically important MFOs are those that have systemic significance for the microfinance sector. Criteria for systemic significance are determined by the regulatory legal acts of the National Bank. A special regulatory and supervisory regime established by the National Bank applies to systemically important MFOs.

8-2. For the purposes of these Rules, wholesale financing refers to assets carrying credit risk provided by Financial Credit Unions (FKU) for subsequent financing of clients under a "murabaha" transaction, in compliance with principles and conditions corresponding to Shariah standards, for the purpose of promoting financial services in regions and supporting entrepreneurial activity.

An MFO engaged in wholesale financing is understood to be an MFO in which the share of wholesale financing exceeds 70 percent of its financing portfolio.";

• in point 9:

rephrase the fifth paragraph as follows:

"- the maximum total amount of financing provided to the same client or a group of related persons, in an amount not exceeding three percent of the minimum authorized capital established by the National Bank for a newly created MFO (not attracting funds from individuals and legal entities), taking into account the provisions of point 10 of these Rules.";

• recognize the sixth paragraph as having lost force;

• add a paragraph as follows:

"- for MFOs engaged in wholesale financing, the maximum total amount of financing issued to the same client or a group of related persons must not exceed 20 percent of the size of own capital.";

• rephrase point 10 as follows:

"10. Providing financing exceeding the maximum total amount of financing provided by an MFO to the same client or a group of related persons, established by point 9 of these Rules, with the exception of MFOs that accept funds from individuals and legal entities and/or engage in wholesale financing, is permitted for the purpose of expanding/developing existing business, including creating additional jobs, in accordance with Article 2 of the Law "On Microfinance Organizations in the Kyrgyz Republic", in the following financing directions:

• trade;

• agriculture (including crop production, livestock breeding, harvesting/processing of agricultural products);

• services;

• transport;

• industry;

• ijara muntahia bitamlik;

• construction.

When providing financing by microfinance companies in the directions specified in this paragraph, the following conditions must be met:

1) the microfinance company must have a developed financing policy in accordance with the goals and objectives of microfinance, specifying specific types of products and the procedure for subsequent monitoring of the targeted use of the provided financing;

2) the amount of provided financing, subject to the established conditions, must not exceed three million som (or equivalent in foreign currency);

3) there is information from the Credit Information Bureau (CIB) regarding the client's credit history;

4) there are necessary documentary confirmations of the client's solvency (rights to assets generating the client's income, salary certificate from the client's workplace, patent, certificate, etc.), and an assessment of the client's solvency has been conducted, confirmed by the conclusion of a responsible financing specialist or another MFO employee in accordance with the financing policy and/or other internal documents of the MFO;

5) a Client Application Form for obtaining financing is provided, and in the Application Form for obtaining financing, the purposes of use of the provided financing must be indicated with corresponding calculations and forecasts;

6) the client's debt coverage ratio, equal to the ratio of the client's total income to the monthly contribution for the asset carrying credit risk (on the principal amount and markup), must be at least 130 percent.";

• rephrase point 11 as follows:

"11. MFOs must comply with the corresponding requirements for the minimum size of authorized capital and the conditions for its formation, established in the Regulation "On licensing the activities of microfinance companies", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2015 No. 78/26 (hereinafter - the Regulation "On licensing the activities of microfinance companies").";

• in point 12:

rephrase the eighth paragraph as follows:

"- minus investments in capital (shares, equity participation) of other MFOs, leasing companies, and banks.";

• add a tenth paragraph as follows:

"In this case, investments in capital (shares, equity participation) refer to the balance of actually invested funds in the capital of MFOs, leasing companies, and banks.";

• in point 13:

rephrase the first and second paragraphs as follows:

"MFOs have the right to make investments in the capital of MFOs, leasing companies, and banks, the activities of which do not contradict Shariah standards. At the same time, MFO investments in MFOs, leasing companies, and banks must correspond to the goals of the MFO, defined by the Law "On Microfinance Organizations in the Kyrgyz Republic".

The maximum total amount of MFO investments (investments in capital (shares, equity participation), debt obligations, financial investments under ijara muntahia bitamlik transactions, and any other similar financial investments) in MFOs, leasing companies, and banks must not exceed 30 percent of the size of the MFO's own capital and is determined by the formula:";

• add a sixth paragraph as follows:

"When calculating this standard, financing provided to MFOs, leasing companies, and banks, in the capital (shares, equity participation) of which MFO investments are placed, is taken into account.";

• add points 13-1, 13-2, 13-3 as follows:

"13-1. Maximum total amount of funds borrowed from founders (shareholders) - individuals.

The maximum total amount of funds borrowed by an MFO, including those engaged in wholesale financing, from founders (shareholders) - individuals, must not exceed 100 percent of the size of own capital and is determined by the formula:

SZFL / SK * 100% ≤ 100%, where:

SZFL - total amount of funds borrowed by the MFO from founders (shareholders) - individuals, as of the assessment date;

SK - own capital of the MFO as of the assessment date (see point 12).

13-2. Maximum total amount of funds borrowed from founders (shareholders) - legal entities.

The maximum total amount of funds borrowed by an MFO, including those engaged in wholesale financing, from founders (shareholders) - legal entities, must not exceed 100 percent of the size of own capital and is determined by the formula:

SZYL / SK * 100% ≤ 100%, where:

SZYL - total amount of funds borrowed by the MFO from founders (shareholders) - legal entities, as of the assessment date;

SK - own capital of the MFO as of the assessment date (see point 12).

13-3. Maximum total amount of funds borrowed from legal entities and founders (shareholders).

The maximum total amount of funds borrowed by an MFO, including those engaged in wholesale financing, from legal entities and founders (shareholders), must not exceed 500 percent of the size of own capital and is determined by the formula:

SZ / SK * 100% ≤ 500%, where:

SZ - Total amount of funds borrowed by the MFO from legal entities and founders (shareholders), as of the assessment date;

SK - own capital of the MFO as of the assessment date (see point 12).

This standard includes the standards specified in subpoints 13-1, 13-2.";

• rephrase the first paragraph of point 15 as follows:

"15. Quarterly, no later than the twentieth day of the month following the reporting period, MFOs must submit to the National Bank information:

• on investments in capital (shares, equity participation) of other MFOs, leasing companies, and banks, indicating the list and size of investments in each of them;

• on the size of MFO investments (investments in capital (shares, equity participation), debt obligations, financial investments under ijara muntahia bitamlik transactions, and any other similar financial investments) in MFOs, leasing companies, and banks, indicating the list and size of investments in each of them, the calculation of the indicator specified in point 13;

• on the size of funds borrowed from founders (shareholders) - individuals, indicating the list of founders (shareholders) - individuals, the size of borrowings from each founder, the calculation of the indicator specified in point 13-1 of these Rules;

• on the size of funds borrowed from founders (shareholders) - legal entities, indicating the list of founders (shareholders) - legal entities, the size of borrowings from each founder, the calculation of the indicator specified in point 13-2 of these Rules.";

• add point 15-1 as follows:

"15-1. MFOs must conduct record-keeping in the state and/or official languages. All internal documents, including contracts, agreements with counterparties, must be drawn up in the state or official languages. At the same time, it is permitted to draw up contracts with counterparties in the state and/or official and in foreign languages, having equal legal force. Drawing up contracts in a foreign language is permitted only if there is a certified translation into the state or official language in the established manner.";

• recognize Chapter 3 as having lost force;

• rephrase point 22 as follows:

"22. MFOs having the right to carry out operations for attracting funds are obliged to comply with the economic standards 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 client (M3);

• liquidity ratio (M4);

• risk restriction ratio for the return of attracted funds (M5);

• maximum risk size for transactions with insiders and affiliated persons;

• maximum total debt of MFO employees to whom the MFO has provided financing for consumer purposes;

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

• size of investments in non-state debt securities;

• maximum total amount of funds borrowed from founders (shareholders) - individuals;

• maximum total amount of funds borrowed from founders (shareholders) - legal entities.";

• in point 27:

rephrase the fourth paragraph as follows:

"SZ - total client debt on provided financing (regardless of term), on ijara muntahia bitamlik transactions as of the assessment date;";

• add a sixth paragraph as follows:

"This standard does not apply to MFOs engaged in wholesale financing.";

• rephrase point 31 as follows:

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

1) MFOs have the right to make investments in the capital of MFOs, leasing companies, and banks, the activities of which do not contradict Shariah standards. At the same time, MFO investments in MFOs, leasing companies, and banks must correspond to the goals of the MFO, defined by the Law "On Microfinance Organizations in the Kyrgyz Republic".

2) The maximum total amount of MFO investments (investments in capital (shares, equity participation), debt obligations, financial investments under ijara muntahia bitamlik transactions, and any other similar financial investments) in MFOs, leasing companies, and banks must not exceed 30 percent of the size of the MFO's own capital and is calculated in accordance with point 13 of these Rules.

When calculating this standard, financing provided to MFOs, leasing companies, and banks, in the capital (shares, equity participation) of which MFO investments are placed, is taken into account.";

• add points 32-1, 32-2 as follows:

"32-1. Maximum total amount of funds borrowed from founders (shareholders) - individuals.

MFOs have the right to borrow funds from founders (shareholders) of individuals.

The maximum total amount of funds borrowed by an MFO from founders (shareholders) - individuals must not exceed 100 percent of the size of the MFO's own capital and is determined by the formula:

SZFL / SK * 100% ≤ 100%, where:

SZFL - total amount of funds borrowed by the MFO from founders (shareholders) - individuals as of the assessment date;

SK - own capital of the MFO as of the assessment date (see point 12).

32-2. Maximum total amount of funds borrowed from founders (shareholders) - legal entities.

MFOs have the right to borrow funds from founders (shareholders) of legal entities.

The maximum total amount of funds borrowed by an MFO from founders (shareholders) - legal entities must not exceed 100% of the size of the MFO's own capital and is determined by the formula:

SZYL / SK * 100% ≤ 100%, where:

SZYL - total amount of funds borrowed by the MFO from founders (shareholders) - legal entities as of the assessment date;

SK - own capital of the MFO as of the assessment date (see point 12).";

• rephrase point 35 as follows:

"35. Monthly, no later than the twentieth day of the month following the reporting period, MFOs must submit to the National Bank "Information on compliance with economic standards" according to the Appendix to these Rules, indicating:

• the list and size of investments in capital (shares, equity participation) of other MFOs, leasing companies, and banks;

• the list and size of MFO investments (investments in capital (shares, equity participation), debt obligations, financial investments under ijara muntahia bitamlik transactions, and any other similar financial investments) in other MFOs, leasing companies, and banks;

• the size of funds borrowed from founders (shareholders) - individuals, indicating the list of founders (shareholders) - individuals, the size of borrowings from each founder, the calculation of the indicator specified in the third paragraph of point 32-1 of these Rules;

• the size of funds borrowed from founders (shareholders) - legal entities, indicating the list of founders (shareholders) - legal entities, the size of borrowings from each founder, the calculation of the indicator specified in the third paragraph of point 32-2 of these Rules.";

• add Chapter 7 as follows:

"Chapter 7. Regulation of the activities of microcredit companies and microcredit agencies

39. MKCs or MKAs do not have the right to issue securities, except for shares issued by MKCs in the form of joint-stock companies, nor do they have the right to carry out other banking operations not provided for by Article 33 of the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic", with the exception of ijara muntahia bitamlik transactions.

40. The maximum total amount of financing issued by an MKC to the same person or a group of related persons must be determined at an amount not exceeding ten percent of the minimum authorized capital established by the National Bank for a newly created MKC.

41. For MKCs engaged in wholesale financing, the maximum total amount of financing issued to the same client or a group of related persons must not exceed twenty percent of the size of own capital.

42. Issuing financing exceeding the maximum total amount of financing issued by a microcredit company to the same client or a group of related persons, established by point 41 of these Rules, with the exception of MFOs engaged in wholesale financing, is permitted for the purpose of expanding/developing existing business, including creating additional jobs, in accordance with Article 2 of the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic", in the following financing directions:

• trade;

• agriculture (including crop production, livestock breeding, harvesting/processing of agricultural products);

• services;

• transport;

• industry;

• ijara muntahia bitamlik (provision of equipment, agricultural machinery);

• construction.

When issuing financing by MKCs in the directions specified in the first paragraph of this point, the following conditions must be met:

1) the MKC must have a developed financing policy in accordance with the goals and objectives of microfinance, specifying specific types of products and the procedure for subsequent monitoring of the targeted use of the provided financing;

2) the amount of such financing, subject to the established conditions, must not exceed 1,000,000 (one million) som, with the exception of financing under ijara muntahia bitamlik transactions;

3) the maximum total amount of financing under ijara muntahia bitamlik transactions must not exceed 10 percent of own capital;

4) there must be relevant information from the Credit Information Bureau (hereinafter - CIB) regarding the applicant's credit history, including on overdue financings previously obtained by the applicant, as well as information on whether the applicant acts as a guarantor for any other financings;

5) there must be necessary documentary confirmations of the applicant's solvency (rights to assets generating the applicant's income, salary certificate from the workplace, patent, certificate, etc.), and an assessment of the applicant's solvency must be conducted, confirmed by the conclusion of a responsible financing specialist or employee in accordance with the financing policy and/or other internal documents of the MKC;

6) a Client Application Form for obtaining financing must be provided, and in the Application Form for obtaining financing, the purposes of use of the financing must be indicated with corresponding calculations and forecasts;

7) the client's debt coverage ratio, equal to the ratio of the client's total income to the monthly contribution for the asset carrying credit risk (on the principal amount and markup), must be at least 130 percent.

43. Establish the following standards for MKCs:

---"

43.1. The maximum total size of funds borrowed from legal entities and founders (shareholders) shall not exceed 500 percent of own capital.

This ratio also applies to MKKs engaged in wholesale financing and includes the following:

• the maximum total size of funds borrowed from founders (shareholders) - individuals, at a level not exceeding 100 percent of own capital;

• the maximum total size of funds borrowed from founders (shareholders) - legal entities, at a level not exceeding 100 percent of own capital.

The interest rate on funds borrowed from founders (shareholders) shall not exceed the National Bank's key rate by more than 5 percentage points.

44. For MKKs engaged in wholesale financing and having obligations to creditors (including FCU), establish a capital adequacy (sufficiency) ratio.

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

The capital adequacy ratio is determined by the formula:

M2 = CK / SA * 100%, where:

CK - own capital of the MKK on the assessment date;

SA - sum of balance sheet assets on the assessment date minus the sum of attracted cash funds from clients (deposits) placed in financial and credit institutions as collateral in the amount of attracted funds in national currency for the purpose of hedging currency risks.

45. Calculation of the own capital of the MKK (on the assessment date) shall be carried out based on the following indicators:

• paid-up share capital (cost of ordinary and preferred shares, or equity capital);

• capital contributed in excess of par (for joint-stock companies);

• additional capital contributed by individuals and legal entities;

• reserves for future needs;

• undistributed profit/losses of previous years;

• losses of the current year;

• minus investments in capital (shares, equity participation) of other MFIs, leasing companies, and banks.

In this case, investments in capital (shares, equity participation) refer to the balance of actually invested funds in the capital of MFIs, leasing companies, and banks.

46. MKA carries out lending (secured and unsecured lending) in national currency from its own and borrowed funds, including from financial and credit institutions and/or international financial organizations on terms agreed with the client in accordance with the statutory goals of the non-profit organization determined by the participants of the microcredit agency.

47. The maximum total size of lending provided by MKA to the same client or group of related persons shall be determined at a level of not more than 50 thousand soms, the effective interest rate on which shall not exceed the National Bank's key rate at the time of lending by more than 5 percentage points.

48. MKK/MKA must conduct office work in the state and/or official languages. All internal documents, including contracts, agreements with counterparties, must be drawn up in the state or official languages. At the same time, it is permitted to draw up contracts with counterparties in the state and/or official and in foreign languages, having equal legal force. Drawing up contracts in a foreign language is permitted only in the presence of a certified translation into the state or official language in the established manner.

• in the Appendix:

the name of the Appendix shall be redacted as follows:

"Information on the implementation of economic ratios for MFCs licensed by the National Bank";

• the eighth line of the table shall be recognized as having lost force;

• in the ninth line, the words "Maximum total size of investments in MFIs and banks" shall be replaced with the words "Maximum total size of investments in MFIs (1), leasing companies and banks";

• the table shall be supplemented with lines twelfth, thirteenth, and fourteenth of the following content:

"| | | | | | |

---	---	---	---	---	---
Maximum total size of funds borrowed from founders (shareholders) - individuals				not more than 100%
Maximum total size of funds borrowed from founders (shareholders) - legal entities				not more than 100%
Maximum total size of funds borrowed from legal entities and founders (shareholders)				not more than 500%

";

• the third paragraph after the table shall be recognized as having lost force;

• the fourth paragraph after the table shall be redacted as follows:

"SI - total investments in MFIs, leasing companies and banks;";

• supplemented with a sixth paragraph of the following content:

SZ - Total size of funds borrowed by MFCs from legal entities and founders (shareholders);

6. Make the following changes to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulations of the National Bank of the Kyrgyz Republic" dated October 17, 2014 No. 45/1:

in the Regulation "On Periodic Regulatory Reporting of Microfinance Companies Carrying Out Operations in Accordance with Islamic Principles of Banking and Financing", approved by the aforementioned Resolution:

• in Appendix 1:

in line 14 of the table "Composition of PR of MFCs Carrying Out Operations in Accordance with Islamic Principles of Banking and Financing", the words "Temporary Rules for Regulating the Activities of MFCs" shall be replaced with the words "Rules for Regulating the Activities of Microfinance Organizations Carrying Out Operations on Islamic Principles of Banking and Financing";

• in Appendix 2:

in section 1. "Regulatory Report on Financial Status":

Article 19. "Financing Provided by Founders/Shareholders" shall be redacted as follows:

"19. Financing provided to MFCs by founders (shareholders) - individuals";

• supplemented with Articles 19-1, 19-2, 19-3, 19-4, 19-5 of the following content:

"19-1. including in foreign currency.

19-2. Financing provided to MFCs by founders (shareholders) - legal entities

19-3. including in foreign currency.

19-4. Funds borrowed by MFCs from legal entities and founders (shareholders)

19-5. including in foreign currency";

• the table in subsection E. "Breakdown of Liabilities" shall be redacted as follows:

"E. Breakdown of Liabilities

	Sum of Funds Received	Term for Which Obligations Were Received		Sum of Paid Funds Received	Sum of Gratuitous Funds Received	Creditor	Condition
		min.	max.
1	2	3		4	5	6	7
1. Financing Received
a) from banks of KR
b) from other FCUs of KR
c) from international financial organizations and donors
d) from international FCUs
e) from state authorities
2. Conditional Grants
3. Other Liabilities
4. Funds borrowed by MFCs from founders (shareholders) - individuals
5. Funds borrowed by MFCs from founders (shareholders) - legal entities
6. Funds borrowed by MFCs from legal entities and founders (shareholders)
TOTAL

";

• in subsection "B. Expenses Incurred on Operations" of section 2. "Report on Comprehensive Income", supplemented with Articles 11-1 - 11-3 of the following content:

"11-1. Expenses on financing provided to MFCs by founders (shareholders) - individuals

11-2. Expenses on financing provided to MFCs by founders (shareholders) - legal entities

11-3. Expense on funds borrowed by MFCs from legal entities and founders (shareholders)";

• subsection "6.A. Sensitivity Analysis of Assets and Liabilities to Changes in Yield Rates (GAP_ANALYSIS)" of section 6, supplemented with Articles 9-1 - 9-3 of the following content:

"9-1. Obligations on financing provided by founders (shareholders) - individuals

including in foreign currency;

9-2. Obligations on financing provided by founders (shareholders) - legal entities

including in foreign currency";

9-3. Obligations on funds borrowed by MFCs from legal entities and founders (shareholders)

including in foreign currency";

• section 10 "Information on Compliance with Economic Ratios" shall be redacted as follows:

"Section 10. Information on Compliance with Economic Ratios

Name of Economic Ratios and Requirements	Designation	Ratio Calculation	Actual Value of Ratio	Established Value of Ratio	Deviation from Established Ratio
Economic Ratios for MFCs Not Attracting Cash Funds
Minimum Size of Share Capital				not less than 100%
Maximum Total Size of Investments				not more than 30%
Maximum Size of Lending Provided to the Same Person, MFCs Engaged in Wholesale Financing				not more than 20%
Maximum Total Size of Funds Borrowed from Founders (Shareholders) - Individuals				not more than 100%
Maximum Total Size of Funds Borrowed from Founders (Shareholders) - Legal Entities				not more than 100%
Maximum Total Size of Funds Borrowed from Legal Entities and Founders (Shareholders)				not more than 500%
Economic Ratios for MFCs Attracting Cash Funds
Minimum Size of Own Capital Ratio	M1			not more than 100%
Capital Adequacy Ratio	M2			not less than 8%
Maximum Risk Size per Client Ratio	M3			not more than 5%
Liquidity Ratio	M4			not less than 30%
Risk Restriction Ratio on Return of Attracted Cash Funds to Accounts	M5			not less than 100%
Maximum Risk Size on Transactions with Affiliated Persons				not more than 60%
Total Debt of MFC Employees				not more than 5%
Maximum Total Size of Funds Borrowed from Founders (Shareholders) - Individuals				not more than 100%
Maximum Total Size of Funds Borrowed from Founders (Shareholders) - Legal Entities				not more than 100%

Average Values for the Reporting Period	1 month	2 month	3 month	Total
LA - Liquid Assets				0
OB - Liabilities				0
Ratio M4=LA/OB	0,0%	0,0%	0,0%

";

• subsection "Information on Financing Conditions" of section 11 "Information on Financing Provided to Clients", supplemented with the sixth line of the following content:

"Maximum Size of Lending Provided to the Same Person";

in the Regulation "On Periodic Regulatory Reporting of Microcredit Companies and Microcredit Agencies Carrying Out Operations in Accordance with Islamic Principles of Banking and Financing", approved by the aforementioned Resolution:

• in Appendix 1, the table "Composition of PR of MKKs and MKAs Carrying Out Operations in Accordance with Islamic Principles of Banking and Financing" shall be supplemented with line "11" of the following content:

"| | | | | |

---	---	---	---	---
11	Section 7	Information on Compliance with Economic Ratios of MKK	Annually	by February 1 of the year following the reporting year
Quarterly	within 20 calendar days following the reporting period

";

• in Appendix 2, in section 1 "Regulatory Report on Financial Status":

• subsection B. "Liabilities and Capital" shall be supplemented with lines 7-1, 7-2, 7-3 of the following content:

"7-1 Funds borrowed by MKK from founders (shareholders) - individuals

7-2 Funds borrowed by MKK from founders (shareholders) - legal entities

7-3 Funds borrowed by MKK from legal entities and founders (shareholders)";

• the table in Subsection 6 A. "Liabilities" shall be redacted as follows:

"| | | | | | | | |

---	---	---	---	---	---	---	---
	Sum of Funds Received	Term for Which Obligations Were Received		Sum of Paid Funds Received	Sum of Gratuitous Funds Received	Creditor	Condition
		min.	max.
1	2	3		4	5	6	7
1. Financing Received
a) from banks and other FCUs of KR
b) from international donor organizations
c) from other financing sources
2. Subordinated Debt Obligations
3. Funds borrowed by MKK from founders (shareholders) - individuals
4. Funds borrowed by MKK from founders (shareholders) - legal entities
5. Funds borrowed by MKK from legal entities and founders (shareholders)
6. Other
TOTAL

Head of Executive Body	______ Full Name	______ Signature
Chief Accountant	______ Full Name	______ Signature
M.P.

";

• Appendix 2 shall be supplemented with section 7 of the following content:

"Section 7. Information on Compliance with Economic Ratios

Name of Economic Ratios and Requirements	Designation	Ratio Calculation	Actual Value of Ratio	Established Value of Ratio	Deviation from Established Ratio
ECONOMIC RATIOS FOR MKK
Maximum Total Size of Funds Borrowed by MKK from Founders (Shareholders) - Individuals				not more than 100%
Maximum Total Size of Funds Borrowed by MKK from Founders (Shareholders) - Legal Entities				not more than 100%
Capital Adequacy Ratio of MKK	M2			Not more than 15%
Maximum Total Size of Funds Borrowed by MKK from Legal Entities and Founders (Shareholders)				Not more than 500%

SZFL - total size of funds borrowed by MKK from founders (shareholders) - individuals;

SZYL - total size of funds borrowed by MKK from founders (shareholders) - legal entities;

SZ - Total size of funds borrowed by MFCs from legal entities and founders (shareholders);

CK - own capital of MKK.

Head of Executive Body	______ Full Name	______ Signature
Chief Accountant	______ Full Name	______ Signature
M.P.

".

7. Make the following changes to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the "Rules for Regulating the Activities of Credit Unions Carrying Out Operations on Islamic Principles of Banking and Financing" dated July 16, 2014 No. 32/5:

in the "Rules for Regulating the Activities of Credit Unions Carrying Out Operations on Islamic Principles of Banking and Financing", approved by the aforementioned Resolution:

• in sub-item 3 of item 5:

the word "equity" shall be excluded;

in the third paragraph, the words "five hundred thousand" shall be replaced with the words "two million".