Special Rule for the Application of Law No. 716, Special Law for the Establishment of Basic Conditions and Guarantees for the Renegotiation of Debts Between Microfinance Institutions and Defaulting Debtors

1 Resolution No. CD-SIBOIF-626-2-MAY6-2010 Dated May 6, 2010 SPECIAL RULE FOR THE APPLICATION OF LAW No 716, SPECIAL LAW FOR THE ESTABLISHMENT OF BASIC CONDITIONS AND GUARANTEES FOR THE RENEGOTIATION OF DEBTS BETWEEN MICROFINANCE INSTITUTIONS AND DEFAULTING DEBTORS

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING I That Article 3, numeral 2) of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, establishes that it is within the authority of the Superintendence of Banks and Other Financial Institutions (Superintendence) to supervise, inspect, monitor, and audit the operation of all entities within its scope of action. II That Article 10 of the aforementioned Law No. 316, empowers the Board of Directors of the Superintendence to issue general norms that promote adequate, agile, modern, and practical supervision over the institutions subject to the supervision, inspection, monitoring, and audit of the Superintendence. III That Article 7 of Law No. 716, Special Law for the Establishment of Basic Conditions and Guarantees for the Renegotiation of Debts Between Microfinance Institutions and Defaulting Debtors, published in La Gaceta, Official Journal No. 67 of April 13, 2010, empowers the Superintendence of Banks and Other Financial Institutions (SIBOIF) to be the body responsible for ensuring compliance with the basic conditions and guarantees established in the aforementioned Law for the process of debt renegotiation between microfinance institutions and their corresponding debtors. Likewise, said article establishes that for the purpose of fulfilling its responsibility, SIBOIF may issue special general application regulations, aimed at establishing mechanisms and procedures that guarantee the normal and adequate development of the aforementioned renegotiation process.

In exercise of its powers,

HAS ISSUED

The following:

SPECIAL RULE FOR THE APPLICATION OF LAW No 716, SPECIAL LAW FOR THE ESTABLISHMENT OF BASIC CONDITIONS AND GUARANTEES FOR THE RENEGOTIATION OF DEBTS BETWEEN MICROFINANCE INSTITUTIONS AND DEFAULTING DEBTORS

2 CHAPTER I CONCEPTS, OBJECT, AND SCOPE

Article 1. Concepts.- For the exclusive purposes of applying the provisions contained in Law No. 716, Special Law for the Establishment of Basic Conditions and Guarantees for the Renegotiation of Debts Between Microfinance Institutions and Defaulting Debtors, and in this rule, the concepts indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings: a) Agricultural credit: Financing granted to natural or legal persons for the realization of agricultural or livestock production activities, including financing for the acquisition of rural real estate destined for such activities. b) Commercial credit: Financing granted to natural or legal persons with businesses involving the purchase and sale of all types of products. For the activity to be commercial, it must necessarily include intermediation, either with other intermediaries or directly with final consumers. Commercial credits include, among others, those credits granted to grocery stores, modules or sales sections in markets or shopping centers, hardware stores, wholesale merchants, sales of appliances, groceries, spare parts of all types, cosmetics, and miscellaneous goods in general. c) Debt: Obligation owed by the debtors regulated by this regulation, including principal and current interest. d) Debtor: Natural or Legal Person with a credit obligation in default as of June 30, 2009, with microfinance institutions whose business activity is commercial or agricultural. e) Microfinance institutions: Institutions referred to in Article 2 of the Law, subject to the Supervision of the Superintendence. f) Law: Law No. 176, Special Law for the Establishment of Basic Conditions and Guarantees for the Renegotiation of Debts Between Microfinance Institutions and Defaulting Debtors, published in La Gaceta, Official Journal No. 67 of April 13, 2010. g) MIFIC: Ministry of Development, Industry and Commerce. h) Superintendence: Superintendence of Banks and Other Financial Institutions. i) Superintendent: Superintendent of Banks and Other Financial Institutions.

Article 2. Object.- This rule establishes the deadlines, procedures, and other provisions for the application of the Law.

Article 3. Scope of Application.- For the application and effects of the Law, it shall be understood that its scope of application includes only agricultural and commercial debtors whose credits with microfinance institutions were in default as of June 30, 2009. Consequently, the following cases are excluded from the benefits of the Law: a) Debtors who fell into default starting from July 1, 2009. b) Debtors whose activities or origin of credit do not belong to the categories of commerce or agriculture. c) Debtors whose loans, at the time of the entry into force of the Law, had already been cancelled in cash or as a result of firm judicial adjudications or dations in payment of sufficient assets. d) Debtors who, having been in default as of June 30, 2009, subsequently regularized, restructured, extended, refinanced, or agreed to any other alternative or voluntary credit arrangement; regardless of whether they were in default at the time of the entry into force of the Law. e) Debtors who do not present themselves to voluntarily negotiate their defaulted debts within thirty days, from the entry into force of the Law. f) Debtors who do not demonstrate repayment capacity in the credit analysis performed on them. g) Those who do not present the guarantees originally assigned to the credit before restructuring or other guarantees of equal value.

CHAPTER II BASIC CONDITIONS AND GUARANTEES FOR RESTRUCTURINGS

Article 4. Request for renegotiation.- Debtors who voluntarily submit to the renegotiation process, without prejudice to being assisted as established in Article 3, numeral 3) of the Law, must request in writing and personally from the respective microfinance institution the renegotiation of their debts, attaching the documents they consider necessary for such purpose. The microfinance institution must acknowledge receipt of such requests, which it must deliver to the interested party, and may require additional documents for the analysis of such requests.

Article 5. Renegotiation.- As established in numerals 2) and 3) of Article 3 of the Law, the debtor may be assisted by another person in the capacity of advisor. The renegotiation of debts shall not be done collectively.

The renegotiation process must be carried out on a case-by-case basis, all in accordance with the repayment capacity presented by each debtor, supported by their projected cash flow for the new term and the agreed payment method, taking into account all debts that the debtor generally has at the time of renegotiation (including cleaned credits and credits granted by institutions not supervised by the Superintendence), as well as the adequate coverage of the guarantee.

3 Debtors who do not demonstrate repayment capacity in the credit analysis performed on them, or who do not present the adequate coverage of guarantees, shall not be able to restructure their debts.

Article 6. Deadlines for restructurings.- As established in Article 3, numeral 8) of the Law, microfinance institutions are empowered to negotiate and agree on terms longer than those provided in numeral 4) of the aforementioned article for the restructuring of debts; as well as to agree on shorter terms at the request of the debtor.

In both cases, the agreed terms shall be established based on the repayment capacity of each debtor.

Article 7. Grace Period.- The grace period established in numeral 4) of Article 3 of the Law is included within the general term for the cancellation of debts. The interest generated during said grace period shall be included in the payment schedule agreed upon between the debtor and the respective microfinance institution. The interest generated during the grace period must be paid within said period in the agreed periodicity.

Article 8. Dispensations.- As established in numeral 5) of Article 3 of the Law, all debts restructured as a consequence of the application thereof shall be fully dispensed from accumulated late interest. Likewise, legal and collection costs incurred by microfinance institutions for the recovery of the unpaid credit, and any other charge derived from the original credit, shall be fully dispensed. Excluded from such dispensation are the payment of accumulated current interest, value maintenance, appraisals of the guarantees offered by debtors for the renegotiation, legal costs of the restructuring, and the payment of fees, taxes, and tariffs for the registration of said guarantees in the corresponding Public Registries.

Article 9. Formalization of guarantees.- For the application and effects of Article 5 of the Law, and consequently, for the formalization of the credit restructuring, in case the debtor offers the original guarantees of the credit as backing for the renegotiation, these must have a current liquidation value equivalent to the value they originally had at the time of granting the credit. In case these guarantees cannot be presented by the debtor, they must return them or present others, located in the place of fulfillment of the obligation or at their domicile.

For the purposes of valuing guarantees, microfinance institutions shall be governed by the provisions of the regulation governing the matter on appraisers who provide services to institutions of the financial system.

Article 10. Suspension of legal actions.- By virtue of what is established in Article 6 of the Law, the following cases are excepted from the suspension of legal actions: a) When it concerns firm and executed or materialized sentences that declare the adjudication of assets in favor of the microfinance institution or a third party. b) When the debtor was not in default as of June 30, 2009.

c) When the debtor has not presented themselves personally or through a sufficient representative, explicitly and in writing manifesting their intention to restructure their debts, within the term of 30 days after the entry into force of the law object of this rule.

By virtue of what is established in the first paragraph of Article 8 of the Law, for all cases not included within the scope of application of the same or those that being included within its scope of application do not adhere to this renegotiation mechanism, the judicial route remains in full force without prejudice measures, judicial processes, or executions of sentences being suspended for them.

Likewise, in case of non-compliance with the terms and deadlines established in the Law and this rule, any judicial or prejudicial management may be reactivated.

Article 11. Classification of restructured credits.- Credits subject to restructuring according to the conditions established in the Law, shall be classified in the risk category that the credit had before the restructuring. Nevertheless, they may improve the classification up to category “A” according to the criteria stated in the Rule on Credit Risk Management for this type of credit, when: a) Restructured credits whose payment is agreed in equal and successive installments with a payment periodicity of thirty days or less, meet at least one of the following conditions:

1. Normal behavior in their payments of at least twelve (12) installments including principal plus interest, subsequent to the restructuring.
2. That an amount equivalent to twenty-five percent (25%) of the principal of the restructured credit has been paid. The restructured credit may be accounted as active, once the two conditions established in numerals 1) and 2), above, are met. b) Restructured credits whose payment is agreed in equal and successive installments with a periodicity greater than thirty days or in installments that are not equal nor successive, meet what is indicated in numeral 2) of literal a), above referred. The restructured credit may be accounted as active, once the condition established in this numeral is met.

If during the payment periods referred to in literals a) and b) of this article, the debtor shows non-compliance in the payment of the agreed installments and/or deterioration in their repayment capacity, the microfinance institution must proceed to reclassify the credit to a higher risk category.

CHAPTER III SUBMISSION OF REPORTS

Article 12. Reports to the Superintendence.- As established in Article 7 of the Law, microfinance institutions must send to the Superintendence via electronic means a simple copy of the restructuring agreements entered into with their debtors, no later than forty-eight (48) hours after the respective restructuring has been formalized.

Without prejudice to the information referred to in the previous paragraph, said institutions must maintain a record of all credits restructured, rejected, and paid in cash, subject to the Law, sending via electronic means to the Superintendence a consolidated monthly report to be presented no later than the third business day of the following month.

Such reports must contain, at minimum, the following: a) Restructured Credits:

| N° | Debtor Name | ID Number | Activity | Balance in default as of 30/06/2009 | Amount Restructured | Term | Payment Method | Branch | Up to US$10.0 thousand | Over US$10.0 thousand | TOTAL |

b) Rejected Credits:

| N° | Debtor Name | ID Number | Activity | Balance in default as of 30/06/2009 | Reason for Rejection | Branch | Up to US$10.0 thousand | Over US$10.0 thousand | TOTAL |

c) Total Cash Payments

| N° | Debtor Name | ID Number | Activity | Balance in default as of 30/06/2009 | Total Amount Paid in Cash | Branch | Up to US$10.0 thousand | Over US$10.0 thousand | TOTAL |

CHAPTER IV FINAL PROVISIONS

Article 13. Certifications to be issued by the Superintendence.- The certifications mentioned in Articles 7 and 8 of the Law must be issued by the Superintendent at the request of the interested party. For such purposes, the interested party must present a written request to the Superintendent including the following information: a) Debtor:

1. Natural Person: i. Full name of the debtor. ii. Copy of the power of attorney of the legal representative of the debtor, if applicable. iii. National Identity Card number, attaching a copy. iv. Name of the creditor microfinance institution. v. Summary containing the details justifying the request. vi. Any other document supporting the request.
2. Legal Person: i. Social name of the debtor. ii. Copy of the power of representation. iii. RUC number, attaching a copy. iv. Name of the creditor microfinance institution. v. Summary containing the details justifying the request. vi. Any other document supporting the request. b) Creditor microfinance institution:
3. Social name.
4. Copy of the power of representation.
5. RUC number, attaching a copy.
6. Name of the debtor.
7. Summary containing the details justifying the request.
8. Any other document supporting the request.

4

5

6

7

8

Article 14. Imposition of sanctions.- The sanctions provided for in Article 8 of the Law for supervised microfinance institutions, shall be imposed by the Superintendent in accordance with the regulation governing the matter on general imposition of fines issued by the Board of Directors of the Superintendence.

Article 15. Transitional.- No later than within five (5) days counted from the entry into force of this rule, microfinance institutions must send to the Superintendent a report detailing the potential impact of the total number of debtors and credit amounts that are subject to restructuring according to the Law.

Article 16. Validity.- This rule shall enter into force from its publication in a written medium of wide national circulation, without prejudice to its subsequent publication in La Gaceta, Official Journal.

(f) A. Rosales B (f) V. Urcuyo v. (f) Gabriel Pasos Lacayo (f) Fausto Reyes (f) Illegible (Silvio M. Casco Marenco) (f) U. Cerna B. Ad Hoc Secretary.

URIEL CERNA BARQUERO Secretary of the Board of Directors SIBOIF