POLICY AND REGULATIONS POLICY AND REGULATIONS FOR MICROFINANCEFOR MICROFINANCE

Mtchaisi ChintengoMtchaisi ChintengoReserve Bank of Malawi Reserve Bank of Malawi

atat Legal and Regulatory Workshop Legal and Regulatory Workshop

Outline Outline

Highlights of Microfinance ActMicrocredit Agencies:

Licensing and entry requirements Reporting requirements

Non-Deposit MFIs Licensing and entry requirements Reporting requirements

Compliance and EnforcementExit Administration

Highlights of Microfinance Highlights of Microfinance ActActThe following are exempt from

the provisions of the Act (S4) SACCOs Small member based institutions Those below threshold to be

determined by the Registrar

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Microfinance Service Providers have to be (5): Registered as a microcredit agency; or Licensed as a non-deposit taking MFI; or Licensed as a deposit taking MFI; or Approved licensed financial institution.

Microfinance Service Providers shall not engage in any other business other than the business specified on certificate/licence (s8)

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Microfinance Service Providers shall conduct business at place specified on licence/certificate (s9)

Change/ closing of place of business requires giving prior notice to Registrar

A Microfinance Service Providers whose licence/certificate/approval is suspended or revoked shall not continue top conduct any microfinance business (s12)

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A microfinance institution has as its primary funtion the provision of microfinance services i.e. no more than

MCAs DirectiveMCAs Directive

Rationale – establish requirements for registration; supervision; and minimum market conduct

Objectives:To register MCAsTo ensure adherence to high standards

of market conduct

MCAs Registration MCAs Registration Requirements Requirements

Legal status – not restrictedApplication – Schedule 1Viable business planClean CVs for chief executive/directorsResolution of parent company – foreign

owned onlyBy-laws reflecting corporate governance

– how to appoint directors/senior management

Application fees of K50,000 – non-refundable

Supervision of MCAs Supervision of MCAs

Reporting: Biannual reports (Schedule II) –

qualitative/financial reports within 6 weeks after half year

Audited (by certified auditor) annual accounts – 4 months after end of year

MCAs to apply for licence as non-deposit taking upon attaining: Assets worth K100.0 millionAnnual turnover of K300.0 million

Other Directives may be introduced

Non-Deposit Taking Non-Deposit Taking DirectiveDirectiveRationale – establish

requirements for licensing; supervision; and minimum market conduct standards

Objectives:To license all NDTIsTo ensure adhere to high standards

of market conduct and corporate governance

NDTIs Licensing NDTIs Licensing Requirements Requirements Legal status – restricted to

companies (guarantee or shares) Capital or guarantee of K75.0 million Application supported by:

• Business plan - scope of operations, description and rationale of services and capacity;

• Projected balance sheet and income statement for 3 years stating assumptions basing on feasibility analysis;

• Written risk management systems; and• Name and address of applicant’s auditors. 

NDTIs Application SupportNDTIs Application Support

Clean CVs for CEO, directors, as well as shareholders information;

In case of foreign-owned: Consent letter from shareholders’ home

supervisory authority allowing applicant to invest in Malawi; and

Resolution of the applicant approving establishment of subsidiary in Malawi

 A memorandum of association and articles of association or byelaws – focusing corporate governance; and

 Non-refundable application fee of K100,000

NDTIs SupervisionNDTIs Supervision

Reporting:Quarterly reports of operations (Schedule II) - not

later than 6 weeks after the end of each quarter; and

audited annual accounts – 4 months after year end

Prudential supervision:Asset base of K500 million; orAnnual revenues in excess of K600 million

To comply with directives for prudentially-regulated MFIs !!!

NDTIs Compliance MattersNDTIs Compliance Matters

Minimum governance standards: Management comprising a CEO and at least 1

other senior officer, e.g. chief financial officer or head of operation; and

Minimum qualification of diploma in relevant fields plus at least 3 years experience in financial sector

An NDTI to:Establish internal audit unit or committee; and Appoint external auditor

Other directives to be introduced as we go

Cross-Cutting Compliances: Cross-Cutting Compliances: MCAs and NDTIsMCAs and NDTIsInspection of books of account and

recordsReporting to credit reference bureausAccessing credit report to ascertain

credit status of loan applicantsReporting suspicious transactions to FIUMaintaining confidentiality of dealings

and relation with clientsExceptional disclosure granted when

required by law, court order or Registrar

More Cross-Cutting More Cross-Cutting CompliancesCompliances

Transparent pricing:Disclosures – prices, other charges, insurance

premiums, loan processing fees, etc.Collateral requirements – savings, assets

Take-home pay requirement as per Employment Act

Interest calculation basing on reducing balance method – straight line method outlawed!!

Partial or total loan prepayment allowed – penalties, if any, to be described in contract

Compulsory savings allowed - but not for intermediation!!!

More Cross-cutting More Cross-cutting CompliancesCompliances

Display registration certificate/licence, interest rates/other charges, rights and obligations, etc.

Penalties for offences, e.g. late submission of returns, other non-compliances

Complaints resolution Complaint receiving channel – designate staff Complaint resolution – designate staff or committee

to investigate and resolve issues with clients Open register of complaints and resolutions Report to Registrar resolved/unresolved complaints Advise clients to report unresolved complaints to

Registrar

Challenges of MFI Challenges of MFI SupervisionSupervision

Human capacity – skills, knowledge, etc.

Management information systemsOperational infrastructure, e.g.

computers, network, electricity, etc.High default, high operating expensesCompliance – governance,

prudential, etcFear of the Invisible Hand - Registrar

Other Thoughts to Reflect Other Thoughts to Reflect onon

Possible membership of money-lending institutions – institutionalization and enhancement of best practices in industry

Industry imageResource mobilization – financial

strengthening of NetworkDownscaling of banks – threat or

complementary??

Thank you for your attention

Questions/Comments?