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POLICY AND REGULATIONS FOR MICROFINANCE Mtchaisi Chintengo Reserve Bank of Malawi at Legal and Regulatory Workshop. Outline. Highlights of Microfinance Act Microcredit Agencies: Licensing and entry requirements Reporting requirements Non-Deposit MFIs Licensing and entry requirements

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  1. POLICY AND REGULATIONS FOR MICROFINANCEMtchaisi ChintengoReserve Bank of Malawi at Legal and Regulatory Workshop

  2. Outline • Highlights of Microfinance Act • Microcredit Agencies: • Licensing and entry requirements • Reporting requirements • Non-Deposit MFIs • Licensing and entry requirements • Reporting requirements • Compliance and Enforcement • Exit Administration

  3. Highlights of Microfinance Act • The following are exempt from the provisions of the Act (S4) • SACCOs • Small member based institutions • Those below threshold to be determined by the Registrar

  4. Highlights continued …… • 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)

  5. Highlights continued …… • 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)

  6. Highlights continued …… • A microfinance institution has as its primary funtion the provision of microfinance services i.e. no more than

  7. MCAs Directive • Rationale – establish requirements for registration; supervision; and minimum market conduct • Objectives: • To register MCAs • To ensure adherence to high standards of market conduct

  8. MCAs Registration Requirements • Legal status – not restricted • Application – Schedule 1 • Viable business plan • Clean CVs for chief executive/directors • Resolution of parent company – foreign owned only • By-laws reflecting corporate governance – how to appoint directors/senior management • Application fees of K50,000 – non-refundable

  9. 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 million • Annual turnover of K300.0 million • Other Directives may be introduced

  10. Non-Deposit Taking Directive • Rationale – establish requirements for licensing; supervision; and minimum market conduct standards • Objectives: • To license all NDTIs • To ensure adhere to high standards of market conduct and corporate governance

  11. NDTIs Licensing 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. 

  12. NDTIs 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

  13. NDTIs 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; or • Annual revenues in excess of K600 million To comply with directives for prudentially-regulated MFIs !!!

  14. NDTIs 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

  15. Cross-Cutting Compliances: MCAs and NDTIs • Inspection of books of account and records • Reporting to credit reference bureaus • Accessing credit report to ascertain credit status of loan applicants • Reporting suspicious transactions to FIU • Maintaining confidentiality of dealings and relation with clients Exceptional disclosure granted when required by law, court order or Registrar

  16. More Cross-Cutting Compliances • 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!!!

  17. More Cross-cutting Compliances • 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

  18. Challenges of MFI Supervision • Human capacity – skills, knowledge, etc. • Management information systems • Operational infrastructure, e.g. computers, network, electricity, etc. • High default, high operating expenses • Compliance – governance, prudential, etc • Fear of the Invisible Hand - Registrar

  19. Other Thoughts to Reflect on • Possible membership of money-lending institutions – institutionalization and enhancement of best practices in industry • Industry image • Resource mobilization – financial strengthening of Network • Downscaling of banks – threat or complementary??

  20. Thank you for your attention Questions/Comments?

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