Deposit Taking Microfinance Institutions Law

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REGULATORY DIGEST ON “DEPOSIT TAKING MICROFINANCE INSTITUTIONS LAW”

Background

Since its rise in the late 20th century, microfinance has grown exponentially in its ability to reach and empower people living in poverty to transform their lives and It is recognized that microfinance is important tool for ensuring the transition from the informal economy to the formal economy (ILO, 2015).

The current Law No 40/2008 of 26/08/2008 establishing the organization of microfinance activities was not aligned with key developments in the sector. The BNR is compelled to continuously adopt responsive regulatory frameworks. In this respect, BNR has recently adopted the amended law no 072/2021 of 05/11/2021 governing deposit-taking microfinance institutions to respond to the technological innovations especially digital financial services to deepen outreach as well as promoting cashless economy; and enhancing financial reporting framework among others,

Regulatory Key Highlights

The following are the main changes in the microfinance law:

  •  The title of the law was changed from the law establishing the organization of microfinance activities to “The law governing deposit-taking microfinance institutions”;

  •  Deposit-taking Microfinance Institutions are now grouped into two categories “Deposit Taking Microfinance Companies and Deposit Taking Microfinance Cooperatives”.

  •  Deposit-taking Microfinance Institutions are allowed to perform digital financial services (article 4);

  •  The new Law has changed the accounting and finance framework (Article 32,33,34,40);

  •  The management of funds on dormant account unclaimed by their owners (Art.101), risk management (article 23), transformation of MFIs, mergers and acquisition (article 99); have been included in the amended law;

  •  The amended law has a provision prohibiting the withdrawal of shares in deposit taking microfinance cooperatives (article 19) and a provision sanctioning   participation in bankruptcy of a deposit-taking microfinance institution. (Art. 96);

Important deadlines

Any existing regulations not inconsistent in terms of substance with this Law remain in force for a period of one (1) year from the date of the publication. (Art. 106),

Implications for concerned stakeholders

  •  On governance, the Board of Directors and the Supervisory Board of a deposit-taking microfinance cooperative must have at least a third (1/3) of the directors who are not members of that cooperative (Art.41).

  •  The minimum number of members for a Deposit-Taking Microfinance Cooperative is 500 (Art.43) and members may have unequal shares (Art. 42);

  •  A person who intends to carry out deposit-taking microfinance business shall apply for a license to NBR;

  •  NBR shall establish, maintain, update and publish on its website the list of deposit-taking microfinance institutions, their branches, and their agents;

  •  Deposit Taking Microfinance Institutions are required to adopt International financial reporting standards and publish financial statements;

  •  Shareholders are not allowed to withdraw shares but can transfer or use shares to pay a loan under circumstances provided for in the law;

  •  Any shareholder, director, member of the Supervisory Board, member of management or employee who participates in the bankruptcy of a deposit-taking microfinance institution commits an offence and will be sanctioned as per the provisions of this law.

CLICK HERE FOR MORE DETAILS:

https://www.bnr.rw/laws-and-regulations/microfinance-institutions/laws-regulations/