NATIONAL BANK OF RWANDA

REGULATORY DIGEST ON REGULATION No 57/2023 OF 27/03/2023 ESTABLISHING LICENSING REQUIREMENTS AND OTHER CONDITIONS FOR DEPOSIT-TAKING MICROFINANCE INSTITUTIONS

Deposit-taking microfinance institutions provide much-needed financial services to low-income earners, and entrepreneurs, who would not otherwise have access to such financial services. Their main purpose is to finance small businesses operated by low-income earners and to provide individuals, families, and communities with financial assistance to become self-resilient.

The repealed regulation n° 02/2009 on the organisation of microfinance activity was promulgated in 2009 and it was about 14 years back and market needs have evolved thus compelling the review of the regulation with the aim of accommodating current market need and harmonizing it with other legal instruments that have been enacted subsequently including the Law n° 48/2017 of 23/09/2017 governing the National Bank of Rwanda as amended to date, Law no 072/2021 of 05/11/2021 governing deposit-taking microfinance institutions, and other related laws and regulations. Therefore, BNR has recently adopted regulation no 57/2023 of 27/03/2023 establishing licensing requirements and other conditions for DTMIs to ensure capitalization, shareholding structure and its related obligations, and the effective merger or amalgamation process.

Regulatory Key Highlights

This regulation covers several aspects of licensing requirements and other conditions for deposit-taking microfinance institutions including licensing conditions and procedures, requirements for significant shareholding and acquisition and its related obligations, requirements for merger or amalgamation, and requirements for opening and closing a place of business.

On licensing conditions and procedures, the regulation requires the applicant for DTM Company to have a minimum of FRW 1,000,000,000 as paid-up capital and FRW 100,000,000 for the DTM cooperative. Furthermore, the applicant for a license must maintain the capital and comply with the prescribed minimum regulatory capital and the ongoing capital adequacy ratio established by the regulation. The application is made to the Central Bank and it is accompanied by supporting documents specified in the regulation.

In regard to significant shareholding and acquisition requirements and its related obligations, the regulation stipulates that no shareholder including his or her related party other than a reputable financial institution or a reputable public company authorized by the Central Bank shall directly or indirectly own or acquire more than 25% of the shares of a DTM company. Except, the Government of Rwanda or its institutions, foreign government, international organization, or an individual on conditions that they have been approved by the Central Bank. The Central Bank may request shareholders with significant shareholding or controlling powers in a DTM company to increase or reduce the number of shares held if the situation of the institution requires so.

This regulation prohibits members from withdrawing shares in a deposit-taking microfinance cooperative. In case a member wishes to leave a DTM cooperative, such shares are subject to transfer to or acquisition by another member or a prospective member. In addition, a DTMI shall not grant any credit or any other facility against the security or collateral of its own shares.

For merger or amalgamation requirements, the regulation requires that any DTMI subject to the acquisition or intending to merge or amalgamate seeks prior written approval from the Central Bank upon submission of the documents specified by the regulation.

The regulation provides that after each financial year, every DTMI pays a supervision fee of 0.05% of its audited gross income generated in the previous financial year. This amount is not later than 30^th April of the next financial year. In any case, it cannot be less than FRW 1,000,000 for the DTM company and FRW 500,000 for the DTM cooperative.

As per the regulation, a DTMI may open a place of business within the Rwandan territory with prior written approval from the Central Bank. The request is addressed, in writing, to the Central Bank providing the information specified by the regulation.

Important deadlines

Existing DTMIs that do not have the minimum paid-up capital shall meet it as follows: FRW 700,000,000 for DTM company and FRW 70,000,000 for DTM cooperative within three years from the publication of the regulation; and FRW 1,000,000,000 for DTM company and FRW 100,000,000 for DTM cooperative within five years from the publication of the regulation.

Existing licensed DTMI that does not comply with the minimum paid-up capital at the time of the publication of the regulation submits to the Central Bank the buildup capital plan within six months after that publication of the regulation.

The Compliance with the new minimum paid-up capital applies to Umurenge savings and credit cooperatives (U-SACCOs) upon their consolidation at the district level.

An individual shareholder, whether a natural person or corporate body that exceeds the shareholding of 25% either directly or indirectly is given a period of one year to comply with the requirements of the regulation specified in article 17.

When a DTMI fails to commence operations in a new place of business for which approval was given within six months, the approval is revoked, and the DTMI shall not commence operations until a new application is submitted and approved by the Central Bank.

Implications for concerned stakeholders

1.  Each proposed significant shareholder declares a statement to the effect that the proposed capital of funding is not from illegal, criminal, or suspicious activities as per annex 4 of the regulation.

2.  A license granted shall, at all times, be displayed in a visible place at the head office of the concerned DTMI, and copies of it shall be displayed at each of its branches.

3.  Any director, member of management, or external auditor of a DTMI shall inform the Central Bank immediately after obtaining knowledge that a person has violated provisions relating to significant shareholding.

4.  This regulation repeals regulation no 02/2009 of 27/05/2009 on the organization of Microfinance activity and any other prior provisions contrary to it.

Click here for more details:

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