NATIONAL BANK OF RWANDA

REGULATORY DIGEST ON REGULATION No 58/2023 OF 27/03/2023 ESTABLISHING REQUIREMENTS ON CORPORATE GOVERNANCE FOR DEPOSIT-TAKING MICROFINANCE INSTITUTIONS

Background

The regulation outlines corporate governance requirements for Deposit-Taking Microfinance Institutions (DTMIs), ensuring transparent, accountable administration while protecting stakeholders' interests, including shareholders, creditors, and the public in general.

The review of Regulation n° 02/2009 on the organisation of microfinance activity, promulgated 14 years ago, aims to accommodate market needs and harmonize it with other legal instruments, including Laws n° 48/2017 and Law no 072/2021, which govern the National Bank of Rwanda and deposit-taking microfinance institutions. The regulation aims to safeguard stakeholders' interests on a sustainable basis.

Regulatory Key Highlights

This regulation provides for specific provisions for deposit-taking microfinance companies, specific provisions for deposit-taking microfinance cooperatives, and common provisions for both deposit-taking microfinance companies and cooperatives.  

The regulation prohibits significant shareholder from being appointed as the chairperson of the board of directors or participating in the management. It also separates the responsibilities of the chairperson of the board of directors from those of the managing director. In addition, the chairperson of the board of directors and the managing director cannot be persons from the same family in direct line or in collateral line up to the second degree. Furthermore, the chairperson of the board of directors does not chair any other committee of the Board.

For DTM company, the board of directors is composed of at least five directors, of which at least three must be independent directors. However, if it decides to have more than five directors, the 3/5 ratio of independent directors must be maintained at all times.

A board member has a term limit of three years renewable twice. The board of directors' terms must ensure the continuity of the company's operations. No director after serving three (3) consecutive terms shall be eligible for election until five years elapse.

The directors representing the parent company on the board of directors of the subsidiary must not exceed one-third of the total number of members of the board of directors in order to guarantee independence from the influence of the parent institution.

For DTM cooperative, without prejudice to the provisions of the law governing cooperatives, the DTM cooperative shall have the following committees elected by the General Assembly: the board of directors; the supervisory board; and any other specialized committee as determined by internal policies and procedures.

On board of directors, the regulation provides that the board of directors is composed of at least seven directors, of which at least one-third must be independent directors.

The deposit-taking microfinance cooperative provides the necessary continuous training to the board members starting within a period not exceeding three months after the commencement of the responsibilities.

The board of directors regularly reviews its required mix of skills and experience and other qualities in order to assess the effectiveness of the board. The evaluation is conducted annually and it is disclosed in the annual report. The Chair of the board of directors submits a report, including the peer and self-evaluations to the Central Bank annually, on the board and directors’ evaluations and effectiveness, not later than the 30th of April of the following year.

The board of directors of a deposit-taking microfinance cooperative shall have at least the following committees: board credit; board risk committee and any other board committee as determined by internal policies and procedures or as recommended by the Central Bank.  

Regarding independent directors, the regulation stipulates that the general assembly appoints an ad-hoc committee to select potential independent directors. The ad-hoc committee comprises individuals who are not members of the board of directors or the supervisory board. It submits credentials of at least three candidates to the general assembly, with independent directors elected based on the ratio of independent directors in the board and supervisory board.

On the supervisory board of a DTM cooperative, the regulation provides that without prejudice to the provisions of the law governing cooperatives, the chairperson of the supervisory board shall be an independent director. It must consist of at least two members who possess qualifications in accounting or a related field.

A DTM cooperative is required to offer continuous training to its supervisory board members starting within a period not exceeding three months after the commencement of the responsibilities.

The regulation on the staffing structure of a DTM cooperative provides that, it shall depend on the DTM’s size and complexity. However, the deposit-taking microfinance cooperative shall at least have the following functions: operations; finance and accounting; information Technology; credit function; internal audit; and risk management and compliance.

The head of the internal audit function submits to the Central Bank on a quarterly basis a summary of the internal audit report within 20 days following the end of the quarter.

A deposit-taking microfinance institution ensures its recruited staff meets the fit and proper requirements as determined by the Central Bank directive.

A deposit-taking microfinance institution requests approval from the Central Bank of its director, member of the Supervisory Board, and member of management to check whether he or she fulfills the fit and proper requirements. This application is submitted to the Central Bank within 30 days after his or her appointment or election by the competent organ.

The regulation goes so far as to provide for rehabilitation as the Central Bank can rehabilitate individuals dismissed due to financial fault in the financial sector after five years, counting from the date they left the sector.

Important deadlines

Existing deposit-taking microfinance cooperatives that do not meet the new governance structure requirements of the regulation are given a period of one year to comply with new requirements after the publication of the regulation in the Official Gazette.

Implications for concerned stakeholders

This regulation repealed regulation no 02/2009 of 27/05/2009 on the organization of microfinance activity and all other prior regulatory provisions contrary to it.

Click here for more details:

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