Microfinance Decree No. 28
DECREE No. 28/2005/ND-CP OF MARCH 9, 2005 ON ORGANIZATION AND OPERATION OF SMALL-SIZED FINANCIAL INSTITUTIONS IN VIETNAM
THE GOVERNMENT
Pursuant to the December 25, 2001 Law on Organization of the Government;
Pursuant to the December 12, 1997 Vietnam State Bank Law and the June 17, 2003 Law Amending and Supplementing a Number of Articles of the Vietnam State Bank Law;
Pursuant to the December 12, 1997 Credit Institutions Law and the June 15, 2004 Law Amending and Supplementing a Number of Articles of the Credit Institutions Law;
At the proposal of the Governor of Vietnam State Bank,
DECREES:
Chapter I
GENERAL PROVISIONS
Article 1.- Governance scope and application subjects
1. This Decree provides for organization and operation of small-sized financial institutions in Vietnam.
2. Subjects allowed to set up small-sized financial institutions:
Organizations, which are allowed to set up small-sized financial institutions in Vietnam under law provisions, include:
a/ Vietnamese socio-political organizations, social organizations, socio-professional organizations, charity funds and social funds;
b/ Vietnamese non-governmental organizations.
3. Other domestic and foreign individuals and organizations may contribute capital jointly with the subjects defined in Clause 2 of this Article.
Article 2.- Interpretation of terms
In this Decree the following terms are construed as follows:
1. Small-sized finance: means activities of providing some small and simple financial and banking services to low-income households and individuals, especially poor households and people.
2. Small-sized financial institutions: mean financial institutions operating in the financial and banking domain with the major function of using their own capital and loan capital and receiving savings deposits to provide some small and simple financial and banking services to low-income households and individuals.
3. Small and simple financial and banking services include services of providing small-sized credits; receiving compulsory and voluntary savings deposits; money transfer agency; insurance agency, authorized collection and payment, for low-income households and individuals.
4. Small-sized credits: mean loans of small value, with or without security assets, provided for low-income households or individuals for use in activities of income generation and improvement of living conditions.
5. Low-income or poor households and individuals: are identified based on geographical regions and areas of Vietnam or on the standards set by small-sized financial institutions.
6. Compulsory savings: mean households’ and individuals’ savings deposited at small-sized financial institutions in order to guarantee their borrowings from such institutions.
7. Voluntary savings: mean individuals’ savings deposited at small-sized financial institutions.
8. Legal capital: means the minimum charter capital amount required by law for the establishment of a small-sized financial institution.
9. Charter capital: means the capital amount contributed by concerned parties for the establishment of a small-sized financial institution. This capital amount shall be recorded in the charters of small-sized financial institutions.
10. Own capital: means the charter capital plus profits retained for accumulation.
11. License: means a small-sized financial institution’s establishment and operation license, issued by Vietnam State Bank.
Article 3.- Legal capital:
1. For small-sized financial institutions not allowed to receive voluntary savings: VND 500 million;
2. For small-sized financial institutions allowed to receive voluntary savings: VND 5 billion.
Article 4.- Operation term
1. The operation term of small-sized financial institutions is 50 years at most.
2. In cases where a small-sized financial institution wishes to extend its operation term, the duration of each extension must not exceed the term of the original license.
Article 5.- Operation area
1. The operation area of a small-sized financial institution is restricted to the territory of a province or centrally-run city and indicated in its license.
2. In cases where a small-sized financial institution wishes to expand its operation beyond the area indicated in its license, it must open a branch in the expected area. The opening of branches must meet the requirement on the increase of charter capital to a level corresponding to the expansion and must be approved by the State Bank.
Article 6.- Operation and financial management principles
A small-sized financial institution is a legal person that has its own charter capital, properties and seal, operates on the principle of financial autonomy, self-generation of capital, self-financing of its operation expenses and self-responsibility with its own capital and properties.
Article 7.- State policies
The State protects the ownership right and legitimate rights and interests of small-sized financial institutions, guarantees their right to equality in operation as well as other rights prescribed by law; and promulgates legal documents and policies to encourage their development. The State also respects the small-sized financial institutions’ right to autonomy and self-responsibility in operation, and does not intervene in their management and lawful operations.
Chapter II
GRANT OF ESTABLISHMENT AND OPERATION LICENSES FOR SMALL-SIZED CREDIT INSTITUTIONS
Article 8.- Conditions for being granted licenses
1. Having demand for small-sized financial operations.
2. The provincial/municipal People’s Committees agree with the necessity to establish small-sized financial institutions in their respective localities.
3. Having sufficient charter capital as prescribed in Article 3 of this Decree.
4. Having working offices and material foundations suitable to the planned small-sized financial operations.
5. Having managers, controllers and executives as prescribed in Chapter III of this Decree.
6. Having feasible business plans.
7. With regard to small-sized financial institutions receiving voluntary savings, apart from the requirements mentioned in Clauses 1, 2, 3, 4, 5 and 6 of this Article, each must also meet the following conditions:
a/ Having been granted a license by the State Bank;
b/ Having received compulsory savings for the latest three years;
c/ Its managerial, controlling and executive apparatuses operate fruitfully;
d/ Having conducted healthy operations for the latest three years under regulations of the State Bank;
e/ Its information system meets the management requirements;
f/ Meeting the safety requirements in banking operations and other requirements prescribed by law.
Article 9.- Dossiers of application for licenses
Dossiers of application to the State Bank for licenses shall each consist of:
1. The application for a license, clearly stating the contents of operation and expected operation area.
2. The written consent of the provincial/municipal People’s Committee regarding the necessity to establish a small-sized financial institution in the locality.
3. The draft charter.
4. The small-sized financial institution’s operation scheme, which clearly states economic efficiency and benefits.
5. The list, curricula vitae and diplomas evidencing capabilities and professional qualifications of members of the Managing Board, the Control Board and general director (director) of the small-sized financial institution.
6. Papers evidencing the charter capital amount; list and addresses of capital-contributing organizations and individuals and their capital portions in the charter capital; the financial situation and information related to the capital-contributing organizations and individuals.
7. Small-sized financial institutions that receive voluntary savings must also submit their audited reports of the latest three fiscal years.
Article 10.- Licensing fee
Small-sized financial institutions licensed by the State Bank must pay a licensing fee under regulations of the Finance Ministry.
Article 11.- Licensing procedures and use of licenses
1. Within 60 days after receiving full and valid dossiers prescribed in Article 9 of this Decree, the State Bank shall consider the grant of licenses for small-sized financial institutions. In case of refusal, the State Bank must give written replies, clearly stating the reasons therefor.
2. Small-sized financial institutions’ licenses granted by the State Bank shall specify the operation terms and areas as well as activities such institutions are allowed to conduct.
3. Licensed small-sized financial institutions must use the names and operate according to the provisions of their licenses. Licenses must not be forged, erased, transferred, leased or borrowed in any form.
Article 12.- Operation inauguration
1. To inaugurate its operation, a licensed small-sized financial institution must fully meet the following conditions:
a/ It charter has been approved by the State Bank;
b/ Having a business registration certificate and sufficient legal capital;
c/ Its charter capital amount in cash must be deposited in a blocked account opened at the State Bank at least 30 days before the commencement of its operation. This capital amount shall be unblocked only after the concerned small-sized financial institution inaugurates its operation. This regulation shall not apply to small-sized financial institutions that have been operating before the effective date of this Decree;
d/ Having a legal document(s) on its right to own or to use its head office;
e/ Announcing on local newspapers according to law provisions the license’s contents. This regulation shall not apply to small-sized financial institutions that are not allowed to receive voluntary savings.
2. At least 30 days before its inauguration, a small-sized financial institution must notify in writing the State Bank and the provincial/municipal People’s Committee thereof.
3. Within 12 months after being licensed, if a small-sized financial institution fails to inaugurate operation, its license shall automatically be invalidated.
Article 13.- Extension and withdrawal of licenses
1. Extension of licenses
a/ A dossier of application by a small-sized financial institution for extension of its license must be submitted to the State Bank at least 2 months before the expiration of such license. The dossier consists of:
- The application for license extension;
- The report on operation of the small-sized financial institution in the latest three consecutive years.
b/ Within 30 days after receiving full and valid dossiers of application for license extension from small-sized financial institutions, the State Bank shall consider and issue decisions permitting or refusing such extension. In case of refusal, the State Bank must reply in writing, clearly stating the reasons therefor.
2. A small-sized financial institution shall have its license withdrawn in the following cases:
a/ There are evidences that its license application dossier contains untruthful information;
b/ It fails to start operation after 12 months from the date of being licensed;
c/ It voluntarily dissolves or is forced to dissolve by a competent State agency;
d/ It is divided, split, merged, consolidated or bankrupt;
e/ It receives voluntary savings without the State Bank’s permission; or
f/ It operates for purposes other than those stated in its charter.
Article 14.- Consolidation, merger, division, split and dissolution
In cases where the consolidation, merger, division, split or dissolution of a small-sized financial institution is necessary, such institution must send an application and dossier therefor to the State Bank. Within 30 days after receiving full and valid dossiers, the State Bank shall give written reply to such institution. In case of disapproval, the written reply must clearly state the reasons therefor.
The dossiers and procedures for consolidation, merger, division, split or dissolution of small-sized financial institutions shall comply with the State Bank’s guidance.
Article 15.- Bankruptcy and liquidation
The process of bankruptcy and liquidation of small-sized financial institutions shall comply with the State Bank’s guidance as well as the legislation on bankruptcy.
Chapter III
ORGANIZATION, MANAGEMENT, CONTROL AND ADMINISTRATION OF SMALL-SIZED FINANCIAL INSTITUTIONS
Article 16.- Organizational structure of small-sized financial institutions
1. Small-sized financial institutions shall each have a Managing Board, a Control Board and a general director (director).
2. The Managing Board of a small-sized financial institution not allowed to receive voluntary savings comprises at least three persons; and the Control Board, at least one person.
3. The Managing Board of a small-sized financial institution allowed to receive voluntary savings comprises at least three persons; and the Control Board, at least three persons.
4. The Managing Board, the Control Board and the general director (director) of a small-sized financial institution must meet the requirements on professional qualifications and ethics under the State Bank’s regulations.
5. The election, appointment and dismissal of members of the Managing Board, the Control Board or the general director (director) of a small-sized financial institution shall comply with the State Bank’s regulations.
Article 17.- Functions and tasks of the Managing Board, the Executive Board, the Control Board
1. The Managing Board shall perform the task of managing the small-sized financial institution according to the provisions of law; decide on operation undertakings and orientations of such institution and have other rights and obligations defined in its charter.
2. The Executive Board, comprising the general director (director) and deputy general directors (deputy directors), shall, on behalf of the Managing Board, manage and administer the small-sized financial institution. The general director (director) of the small-sized financial institution shall be the legal-person representative of such institution.
3. The Control Board shall, on behalf of the Managing Board, control financial operations of the small-sized financial institution and executive operations of the general director (director) in exercising other rights and performing other obligations defined in the charter of such institution.
Article 18.- Persons who must not be members of the Managing Board, the Control Board or general directors (directors)
1. Those who are being examined for penal liabilities.
2. Those who have been convicted for serious crimes of infringing upon national security, socialist ownership or citizens’ ownership; or serious economic crimes.
3. Those who have been convicted for other crimes and their verdicts have not yet been remitted.
4. Those who once were members of the Managing Board or general director (director) of a bankrupt company, except for cases prescribed by the legislation on bankruptcy.
5. Those who once were at-law representatives of companies forced to terminate operation due to serious law violations.
6. Those who are fathers, mothers, wives, husbands, children or siblings of members of the Managing Board or the Control Board, the general director (director) of a small-sized financial institution.
Article 19.- Opening and termination of operation of branches
1. Small-sized financial institutions may open branches in domestic localities where exist the operation needs. The opening of branches and termination of their operation must be approved in writing by the State Bank.
2. The conditions, dossiers and procedures for opening branches and terminating operations of branches of small-sized financial institutions shall comply with the State Bank’s guidance.
Article 20.- Capital contribution and transfer of contributed capital
1. Organizations and individuals shall contribute capital to small-sized financial institutions under capital-contribution contracts.
2. The capital contribution and transfer of contributed capital shall comply with the State Bank’s regulations.
Chapter IV
REGULATIONS ON OPERATIONS
Article 21.- Regulations on operation of small-sized financial institutions
1. Small-sized financial institutions may conduct some or all operations prescribed in Articles 22, 23, 24, 25 and 26 of this Decree.
2. The State Bank shall specify contents of operation of small-sized financial institutions in their respective licenses.
Article 22.- Capital mobilization
Small-sized financial institutions are allowed to mobilize capital from the following sources:
1. Receiving savings:
a/ Compulsory savings;
b/ Voluntary savings.
2. Borrowing capital:
a/ Borrowing capital from credit institutions licensed to operate in Vietnam;
b/ Borrowing capital from foreign individuals and organizations when so permitted by the State Bank.
3. Small-sized financial institutions may receive capital entrusted under programs or projects of the Government, domestic or foreign organizations or individuals.
Article 23.- Credit operations
1. Granting loans.
2. Granting loans from entrusted capital sources.
Article 24.- Other operations
Small-sized financial institutions may act as agents in the domains related to banking and insurance activities.
Article 25.- Opening of accounts
Small-sized financial institutions may open accounts and deposit money at the State Bank, commercial banks and other credit institutions.
Article 26.- Payment activities
Small-sized financial institutions are allowed to provide a restricted number of payment services according to the State Bank’s regulations.
Article 27.- Restrictions on credit activities and savings mobilization
1. Small-sized financial institutions must comply with the regulations on credit and savings restrictions as follows:
a/ Restrictions on the maximum value of a small-sized credit;
b/ Restrictions on the maximum debt balance for a customer;
c/ Restrictions on savings deposits;
d/ Restrictions on the maximum savings balance of a customer.
2. The State Bank shall have to guide in detail the regulations on credit and savings restrictions to make them suitable to each type of small-sized financial institutions.
3. Small-sized financial institutions that receive voluntary savings shall have to purchase deposit insurance according to law provisions.
Article 28.- Changes subject to approval
1. A small-sized financial institution must get written approval from the State Bank before changing one of the following:
a/ Its name;
b/ Its charter capital amount;
c/ The location of its head office or branch;
d/ The contents, scope and duration of its operation;
e/ Changes relating to the contributed capital and capital contributors;
f/ Members of the Managing Board, the general director (director) and members of the Control Board.
2. The State Bank shall give guidance on dossiers and procedures for making changes in the above-mentioned cases.
3. After getting approval from the State Bank, the concerned small-sized financial institution must notify the competent State agencies of the changes stated in Clause 1 of this Article.
Chapter V
FINANCE, COST-ACCOUNTING AND REPORTING
Article 29.- Finance
1. A fiscal year of small-sized financial institutions starts on January 1 and ends on December 31 of the calendar year.
2. Financial revenues and expenditures of small-sized financial institutions shall comply with law provisions and the Finance Ministry’s guidance.
Article 30.- Cost-accounting
Small-sized financial institutions shall conduct cost- accounting based on the system of accounts and voucher regime prescribed in the accounting and statistical legislation and under the State Bank’s guidance.
Article 31.- Making of deductions for setting up and use of funds
Making of deductions for setting up, maintenance and use of funds of small-sized financial institutions shall comply with law provisions and the Finance Ministry’s guidance.
Article 32.- Reporting regime
Small-sized financial institutions shall observe the reporting and statistical regimes according to regulations of the State Bank and the Finance Ministry.
Chapter VI
INSPECTION, SPECIAL CONTROL, BANKRUPTCY, DISSOLUTION AND LIQUIDATION
Article 33.- Inspection
1. Small-sized financial institutions shall be subject to inspection by the State Bank’s Inspectorate under law provisions.
2. The rights and obligations of inspected small-sized financial institutions shall comply with the current law provisions and the State Bank’s guidance.
Article 34.- Special control, bankruptcy, dissolution and liquidation
The special control, bankruptcy, dissolution and liquidation of small-sized financial institutions shall comply with law provisions and the State Bank’s guidance.
Article 35.- Commendation, handling of violations
The commendation as well as the handling of violations of small-sized financial institutions shall comply with the regulations of the State Bank.
Chapter VII
IMPLEMENTATION PROVISIONS
Article 36.- Immunity provision
1. To exempt the application of the condition prescribed at Point a, Clause 7, Article 8 of this Decree in considering the grant of licenses to organizations which have been involved in small-sized financial operations before the effective date of this Decree.
2. This immunity provision shall be effective for only 24 months as from the effective date of this Decree.
Article 37.- Implementation effect
1. This Decree takes effect 15 days after its publication in the Official Gazette and replaces the previous regulations which are contrary to this Decree.
2. Within 24 months after this Decree takes effect, organizations currently involved in small-sized financial operations in Vietnam shall have to carry out procedures to request the State Bank to grant licenses according to the provisions of this Decree or terminate their small-sized financial operations.
Article 38.- Responsibilities for implementation
1. The Governor of Vietnam State Bank shall have to guide the implementation of this Decree.
2. The ministers, the heads of the ministerial-level agencies, the heads of the Government-attached agencies and the presidents of the provincial/municipal People’s Committees shall have to implement this Decree.
On behalf of the Government
Prime Minister
PHAN VAN KHAI