CIRCULAR

GUIDANCE ON FINANCIAL POLICIES APPLICABLE TO MICROFINANCE INSTITUTIONS

Pursuant to the Law on Credit Institutions dated June 16, 2010 and the Law dated November 20, 2017 on amendments to the Law on Credit Institutions;

Pursuant to the Law on Enterprises dated November 26, 2014;

Pursuant to the Government’s Decree No. 93/2017/ND-CP dated August 07, 2017 on the financial regime applicable to credit institutions, branches of foreign banks and financial supervision, assessment of effectiveness of state capital investment in wholly state-owned credit institutions and partially state-owned credit institutions;

Pursuant to the Government’s Decree No. 87/2017/ND-CP dated July 26, 2017 defining Functions, Tasks, Powers and Organizational Structure of Ministry of Finance;

At the request of Director of Department of Banking and Financial Institutions;

Minister of Finance promulgates a Circular to provide guidance on financial policies applicable to microfinance institutions.

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GENERAL PROVISIONS

Article 1. Scope

This Circular provides guidance on financial policies applicable to microfinance institutions that operate in Vietnam in accordance with the Law on credit institutions dated June 16, 2010 and the Law dated November 20, 2017 on amendments to the Law on credit institutions (hereinafter referred to as "the Law on credit institutions"), and the Government’s Decree No. 93/2017/ND-CP dated August 07, 2017 on the financial regime applicable to credit institutions, branches of foreign banks and financial supervision, assessment of effectiveness of state capital investment in wholly state-owned credit institutions and partially state-owned credit institutions (hereinafter referred to as “Decree No. 93/2017/ND-CP”).

Article 2. Regulated entities

1. Microfinance institutions that are duly established, organize and operate in Vietnam in accordance with regulations of the Law on credit institutions and its amending, rectifying and superseding documents (if any).

2. Relevant authorities, organizations and individuals.

Chapter II

SPECIFIC PROVISIONS

Article 3. Capital of a microfinance institution

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a) Charter capital includes:

- Funding provided by the Government (if any);

- Contributions made by organizations and individuals;

- Finances granted by sponsors (if any).

b) The difference upon asset revaluation is the difference between the book value of assets and the value of assets recorded upon the revaluation made according to the Government’s decision or in other revaluation cases as defined by applicable laws;

c) Funds include:

- The additional reserve fund of charter capital;

- The investment and development fund;

- The financial reserve fund.

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dd) Other capital lawfully owned by the microfinance institution in accordance with applicable laws.

2. Raised capital:

a) Capital from deposits in VND in the following forms:

- Compulsory savings of the microfinance institution;

- Deposits of organizations and individuals, including deposits voluntarily made by microfinance clients (excluding deposits for payment purpose).

b) Entrusted loans provided under the Government's programs and projects, and those given by domestic and foreign organizations and individuals;

c) Loans from credit institutions, financial institutions and other domestic and foreign organizations and individuals in accordance with applicable laws;

d) Loans from the State Bank of Vietnam.

3. Other kinds of funding as regulated by law.

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1. Every microfinance institution shall assume responsibility to manage and use its capital and assets in accordance with regulations in Chapter II of the Decree No. 93/2017/ND-CP, relevant laws and guidelines herein.

2. Every microfinance institution must do bookkeeping in accordance with applicable accounting policies; fully, accurately and timely reflect the use or changes in its capital and assets in the course of business; clearly assign responsibilities to and announce sanctions of handling of each department or individual for each case of damage or loss of assets or capital.

4. Microfinance institutions shall assume responsibility to manage or use assets leased, pledged, mortgaged or kept on behalf of clients as agreed upon with their clients in accordance with applicable laws.

5. With regard to real estates temporarily held by the handling of loans in accordance with regulations in Clause 3 Article 132 of the Law on credit institutions:

a) With regard to real estate temporarily held by a microfinance institution for sales or transfer for debt recovery within a period of 03 years, it shall not record such real estate as an increase in assets and depreciate assets as regulated.

b) With regard to real estate purchased by a microfinance institution to serve its business, it shall record such real estate acquired as an increase in assets and depreciate assets as regulated by law, and maintain the limits on investment in purchase of fixed assets regulated in Clause 3 Article 6 of the Decree No. 93/2017/ND-CP.

Article 5. Revenue

Revenues of a microfinance institution include the amounts receivable prescribed in Article 16 of the Decree No. 93/2017/ND-CP. To be specific:

1. Interest revenue and similar revenue, including:

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b) Loan interest;

c) Interest from debt trading;

d) Other revenue from credit activities as regulated by law.

2. Revenue from service provision, including:

a) Revenue from payment services;

b) Revenue from treasury operations;

c) Revenue from collection, payment and transfer of money on behalf of microfinance clients;

d) Revenue from accepting entrusted loans;

dd) Revenue from financial consulting services concerning microfinance operations;

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g) Revenue from provision of other services, including:

- Revenue from asset management service and leasing of safes;

- Revenue from provision of products for public interests;

- Revenue from other services as regulated by law.

3. Revenue from foreign exchange differences as regulated in accounting standards and applicable laws.

4. Revenue from other activities, including:

a) Revenue from the loans handled by risk reserve fund (including debts which have been written off, now recovered);

b) Revenue from debt trading;

c) Revenue from transfer or liquidation of assets;

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dd) Revenue from other activities as prescribed by law, including:

- Revenue from lease of assets, excluding revenue from the lease of real estate temporarily held by the handling of loans in accordance with regulations in Clause 3 Article 132 of the Law on credit institutions for the purpose of debt recovery;

- Revenue from other activities.

5. Other revenues, including:

a) Revenue from debts to creditors that cease to exist or are not identifiable, which is recorded as an increase in revenue;

b) Revenue from breach of contract fines and compensations paid by clients, which is recorded as revenue;

c) Revenue from insurance proceeds, which are recorded as revenue upon the deduction of insurance expenses;

d) Revenue from grants received by a microfinance institution for implementing its development programs and operations;

dd) Revenue from tax refunds (if any);

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Article 6. Revenue recognition principle

1. Determination of revenue for the purpose of calculation of corporate revenue tax shall be done in accordance with the Law on corporate revenue tax and its instructional documents.

2. With regard to interest revenue and similar revenue:

a) Interest revenue from credit extension: Every microfinance institution shall evaluate the debt recoverability and classify debts as prescribed in the Law on banking as the basis for accounting for interests receivable as follows:

- The microfinance institution shall record the interest receivable in the period as revenue associated with the debts classified as standard debts for which loss reserves may not be set aside as regulated by the State Bank of Vietnam;

- The interest receivable of debts remaining classified in the standard debt category as a result of implementing the State policies and the interest receivable in the period of remaining debts shall not be recorded as revenue. In such cases, the microfinance institution shall monitor them in off-balance sheet so as to expedite the collection. They shall be recorded as revenue, when collected.

b) Deposit interest revenue is the amounts of deposit interest receivable during the period.

3. Revenue from grants received by a microfinance institution for implementing its development programs and operations shall be actual amounts of grants received.

4. Microfinance institutions shall recognize revenue from foreign exchange differences as a result of revaluation of foreign currency and gold in conformity with accounting standards and applicable laws.

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Article 7. Expenses

Expenses of a microfinance institution include the amounts payable prescribed in Article 17 of the Decree No. 93/2017/ND-CP. To be specific:

1. Interest expense and similar expenses:

a) Interest on deposits; compulsory saving deposits; interest on other deposits;

b) Interest on loans;

c) Other expenses for credit activities.

2. Costs of service provision:

a) Costs of collection, payment and transfer of money on behalf of microfinance clients;

b) Costs of telecommunication services;

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d) Costs of provision of financial consulting services concerning microfinance operations;

dd) Costs of commissions for agents and brokers that are entrusted or authorized to perform relevant activities. In which commissions for brokers shall be paid as follows:

- A microfinance institution may pay commissions to brokers that provide brokerage services as permitted by the law;

- Brokerage commissions are paid to third parties (that are brokers) and not paid to agents of the microfinance institution, its managerial officers, employees and related parties as regulated in the Law on credit institutions and its amending, rectifying or superseding documents (if any).

- Brokerage commissions shall be paid under written agreements or certifications made by and between the microfinance institution and relevant brokers. A written agreement or certification shall include broker’s name, payment contents, amounts and methods, period for performance and completion of brokerage service, and responsibilities of the parties;

- With regard to commissions paid to brokers for lease of assets (including foreclosed properties and those given as payments of debts), the commission paid to a broker for every asset lease of the microfinance institution shall not exceed 5% of total proceeds from the lease of assets through that broker during the year;

- With regard to commissions paid to brokers for sale of mortgaged and pledged properties, the commission paid to a broker for each sale of mortgaged or pledged properties of the microfinance institution shall not exceed 1% of the actual proceeds from the sale of such mortgaged or pledged properties through that broker;

- Every microfinance institution shall promulgate regulations on payment of brokerage commissions for consistent and transparent application. The Member Board or General Director (or Director) of that microfinance institution shall consider giving approval for its regulations on brokerage commissions.

e) Costs of provision of insurance agent services.

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4. Expenses for other activities:

a) Costs for debt trading;

b) Costs for other business activities as regulated by law.

5. Costs for taxes, fees and charges to be paid as regulated by law.

6. Costs for employees as regulated by law, including:

a) Salaries, wages and associated costs, including:

- Salaries paid to full-time members of the Member Board, the Board of Controllers, and the Board of Management; allowances paid to part-time members of the Member Board and the Board of Controllers;

- Salaries and allowances paid to employees of the microfinance institution according to the signed labour contracts or the collective labour agreement.

b) Compulsory salary-based payments: Compulsory payment for social insurance, health insurance and unemployment insurance premiums, and union dues;

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d) Payment for accident insurance premiums;

dd) Costs of personal protective equipment provided for employees as regulated;

e) Costs of workplace uniforms for employees working at the microfinance institution as regulated by law;

g) Expenses on shift meals: The wholly state-owned microfinance institution shall pay shift meals in accordance with regulations applicable to state-owned enterprises;

h) Medical expenses, including expenses for periodic health examinations for employees, purchase of occupational medicines and other medical expenses incurred by the enterprise as regulated by applicable laws;

i) Other payments to employees as prescribed by law, including:

- Compulsory payments for female employees;

- Payments of unused annual leave as prescribed by law;

- Other expenses.

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a) Costs for materials and papers;

b) Work-trip allowances;

c) Costs of training and drilling activities, including training for collaborators and clients within the scope of operation of a microfinance institution;

d) Expenses for scientific and technological research, including:

- Contributions paid to the science and technology development fund as prescribed by law. This fund shall be used in accordance with applicable laws;

- Payments for making up deficits in case the balance of the science and technology development fund is not sufficient to cover science and technology research expenses in the year.

dd) Expenses on rewards for initiatives in improving and increasing labor productivity, rewards for practice of costs saving paid according to the principle in conformity with the actual effectiveness; the microfinance institution must establish and announce regulations on rewards for initiatives, and establish a Council for initiative acceptance;

e) Telephone and postage charges;

g) Costs for publishing of materials, dissemination, advertisement, marketing and sale promotion;

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i) Costs for electricity, water and workplace cleaning;

k) Costs for conventions, reception activities and external relations;

l) Payments for employed consultants, Vietnamese and foreign experts/ specialists;

m) Auditing expenses;

n) Costs for fire prevention and fighting activities;

o) Costs for environmental protection. If the annual environmental protection costs are high and there are benefits associated with environmental protection activities in several years, the environmental protection costs may be apportioned and recorded in following years.

p) Other expenses:

- Costs for workplace security; national defense and security costs;

- Other costs as regulated by law.

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a) Costs of depreciation of fixed assets used to serve business activities shall comply with regulations on management, use and depreciation of fixed assets of enterprises;

b) Costs for leasing fixed assets: Costs for leasing fixed assets shall be determined according lease agreements. In case of making lump-sum payment for leasing assets for many years, the rental shall be apportioned and recorded as business expenses by the number of years of using leased assets;

c) Costs for repair and maintenance of fixed assets;

d) Costs for purchase and repair of tools and devices;

dd) Costs for purchase of asset insurance;

c) Other asset costs as regulated by law.

9. Costs for provision:

a) Costs for appropriation of provisions include:

- Costs for risk provision as prescribed in Article 131 of the Law on credit institutions;

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- Costs for provision for decline in value of inventories, provision for loss of financial investments, provision for bad debts and other provisions (if any) according to the general regulations applicable to enterprises.

b) The costs for risk provision that are deducted when determining the corporate income tax shall comply with regulations of the Law on corporate income tax.

10. Costs for deposit preservation and insurance as regulated by law.

11. Other costs:

a) Membership fees paid to trade associations that a microfinance institution participates in;

b) Costs for Communist Party and unions' activities organized at a microfinance institution (the costs outside budgets of Communist Party organizations and unions);

c) Costs for sale and liquidation of assets (if any), including the remaining value of fixed assets sold or liquidated;

d) Costs for recovery of debts written off and collection of bad debts are debt recovery costs, including payments made to debt recovery service providers, that are licensed to provide debt recovery services as regulated by law, and debt trading costs;

dd) Costs for loss on disposal of assets: The microfinance institution shall record the remaining loss of assets as expense after it has been made up for by compensations made by relevant individuals, communities or insurers, its provisions available and financial reserve fund.

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g) Costs for social activities as regulated by the Law on taxation;

h) Fines for administrative violations, excluding fines payable by individuals as regulated by law;

i) Other costs:

- Costs for debts payable with respect to debts which have been recorded as income because the creditors cease to exist but then are identified;

- Payments for penalties or compensations for breach of economic contracts according to a microfinance institution’s responsibility;

- Courts costs and fees payable by a microfinance institution as regulated;

- Community development contributions as prescribed by law;

- Other costs as regulated by law.

Article 8. Expense recognition principle

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2. Expenses of a microfinance institution are recorded according to the matching principle between its revenue and expense with valid and sufficient invoices/vouchers as prescribed by law. The microfinance institution shall not record expenses which have been covered by other sources of funding as its expenses. Determination and accounting for expenses shall be made in conformity with Vietnamese accounting standards and relevant laws.

3. Determination of expenses upon the calculation of corporate income tax shall be done in accordance with the Law on corporate income tax and its instructional documents.

4. A wholly state-owned microfinance institution shall only record the expenses which are deductible as regulated by the Law on corporate income tax as its business expenses. The wholly state-owned microfinance institution may use its after-tax profits to make up the costs for appropriation of risk provisions in excess of the statutory amount which is deductible upon the calculation of the corporate income tax because there are differences between the regulations on risk provision of the Law on corporate income tax and the State Bank of Vietnam’s regulations (if any) and the fines for administrative violations (excluding the fines payable by individuals as regulated by law).

Article 9. Profit distribution

The profits of a microfinance institution that remain after deducting losses in previous year as regulated by the Law on corporate income and paying corporate income tax shall be distributed as follows:

1. Deduct the expired losses in the previous year from the profits before corporate income tax as regulated.

2. The profits that remain after deducting the amount prescribed in Clause 1 of this Article shall be distributed according to the following order:

a) Contribute 5% of the remaining profits to the additional reserve fund of charter capital. The balance of this fund shall not exceed the charter capital of the microfinance institution;

b) Contribute 10% of the remaining profits to the financial reserve fund.

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a) The wholly state-owned microfinance institution shall:

- Contribute not more than 25% of the remaining profits to the investment and development fund;

- The agency representing the state capital owner in the microfinance institution, pursuant to regulations on evaluation and rating of the wholly state-owned credit institutions, shall review the financial plan and assigned evaluation and rating criteria, and perform the evaluation and rating of the microfinance institution in the same way as those of a wholly state-owned credit institution. Based on the evaluation and rating results, the microfinance institution shall distribute the remaining profits in accordance with regulations on profit distribution applicable to wholly state-owned credit institutions.

b) Other microfinance institutions: They shall themselves decide the distribution of remaining profits in conformity with their Charters and relevant laws.

Article 10. Reporting

1. At the end of the accounting period, every microfinance institution must prepare and send financial statements as regulated by law.

2. Chairperson of the Member Board or General Director (or Director) of the microfinance institution shall be responsible for the accuracy and faithfulness of its reports.

3. Deadlines for submission of reports:

a) Interim financial statements must be submitted by the 30^th of the first month of the subsequent quarter;

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c) Reports on audit of annual financial statements: The microfinance institution shall submit the audited annual financial statements and written opinions given by an independent audit firm upon the completion of audit process.

4. Report recipients:

a) A wholly state-owned microfinance institution shall send its financial statements to the branch of the State Bank of Vietnam in province or central-affiliated city where its head office is located, the State Bank of Vietnam (via the Bank Supervision and Inspection Agency) and the Ministry of Finance;

b) Other microfinance institutions shall send financial statements to branches of the State Bank of Vietnam in provinces or central-affiliated cities where the microfinance institution’s head office is located and the State Bank of Vietnam (via the Bank Supervision and Inspection Agency).

Article 11. Responsibility of regulatory bodies and microfinance institutions

1. The Ministry of Finance and the State Bank of Vietnam shall perform their responsibilities for contents relating microfinance institutions prescribed in Article 37, Article 38 of the Decree No. 93/2017/ND-CP.

2. The State Bank of Vietnam shall take charge of supervising the compliance with financial policies by microfinance institutions; semi-annually and annually send reports on financial status of microfinance institutions and violations against financial policies detected during inspections (if any) to the Ministry of Finance. The State Bank of Vietnam shall send semi-annual and annual reports to the Ministry of Finance by July 31 and March 31 of the following year respectively.

3. Microfinance institutions:

a) Comply with financial policies prescribed in the Law on credit institutions, the Decree No. 93/2017/ND-CP, guidelines herein and relevant legislative documents on financial management;

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Chapter III

IMPLEMENTATION

Article 12. Entry into force

1. This Circular shall come into force as from March 25, 2018.

2. This Circular supersedes the Circular No. 06/2013/TT-BTC dated January 09, 2013 by the Ministry of Finance providing guidelines for financial policies applicable to microfinance institutions.

3. Difficulties that arise during the implementation of this Circular should be reported to the Ministry of Finance for consideration./.

PP. MINISTER
DEPUTY MINISTER




Tran Van Hieu

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