Internal loans by a cooperative or cooperative union from November 01, 2024

Internal loans by a cooperative or cooperative union from November 01, 2024 (Image from Internet)

On September 13, 2024, the Government of Vietnam issued Decree 113/2024/ND-CP guiding the Law on Cooperatives 2023.

Internal loans by a cooperative or cooperative union from November 01, 2024

According to the provisions of Article 19 of Decree 113/2024/ND-CP, internal loans in cooperatives and cooperative unions in Vietnam are carried out as follows:

- Cooperatives and cooperative unions perform internal loans when meeting the following conditions:

+ Internal lending capital sources include: residual income after fulfilling tax and other financial obligations, loss handling, setting up funds, and distribution to members under the provisions of the Law on Cooperatives 2023, charter capital, and other owner equity sources but not exceeding 30% of the owner equity recorded in the previous year's financial statement submitted to the tax authority;

+ Internal lending must be approved by the General Assembly of Members and specified in the Charter, including key contents: management, inspection of internal lending; risk handling measures; compensation handling measures for violations of the cooperative’s or cooperative union's internal lending regulations causing losses to the cooperative or cooperative union;

+ Conditions specified at points a, c clause 2 Article 83 of the Law on Cooperatives 2023.

- The maximum lending amount to a member applied in each period is determined by the General Assembly of Members, but not exceeding 5% of the cooperative’s or cooperative union's owner equity used for internal loans.

- The Board of Management considers and decides the lending term to members based on the purpose of the loan and the repayment ability of the member, but the term does not exceed 12 months.

- The internal lending interest rate framework is considered and decided by the General Assembly of Members, but not exceeding 20%/year of the loan amount. The Board of Management considers and decides the specific internal lending interest rate suitable to the lending term, loan purpose but not exceeding the interest rate framework decided by the General Assembly of Members.

The interest rate applied to overdue loans is a maximum of 150% of the on-time loan interest rate on the principal balance recorded in the internal lending contract.

The interest rates for loans must be publicly listed at the cooperative’s or cooperative union's headquarters.

- The Board of Management and borrowing members agree on the repayment term of the principal and interest according to the month, quarter, season, or lump sum payment at maturity, based on the loan purpose and the member’s repayment ability.

- The lending to members can be secured by assets or not secured by assets, and the measures to handle collateral to recover the loan are decided by the Board of Management and presented to the General Assembly of Members, depending on the loan usage purpose, loan term, and loan amount, in accordance with civil law regulations.

Measures to handle collateral to recover the loan (if any) must be included in the internal lending contract.

- In case the borrowing member is unable to repay the principal and interest on time, they must send a request to adjust the repayment term or extend the debt to the Board of Management at least 07 days before the repayment deadline. The Board of Management considers adjusting or extending the debt with a maximum term of 12 months from the end of the lending term.

- If the loan is not extended, the Board of Management transfers the loan balance to overdue debt and applies the overdue loan interest rate as agreed in the internal lending contract; at the same time, the cooperative or cooperative union can proceed with measures to handle collateral to recover the loan as agreed in the internal lending contract.

- When the internal loan is lost, the cooperative or cooperative union records the loss value after compensating with funds from individuals, groups, or insurance organizations (if any) in the current period expenses, and simultaneously reduces the value of the internal loan.

- Cooperatives and cooperative unions perform accounting of internal loans in accordance with the regulations on accounting for cooperatives and cooperative unions.

- Cooperatives and cooperative unions cease internal loans in the following cases:

+ When overdue debt exceeds 5% of total outstanding debt, the cooperative or cooperative union must cease internal lending to take measures to recover overdue loans. When the overdue debt ratio is below 5%, internal loans can resume;

+ During the implementation of internal lending, if cooperatives or cooperative unions do not meet the conditions specified in clause 1 Article 19 of Decree 113/2024/ND-CP, they must cease internal lending until they meet the conditions to resume activities;

+ Existing internal lending contracts signed before the cooperative or cooperative union ceases internal loans will continue to be executed according to the rights and obligations in the contract, but the contract cannot be extended.

- At the end of the financial year, the Board of Management presents the handling plan for unpayable member loans to the General Assembly of Members in accordance with the risk handling measures approved by the General Assembly of Members.

More details can be found in Decree 113/2024/ND-CP which comes into force in Vietnam from January 01, 2024.

Repeal Decree 193/2013/ND-CP of the Government of Vietnam stipulating details of several articles of the Law on Cooperatives 2012.

Repeal Decree 107/2017/ND-CP of the Government of Vietnam amending and supplementing several articles of Decree 193/2013/ND-CP of the Government of Vietnam stipulating details of several articles of the Law on Cooperatives 2012.

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