04 things you should know about small-sized financial institutions in Vietnam

What is small-sized financial institutions? What are the conditions for being granted licenses to establish small-sized financial institutions in Vietnam? - Cong Chinh (Tay Ninh, Vietnam)

04 things you should know about small-sized financial institutions in Vietnam (Internet image)

1. What is small-sized financial institutions?

According to Clause 2, Article 2 of Decree N28/2005/ND-CP, 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.

Specifically, 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

(Clause 1, Article 2 of Decree N28/2005/ND-CP)

2. Conditions for being granted licenses to establish small-sized financial institutions in Vietnam

A small-sized financial institution must satisfy the following conditions in order to be granted an establishment and operation license:

-  Having demand for small-sized financial operations.

- The provincial/municipal People's Committees agree with the necessity to establish. small-sized financial institutions in their respective localities.

- Having sufficient charter capital as prescribed in Article 3 of Decree 28/2005/ND-CP.

- Having working offices and material foundations suitable to the planned small-sized financial operations.

- Having managers, controllers and executives as prescribed in Chapter III of this Decree.

- Having feasible business plans.

- For a small-sized financial institution established in the form of a limited liability company with two or more members, at least one of the capital-contributing members is an organization belonging to entities prescribed in Clause 2, Article 1 of Decree 28/2005/ND-CP dated March 9, 2005 of the Government and fully satisfy the following conditions:

+ Directly participate in the administration or operation of one or more organizations, programs, or projects that provide mandatory savings receipt services; and grant small-scale credit in Vietnam for 03 (three) years prior to applying for a license.

+ Demonstrate safe and sustainable administration, control, and management of small-scale financial activities for at least one (1) year prior to applying for a license.

+ The capital contribution of this shareholder in a small-sized financial institution must reach the minimum ratio prescribed by the State Bank.

- For a small-sized financial institution established in the form of a one-member limited liability company:

+ The owner must be a socio-political organization legally established and operating in Vietnam.

+ Directly participate in the administration or operation of one or more organizations, programs, or projects that provide mandatory savings receipt services; and grant small-scale credit in Vietnam for 03 (three) years prior to applying for a license. 

(Article 8 of Decree 28/2005/ND-CP, as amended by Clause 5 Article 1 of Decree 165/2007/ND-CP)

3. Organizational structure of small-sized financial institutions in Vietnam

A small-sized financial institution having a meeting of members (owners), a Board of Directors, a Supervisory Board, and a General Director (Director) and an assisting apparatus;

The Board of Directors must have at least three (3) members; the Supervisory Board must have at least three (3) members, at least half of whom must be full-time employees.

The terms of the Board of Directors and the Control Board are 05 (five) years. The terms of office of members of the Board of Directors and members of the Supervisory Board shall not exceed 5 (five) years. In the event that a member is elected to supplement or replace a member who is dismissed or removed from office within the term of office, the term of such member is the remaining period of the term of the Board of Directors or the Control Board. Members of the Board of Directors and members of the Supervisory Board may be re-elected.

Members of the Board of Directors, Supervisory Board, and General Director (Director) of a small-sized financial institution must meet the requirements for professional qualifications and other competency standards as prescribed by the State Bank.

The election, appointment, and dismissal of members of the Board of Directors, Supervisory Board, and General Director (Director) of the small-sized financial institution must comply with the regulations of the State Bank.

(Article 16 of Decree 28/2005/ND-CP, as amended by Clause 8 Article 1 of Decree 165/2007/ND-CP)

4. Operation of small-sized financial institutions in Vietnam

Specifically, in Clause 1, Article 21 of Decree 28/2005/ND-CP, Small-sized financial institutions may conduct some or all operations prescribed in Articles 22, 23, 24, 25 and 26 of Decree 28/2005/ND-CP, including:

* Capital mobilization

Small-sized financial institutions are allowed to mobilize capital from the following sources:

- Receiving savings:

+ Compulsory savings;

+ Voluntary savings.

(As amended by Clause 9 Article 1 of Decree 165/2007/ND-CP)

- Borrowing capital:

+ Borrowing capital from credit institutions licensed to operate in Vietnam;

+ Borrowing capital from foreign individuals and organizations when so permitted by the State Bank.

- Small-sized financial institutions may receive capital entrusted under programs or projects of the Government, domestic or foreign organizations or individuals.

* Credit operations

- Granting loans.

- Granting loans from entrusted capital sources.

* Other operations

Small-sized financial institutions may act as agents in the domains, related to banking and insurance activities.

* Opening of accounts

Small-sized financial institutions may open accounts and deposit money at the State Bank, commercial banks and other credit institutions.

* Payment activities

Small-sized financial institutions are allowed to provide a restricted number of payment services according to the State Bank's regulations.

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Thanh Rin

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