Circular No. 06/2013/TT-BTC guiding financial regulations for microfinance organizations

CIRCULAR

Guidelines on financial regulations for microfinance organizations

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Pursuant to the Enterprise Law dated November 29, 2005;

Pursuant to the Law on Credit Institutions dated June 16, 2010;

Pursuant to Decree No. 57/2012/NĐ-CP dated July 20, 2012 of the Government on financial regulations for credit institutions and foreign bank branches;

Pursuant to the Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

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

The Minister of Finance issues this Circular guiding financial regulations for microfinance organizations.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular guides certain provisions on financial regulations for microfinance organizations in Vietnam.

Financial activities of microfinance organizations shall be carried out in accordance with the Law on Credit Institutions dated June 16, 2010 (referred to herein as the Law on Credit Institutions); Decree No. 57/2012/NĐ-CP dated July 20, 2012 of the Government on financial regulations for credit institutions and foreign bank branches (referred to herein as Decree No. 57/2012/NĐ-CP); specific guidance provided in this Circular; and other legal documents governing financial management that are relevant.

Article 2. Applicability

This Circular applies to microfinance organizations established, organized, and operating in Vietnam in accordance with the Law on Credit Institutions.

Chapter II

SPECIFIC PROVISIONS

Article 3. Capital of microfinance organizations

1. Shareholders' equity.

a) Charter capital.

b) Exchange rate differences as prescribed by law.

c) Revaluation surplus, which is the difference between the book value of assets and their revalued amount when there is a decision by the State.

d) Additional reserve funds, business development funds, and financial contingency funds.

e) Undistributed profits.

g) Other lawful assets of microfinance organizations as prescribed by law.

2. Capital raised through various forms.

a) Accepting deposits in Vietnamese dong in the following forms:

- Compulsory savings as prescribed by microfinance organizations.

- Deposits from organizations and individuals, including voluntary deposits from microfinance clients (excluding deposits for payment purposes).

b) Loans from credit institutions, financial organizations, and other domestic and foreign individuals and organizations as prescribed by law.

c) Entrusted capital for lending under programs and projects of the Government and domestic and foreign organizations and individuals.

Article 4. Use of Capital and Assets

1. Microfinance organizations are responsible for managing, utilizing, and monitoring all existing assets and capital, conducting accounting in accordance with current accounting regulations; fully, accurately, and promptly reflecting the usage and changes of capital and assets during business operations; clearly defining responsibilities and handling procedures for each department and individual in cases of damage or loss of assets and capital of microfinance organizations.

2. Microfinance organizations may use operational capital to serve business activities in accordance with the Law on Credit Institutions, Decree No. 57/2012/NĐ-CP, and specific guidelines in this Circular, based on the principle of ensuring safety and developing capital.

a) Throughout the course of operation and production, microfinance organizations must ensure maintaining investment limits for construction and acquisition of fixed assets directly serving business activities according to the principle: the remaining value of fixed assets does not exceed 50% of charter capital and additional reserve funds for microfinance organizations.

b) For real estate held due to debt recovery as stipulated in Clause 3, Article 132 of the Law on Credit Organizations:

- For real estate temporarily held by microfinance organizations for sale or transfer to recover capital, microfinance organizations do not increase asset accounts and do not depreciate.

- For real estate acquired by microfinance organizations to directly serve business activities, microfinance organizations increase asset accounts and depreciate according to legal provisions and ensure investment limits for construction and acquisition of fixed assets as stipulated in sub-clause a of clause 2 of this Article.

c) Microfinance organizations implement measures to ensure capital safety as prescribed in Article 8 of Decree No. 57/2012/NĐ-CP. The establishment of provisions in expenses by microfinance organizations shall be implemented according to the following specific provisions:

- For risk provisions in banking activities, microfinance organizations establish and use risk provisions according to the regulations of the Governor of the State Bank of Vietnam after consultation with the Minister of Finance.

- For inventory write-down provisions, long-term investment loss provisions, and doubtful receivables provisions (other than risk provisions in banking activities), microfinance organizations establish provisions according to general regulations applicable to enterprises.

d) Leasing, mortgaging, and pledging of assets: Microfinance organizations have the right to lease, mortgage, and pledge their assets according to the Civil Code, the Law on Credit Institutions, and other laws to ensure effective, safe, and capital development.

đ) For leased assets, microfinance organizations are responsible for managing, preserving, or using them in accordance with agreements with customers in compliance with legal provisions.

e) Sale and liquidation of assets:

- The sale and liquidation of assets by microfinance organizations shall be conducted in accordance with legal provisions and the Articles of Association of the microfinance organization.

- Microfinance organizations may sell assets to recover capital for more effective business purposes.

- Microfinance organizations may liquidate obsolete, deteriorated, irreparable, technologically outdated, unused, or ineffective assets that cannot be sold in their original condition, or assets that have exceeded their useful life and cannot continue to be used. When liquidating assets, microfinance organizations must establish a Liquidation Committee.

- For assets that must be auctioned off according to legal provisions when selling or liquidating, microfinance organizations must organize auctions in accordance with legal provisions.

Article 5. Revenue Management

1. Revenue of microfinance organizations includes income items specified in Article 15 of Decree No. 57/2012/NĐ-CP, specifically:

a) Income from business and service activities includes:

- Income from lending activities: Interest income from deposits, interest income from lending activities, and other income from lending activities.

- Revenue from service activities includes: revenue from entrusted loan service, revenue from agency collection and payment services and money transfer for microfinance customers, revenue from financial advisory services related to microfinance operations, revenue from insurance agency services.

- Revenue from exchange rate differences as prescribed in accounting standards and current laws.

- Revenue from other business activities, including: revenue from leasing assets, revenue from other business activities as permitted by operating licenses.

b) Other revenues include:

- Revenue from the sale or liquidation of fixed assets.

- Revenue from loans that have been processed through risk provisions (including debts that were written off but have now been recovered).

- Revenue from debts owed by parties whose identity cannot be determined or who have disappeared, which are recorded as increased income.

- Revenue from customer penalties and compensation payments due to breach of contract.

- Revenue from insurance claims.

- Revenue from tax refunds or reductions.

- Revenue from reversing excess risk provisions (where the amount to be set aside is lower than the amount already set aside) without reducing costs as prescribed by laws on risk provisions.

- Revenue from non-repayable funding for development programs and activities of microfinance organizations.

- Other income.

2. Principles for recognizing revenue.

a) Interest revenue from lending activities: Microfinance organizations record interest receivable generated during the period as income for qualified loans not subject to specific risk provisions according to regulations. For interest receivable generated during the period from remaining loans, it shall not be recorded as income; microfinance organizations monitor such items off-balance sheet to urge recovery, and when recovered, record them as business revenue.

b) Interest income from deposits: is the receivable interest for the period.

c) Revenue from receiving non-repayable funding for development programs and activities of microfinance organizations: this is the actual amount received at the time of receipt of funding.

d) For revenue from other activities: revenue is the total amount received from selling products, goods, and providing services during the period, accepted by customers for payment after deducting commercial discounts, price reductions, and returned goods value (if there is valid documentation), regardless of whether the payment has been received or not.

đ) For receivables that have been recorded as income but remain uncollected by the due date, microfinance organizations shall reduce revenue if they are within the same accounting period or record them as expenses if they are outside the accounting period, and monitor them off-balance sheet to urge recovery. When collected, they shall be recorded as business revenue.

3. Revenues of microfinance organizations arising during the period must be supported by invoices or valid documentation and must be fully recorded as revenue.

Article 6. Expense Management

1. Expenses of microfinance organizations include those specified in Article 16 of Decree No. 57/2012/NĐ-CP. Some expenses of microfinance organizations are implemented as follows:

a) Business operation expenses:

- Loan operation expenses: interest paid on deposits, interest paid on loans, and other expenses for credit operations.

- Banking service operation expenses: expenses for entrusted loan services; fees for entrusted loan services; expenses for agency collection and payment services and money transfers for microfinance customers; expenses for insurance agency services; expenses for financial advisory services related to microfinance operations.

- Exchange rate difference expenses as prescribed in accounting standards and current laws.

- Expenses for other business operations.

b) Tax payments and fees, including land lease-related taxes, fees, and levies (excluding corporate income tax) as prescribed by law.

c) Asset expenses:

- Depreciation expenses for fixed assets used in business operations are carried out according to the management, usage, and depreciation system for enterprises.

In case of purchasing fixed assets on installment: microfinance organizations record the difference between the total amount payable and the purchase price of the fixed asset paid immediately as expense over the payment period, except where such difference is capitalized (added to the cost basis of the fixed asset) according to accounting standards.

- Fixed asset lease expenses: Lease expenses for fixed assets are carried out according to lease contracts. In cases where lease payments are made in advance for multiple years, lease payments are allocated gradually as business expenses over the years of asset usage. For expenses related to land leases that are not deductible according to regulations, microfinance organizations allocate them as expenses over the period of land use.

- Maintenance and repair expenses for fixed assets.

- Purchase and repair expenses for tools and equipment.

- Insurance expenses for assets.

d) Employee expenses as prescribed by law, including:

- Salary and wage expenses and other amounts with the nature of salary.

- Contributions based on salary: social insurance, health insurance, unemployment insurance, and union dues payments.

- Unemployment benefits paid to employees as prescribed by law for enterprises.

- Expenses for purchasing personal accident insurance.

- Meal expenses.

- Labor protection expenses for those required to wear protective gear while working.

- Uniform expenses for staff working in microfinance organizations as stipulated.

- Expenses for female workers as prescribed.

- Medical expenses including regular health check-up expenses for employees, expenses for preventive medicine purchases, and other medical expenses under the responsibility of the enterprise as prescribed by current laws.

- Annual leave pay as prescribed by law.

- Other employee expenses as prescribed by law.

đ) Management and administrative expenses:

- Travel expenses.

- Expenses for electricity, water, telephone, materials, printing paper, office supplies, and printing of management forms and samples.

- Warehouse and fund operation expenses.

- Expenses for hiring consultants and experts both domestically and internationally.

- Audit expenses.

- Training and capacity-building expenses for staff, including training expenses for cooperators and customers within the scope of microfinance operations.

- Fees paid to cooperators under cooperation agreements or mutual agreements between parties.

- Commissions and agency fees must be reflected in valid agency and entrustment contracts.

- Establishment of a science and technology development fund as prescribed by law. The use of the fund shall be carried out according to current regulations.

- Scientific research and technology development expenses: the shortfall in expenses after utilizing the science and technology development fund.

- Expenditure for rewarding innovative ideas that improve productivity and cost savings: in accordance with the principle of being commensurate with actual effectiveness; microfinance organizations must establish and publicly announce regulations on expenditure for rewarding innovative ideas and set up a Board to verify such ideas.

- Expenditure for fire prevention and firefighting.

- Expenditure for environmental protection work.

- Expenditure for protecting the organization.

- Expenditure for reception and celebration activities, propaganda and advertising, marketing, promotions, foreign transactions, conference fees, and other types of expenses as prescribed by regulations and must be supported by invoices or receipts as stipulated by the Ministry of Finance, linked to the business results of microfinance organizations.

- Commissions and brokerage fees: The expenditure for commissions and brokerage fees of microfinance organizations must be tied to the economic benefits generated by such brokerage services. Microfinance organizations shall base their regulations on the guidelines for commission and brokerage fees issued by the Ministry of Finance, taking into account their specific conditions and characteristics, to develop uniform and publicized regulations on commission and brokerage fees within the organization. The Board of Members or General Director (Director) of the microfinance organization shall approve the regulations on commission and brokerage fees applicable within the unit.

The recipients of brokerage commissions are organizations and individuals (domestic and foreign) who provide brokerage services to microfinance organizations. Brokerage commissions shall not be applied to agents of microfinance organizations, designated customers, management positions, or employees of microfinance organizations.

The payment of brokerage commissions must be based on contracts or confirmation letters between the microfinance organization and the recipient of the brokerage commission, which must include basic contents such as the name of the recipient, the nature of the expenditure, the amount, the method of payment, the time of implementation and completion, and the responsibilities of both parties.

For brokerage expenditure for leasing assets (including seized assets and debt-settlement assets): the maximum brokerage expenditure for leasing assets by microfinance organizations shall not exceed 5% of the total revenue from leasing asset activities facilitated by brokerage services in a year.

For brokerage expenditure for selling collateral and pledged assets: the level of brokerage commissions for selling collateral and pledged assets by microfinance organizations shall not exceed 1% of the actual value obtained from the sale of such assets through brokerage services.

e) Provision for risk: Expenditure for establishing provisions in the operations of microfinance organizations as prescribed in point c, Clause 2, Article 4 of this Circular.

g) Costs for participating in organizations for deposit preservation and insurance as prescribed by law.

h) Other expenditures:

- Membership fees paid to domestic and international industry associations in which the microfinance organization participates at the rates specified by these associations.

- Expenditures for Party and mass organization work at microfinance organizations (excluding expenditures covered by the budget of the Party and mass organizations funded from designated sources).

- Expenditures for revenues that have been recorded but were actually not received and not reduced from revenue.

- Expenses for debts that were previously untraceable and recorded as income but later identified as creditors.

- Expenditures for the sale or liquidation of assets (if any), including the remaining value of fixed assets sold or transferred.

- Expenditures for service fees for debt recovery provided by organizations authorized to perform debt recovery services according to the law; expenditures for recovering written-off debts, and costs for recovering bad debts.

- Expenditures for administrative fines; penalties and compensation for breach of economic contracts under the responsibility of microfinance organizations.

- Expenditures for recovering written-off debts, and costs for recovering bad debts.

- Expenditures for processing losses on remaining assets after compensation from sources as prescribed in Article 11 of Decree No. 57/2012/NĐ-CP.

- Social work expenditures, including financial support for healthcare, education, disaster relief, care and support for improving welfare for poor households, and other expenditures as prescribed by law.

- Litigation fees and execution fees.

- Other expenses;

2. Principles for recognizing expenses.

a) Expenditures of microfinance organizations are actual expenditures incurred during the period related to business activities.

b) Expenditures recorded as business expenses of microfinance organizations must comply with the principle of matching revenue and expenses and must be supported by valid invoices and receipts as prescribed by law.

3. Microfinance organizations shall not include the following items in their expenses:

a) Items unrelated to the business activities of microfinance organizations.

b) Items without valid supporting documents.

c) Administrative fines that individuals must pay according to the law, including traffic violations, registration system violations, accounting and statistics violations, tax law violations, and other administrative violations.

d) Items that have been recorded as expenses but were not actually paid.

đ) Other unreasonable expenditures.

Article 7. Accounting Currency

The determination of the currency for accounting shall be carried out in accordance with Article 18 of Decree No. 57/2012/NĐ-CP.

Microfinance organizations conducting economic activities in foreign currencies must convert them into Vietnamese Dong according to the provisions of the law.

Article 8. Accounting, Statistics, Audit, Reporting, and Financial Disclosure System

1. Microfinance organizations shall implement accounting regulations as prescribed by law, maintain complete original vouchers, update accounting books, and accurately, timely, truthfully, and objectively reflect all economic and financial activities.

2. The fiscal year for microfinance organizations begins on January 1 and ends on December 31 of each calendar year.

3. Microfinance organizations shall settle their financial accounts and comply fully with regulations regarding the preparation and submission of financial reports to the State Bank of Vietnam as stipulated.

The Chairman of the Board of Members or General Director (Director) of microfinance organizations shall be responsible for the accuracy and honesty of these reports.

4. Content and deadlines for submitting financial reports:

a) Financial Reports.

The system of annual financial reports, interim financial reports, accounting reports, and deadlines for submitting reports shall be carried out according to the regulations of the State Bank of Vietnam on the financial reporting system for credit institutions.

b) Annual Audited Financial Report.

Microfinance organizations shall submit the audited annual financial report along with the independent auditor's conclusion immediately upon completion of the audit.

5. Receiving Authority for Reports:

a) Microfinance organizations shall submit financial reports to the branch of the State Bank of Vietnam where the main office of the microfinance organization is located and to the State Bank of Vietnam (Supervisory Authority).

b) Microfinance organizations shall submit the results of the annual financial report audit to the State Bank of Vietnam and the Ministry of Finance.

Article 9. Inspection and Handling of Financial Violations

1. Financial Inspection.

a) Forms of Financial Inspection.

Financial inspections shall be conducted in the following forms:

- Regular or surprise financial inspections.

- Special topic inspections based on the requirements of financial management work.

b) Authorities Conducting Financial Inspections.

- The State Bank has the responsibility to comprehensively inspect, audit, and supervise the operations of microfinance organizations, including financial activities; it shall notify the Ministry of Finance of any violations or issues related to the implementation of financial management systems discovered during inspections, audits, and supervision so that the Ministry of Finance can cooperate in handling them and perfecting policies.

- The Ministry of Finance shall conduct inspections in accordance with current laws on inspection; examine issues related to financial management work and compliance with financial systems by microfinance organizations to serve the improvement of financial management mechanisms for microfinance organizations; it shall notify the State Bank of Vietnam of the results of inspections and audits for coordinated handling.

2. Handling of Violations.

Microfinance organizations violating state financial systems and financial reporting systems shall be subject to penalties as prescribed by law.

Article 10. Responsibilities of Regulatory Authorities

1. The Ministry of Finance and the State Bank shall fulfill their responsibilities as stipulated in Articles 34 and 35 of Decree No. 57/2012/NĐ-CP.

2. Quarterly and annually, the State Bank shall have the responsibility to notify the Ministry of Finance of the financial situation of microfinance organizations as stipulated in Clause 1 of Article 35 of Decree No. 57/2012/NĐ-CP, specifically according to the following indicators:

a) Number of microfinance organizations.

b) Total charter capital and owner's equity of microfinance organizations.

c) Total assets and safety ratios in the operations of microfinance organizations.

d) Total outstanding loans, total funds raised, and non-performing loan ratios of microfinance organizations.

đ) Total profits and number of microfinance organizations not operating at a loss; total losses and number of microfinance organizations operating at a loss.

e) Amounts paid to the state budget by microfinance organizations (classified by types of taxes and fees).

g) Financial system violations of microfinance organizations discovered during inspections and supervision.

h) Other relevant indicators and contents.

Chapter III

IMPLEMENTATION

Article 11. Implementation Organization

1. This Circular takes effect from February 25, 2013.

2. Any difficulties encountered during implementation should be reported to the Ministry of Finance for study, consideration, and resolution./.