Decree No. 28/2005/ND-CP on the organization and operation of small-scale financial organizations in Vietnam

DECREE

Regarding the organization and operation of small-scale financial organizations in Vietnam

____________________________________

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

WHEREAS, the Law on the State Bank of Vietnam dated December 12, 1997 and the Law Amending and Supplementing Certain Provisions of the Law on the State Bank of Vietnam dated June 17, 2003;

Based on the Law on Credit Institutions dated December 12, 1997, and the Law Amending and Supplementing Certain Provisions of the Law on Credit Institutions dated June 15, 2004;

At the proposal of the Governor of the State Bank of Vietnam,

DECREE:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

1. This Decree stipulates the organization and operation of small-scale financial organizations in Vietnam.

2. Subjects eligible to establish small-scale financial organizations:

Organizations permitted to establish small-scale financial organizations in Vietnam under the provisions of the law include:

a) Political-social organizations, social organizations, occupational social organizations of Vietnam, Charity Funds, and Social Funds;

b) Non-governmental organizations of Vietnam;

3. Other individuals and organizations within and outside Vietnam may participate in capital contribution with organizations specified in Clause 2 of this Article.

Article 2. Interpretation of Terms

2. Self-generated and self-consumed electricity is electricity produced and consumed by an organization or individual to serve their own needs.

1. Small-scale finance: is the provision of certain small and simple financial and banking services to low-income households and individuals, particularly poor households and individuals.

2. Small-scale financial organization: is a financial organization operating in the financial and banking sector, primarily using its own capital, borrowed capital, and savings deposits to provide certain small and simple financial and banking services to low-income households and individuals.

3. Small and simple financial and banking services include: small-scale credit; mandatory savings, voluntary savings; money transfer agency; insurance agency, collection and payment agency for low-income households and individuals.

4. Small-scale credit: is a loan with a small value, secured or unsecured, provided to low-income households and individuals for income-generating activities and improving living conditions.

5. Low-income household or individual: is defined according to each region or area in Vietnam or based on standards set by small-scale financial organizations.

6. Mandatory savings: is savings deposited by households and individuals at small-scale financial organizations to secure loans for the organization.

7. Voluntary savings: is personal savings deposited at small-scale financial organizations.

8. Legal capital: is the minimum authorized capital required by law to establish a small-scale financial organization.

9. Authorized capital: is the capital contributed by parties to establish a small-scale financial organization. This amount is recorded in the Charter of the small-scale financial organization.

10. Own capital: is the authorized capital and accumulated retained earnings.

11. License: is the License for establishment and operation of a small-scale financial organization issued by the State Bank of Vietnam.

Article 3. Legal Capital:

1. For small-scale financial organizations not permitted to accept voluntary savings: VND 500 million;

2. For small-scale financial organizations permitted to accept voluntary savings: VND 5 billion.

Article 4. Duration of Operation:

1. The maximum duration of operation for a small-scale financial organization is 50 years.

2. In cases where a small-scale financial organization wishes to extend its duration of operation, each extension period shall not exceed the initial license term.

Article 5. Operating Area

1. The operating area of a small-scale financial organization is limited to the province or centrally-administered city and is specified in the License.

2. In cases where a small-scale financial organization wishes to expand its operating area beyond the area specified in the License, the organization must establish a branch in that area. Establishing a branch must meet the requirements for increased authorized capital corresponding to the expanded scope and must be approved by the State Bank.

Article 6. Principles of Operation and Financial Management

A small-scale financial organization is a legal entity with its own charter capital, assets, seal, and operates on the principle of financial autonomy, self-generation of capital, covering its operational costs, and bearing responsibility with its own capital and assets.

Article 7. State Policy

The State protects the ownership rights, legitimate rights, and interests of small-scale financial organizations, ensures their equality and other rights stipulated by law during their operations, issues legal regulations and policies to encourage the development of small-scale financial organizations. The State respects their autonomy and responsibility in their operations, does not interfere in their lawful management and activities.

Chapter II

LICENSE ISSUANCE FOR THE ESTABLISHMENT AND OPERATION OF SMALL-SCALE FINANCIAL ORGANIZATIONS

Article 8. Conditions for Issuance of License

1. There is a need for small-scale financial activities.

2. The People's Committee of the province or centrally governed city must provide comments on the necessity of establishing a small-scale financial organization within its jurisdiction.

3. Sufficient registered capital as prescribed in Article 3 of this Decree.

4. Office premises and facilities suitable for the planned small-scale financial activities.

5. Having managers, supervisors, and administrators as prescribed in Chapter III of this Decree.

6. Having a feasible business plan.

7. For small-scale financial organizations that accept voluntary savings deposits, in addition to the conditions specified in Clauses 1, 2, 3, 4, 5, and 6 of this Article, they must also meet the following conditions:

a) Already obtained a license from the State Bank.

b) Engaged in mandatory savings deposit activities for the last three years.

c) An effective management, supervision, and operation system.

d) Operated soundly for the last three years according to the State Bank's regulations.

e) Information systems meeting management requirements.

f) Complying with banking activity safety regulations and other legal provisions.

Article 9. Documents for License Issuance

The application documents submitted to the State Bank for issuance of a license include:

1. A request letter detailing the proposed activities and operating areas.

2. Approval document from the provincial or centrally governed city People's Committee regarding the necessity of establishing a small-scale financial organization within its jurisdiction.

3. Draft articles of association.

4. Business plan of the small-scale financial organization, clearly stating its economic efficiency and benefits.

5. List, curriculum vitae, certificates proving the qualifications and professional expertise of members of the Board of Directors, Supervisory Board, and General Manager (Director) of the small-scale financial organization.

6. Documentation certifying the registered capital; list and addresses of contributing organizations and individuals; proportion of contributed capital in the registered capital; financial status and related information about contributing organizations and individuals.

7. For small-scale financial organizations accepting voluntary savings deposits, they must submit an audit report for the last three fiscal years.

Article 10. Licensing Fee

Small-scale financial organizations issued a license by the State Bank must pay the licensing fee as prescribed by the Ministry of Finance.

Article 11. Procedures for Issuing and Using the License

1. Within sixty days from the date of receiving complete and valid documents as stipulated in Article 9 of this Decree, the State Bank shall consider issuing the License to small-scale financial organizations. In case of non-approval, the State Bank shall issue a written response stating the reasons for rejection.

2. The License issued to small-scale financial organizations by the State Bank shall specify the specific period of operation, operational area, and permitted activities of the small-scale financial organization.

3. Small-scale financial organizations granted the License must use the correct name and operate according to the contents specified in the License. The License may not be falsified, erased, transferred, rented, or lent out in any form.

Article 12. Commencement of Operations

1. To commence operations, small-scale financial organizations granted the License must meet the following conditions:

a) Have articles approved by the State Bank of Vietnam;

b) Possess a Business Registration Certificate; have sufficient statutory capital;

c) Statutory capital contributed in cash must be deposited into a frozen account opened at the State Bank at least thirty days before commencing operations. This amount can only be released after the small-scale financial organization has commenced operations; this provision does not apply to small-scale financial organizations that were already operating prior to the effective date of this Decree;

d) Have legal documentation regarding ownership rights or permission to use the main office of the small-scale financial organization;

đ) Publish in local newspapers, as required by law, the contents specified in the License. This provision does not apply to small-scale financial organizations that do not accept voluntary savings;

2. At least thirty days before the commencement date, the small-scale financial organization must notify the State Bank and the People's Committee of the province or centrally-administered city in writing about the commencement of operations.

3. Within twelve months from the date of issuance of the License, if the small-scale financial organization does not commence operations, the issued License will automatically become invalid.

Article 13. Extension and Revocation of Licenses

1. Extension of Licenses

a) Applications for extending the License of small-scale financial organizations must be submitted to the State Bank at least two months before the expiration date of the License. The application for extension includes:

- An application for extension;

- A report on the activities of the small-scale financial organization for the three most recent consecutive years.

b) Within thirty days from the date of receiving complete extension applications, the State Bank shall consider and issue a decision to extend the License for the small-scale financial organization or reject the extension. In case of rejection, the State Bank must provide a written response stating the reasons for rejection.

2. Small-scale financial organizations shall have their Licenses revoked in the following cases:

a) There is evidence that the information provided in the license application was intentionally false;

b) Not commencing operations within twelve months from the date of issuance of the License;

c) Voluntarily or being compelled by competent state authorities to dissolve;

d) Splitting, merging, consolidating, or going bankrupt;

đ) Accepting voluntary savings without permission from the State Bank;

e) Operating contrary to the purpose stated in the articles of association.

Article 14. Merger, consolidation, division, and dissolution

In cases where merger, consolidation, division, or dissolution of small-scale financial organizations is necessary, such organizations must submit applications and relevant documents to the State Bank. Within thirty days from receiving complete and valid documents, the State Bank shall issue a response document to the small-scale financial organization. If disapproval is given, the response document must clearly state the reasons for rejection.

The procedures and requirements for merger, consolidation, division, and dissolution of small-scale financial organizations shall be carried out in accordance with the guidelines of the State Bank.

Article 15. Bankruptcy and Liquidation

The bankruptcy and liquidation process of small-scale financial organizations shall be conducted in accordance with the guidelines of the State Bank and the laws on bankruptcy.

Chapter III

ORGANIZATION, MANAGEMENT, SUPERVISION, AND CONTROL OF SMALL-SCALE FINANCIAL ORGANIZATIONS

Article 16. Organizational Structure of Small-Scale Financial Organizations

1. Small-scale financial organizations shall have a Board of Directors, a Supervisory Board, and a General Director (Director).

2. For small-scale financial organizations that do not accept voluntary savings, the Board of Directors shall consist of at least three members, and the Supervisory Board shall consist of at least one member.

3. For small-scale financial organizations that accept voluntary savings, the Board of Directors shall consist of at least three members, and the Supervisory Board shall consist of at least three members.

4. Members of the Board of Directors, the Supervisory Board, and the General Director (Director) of small-scale financial organizations must meet the professional qualifications and ethical standards set forth by the State Bank.

5. The election, appointment, and removal of members of the Board of Directors, the Supervisory Board, and the General Director (Director) of small-scale financial organizations shall be carried out in accordance with the regulations of the State Bank.

Article 17. Functions and Duties of the Board of Directors, Management Board, and Supervisory Board

1. The Board of Directors shall manage the small-scale financial organization in accordance with the law; decide on the policies and directions of operation of the small-scale financial organization, and perform other rights and obligations stipulated in the charter of the small-scale financial organization.

2. The Management Board consists of the General Director (Director) and Deputy General Directors (Deputy Directors), representing the Board of Directors to manage and operate the small-scale financial organization. The General Director (Director) of the small-scale financial organization is the legal representative of the organization.

3. The Supervisory Board represents the Board of Directors to oversee the financial activities of the small-scale financial organization and the management activities of the General Director (Director), and performs other rights and obligations stipulated in the charter of the small-scale financial organization.

Article 18. Persons Not Eligible to Be Members of the Board of Directors, Supervisory Board, or General Director (Director)

1. Currently under criminal investigation.

2. Convicted of serious offenses against national security, serious offenses against socialist public property, or citizens' property; serious economic crimes.

3. Convicted of other crimes without having been rehabilitated.

4. Formerly a member of the Board of Directors or General Director (Director) of a company that has gone bankrupt, except in cases provided for by the laws on bankruptcy.

5. Formerly the legal representative of a company whose operations were suspended due to serious violations of the law.

6. Parents, spouse, children, siblings, or half-siblings of members of the Board of Directors, Supervisory Board, or General Director (Director) of small-scale financial organizations.

Article 19. Opening and Closing Branch Operations

1. Small-scale financial organizations may open branches in domestic areas where there is a need for operations. The opening and closing of branch operations must be approved in writing by the State Bank.

2. Conditions, documents, and procedures for opening and closing branch operations of small-scale financial organizations shall be carried out in accordance with the guidelines of the State Bank.

Article 20. Capital Contribution and Transfer of Contributed Capital

1. Organizations and individuals contribute capital to small-scale financial organizations based on capital contribution contracts.

2. Matters concerning capital contribution and transfer of contributed capital shall be implemented in accordance with the regulations of the State Bank.

Chapter IV

PROVISIONS ON OPERATIONS

Article 21. Provisions on the Operations of Small-Scale Financial Organizations

1. Small-scale financial organizations may carry out some or all of the activities specified in Articles 22, 23, 24, 25, and 26 of this Decree.

2. The State Bank will specify the content of operations in the license of small-scale financial organizations.

Article 22. Fund Raising

Small-scale financial organizations may raise funds from the following sources:

1. Accepting savings:

a) Compulsory savings;

b) Voluntary savings.

2. Borrowing funds:

a) Borrowing from credit institutions permitted to operate in Vietnam;

b) Borrowing from foreign individuals and organizations when approved by the State Bank.

3. Small-scale financial organizations may accept entrusted funds under programs and projects of the Government, organizations, and individuals both domestically and internationally.

Article 23. Credit Activities

1. Lending.

2. Lending using entrusted funds.

Article 24. Other Activities

Small-scale financial organizations have the right to act as agents in fields related to banking and insurance activities.

Article 25. Account Opening

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

Article 26. Payment Services

Small-scale financial organizations are permitted to provide certain limited payment services as prescribed by the State Bank.

Article 27. Restrictions on Credit and Savings Activities

1. Small-scale financial organizations must comply with the following restrictions on credit and savings:

a) The maximum value of a small loan;

b) Maximum outstanding loan balance for a single customer;

c) Restrictions on savings deposits;

d) Maximum savings deposit balance for a single customer.

2. The State Bank is responsible for providing specific guidance on credit and savings restrictions appropriate to each type of small-scale financial organization.

3. Small-scale financial organizations that accept voluntary savings must participate in deposit insurance as stipulated by law.

Article 28. Changes Requiring Approval

1. Small-scale financial organizations must obtain written approval from the State Bank before making changes in any of the following points:

a) Name of the small-scale financial organization;

b) Authorized capital amount;

c) Location of the main office and branches;

d) Content, scope, and duration of operation;

d) Changes related to contributed capital and contributors;

e) Members of the Board of Directors, General Director (Director), and members of the Supervisory Board.

2. The State Bank will guide the documents and procedures for changes in the above cases.

3. After receiving approval from the State Bank, small-scale financial organizations must notify the competent state authorities about the changes specified in Clause 1 of this Article.

Chapter V

FINANCE, ACCOUNTING AND REPORTING

Article 29. Finance

1. The fiscal year of small-scale financial organizations begins on January 1 and ends on December 31 of each calendar year.

2. Financial income and expenditure of small-scale financial organizations shall be carried out in accordance with the provisions of the law and the guidance of the Ministry of Finance.

Article 30. Accounting

Small-scale financial organizations shall conduct accounting according to the account system and document regulations as prescribed by the laws on accounting and statistics, and in accordance with the guidelines of the State Bank of Vietnam.

Article 31. Establishment and Utilization of Reserves

The establishment, maintenance, and utilization of reserves by small-scale financial organizations shall be conducted in accordance with the provisions of the law and the guidance of the Ministry of Finance.

Article 32. Reporting Regime

Small-scale financial organizations shall implement reporting and statistical systems in accordance with the regulations of the State Bank of Vietnam and the Ministry of Finance.

Chapter VI

INSPECTION, SPECIAL SUPERVISION, BANKRUPTCY, DISSOLUTION AND LIQUIDATION

Article 33. Inspection

1. Small-scale financial organizations must undergo inspection by the Inspectorate of the State Bank of Vietnam in accordance with the provisions of the law.

2. The rights and obligations of small-scale financial organizations subject to inspection shall be implemented in accordance with current laws and the guidelines of the State Bank of Vietnam.

Article 34. Special Supervision, Bankruptcy, Dissolution and Liquidation

Special supervision, bankruptcy, dissolution, and liquidation of small-scale financial organizations shall be carried out in accordance with the provisions of the law and the guidelines of the State Bank of Vietnam.

Article 35. Rewards and Handling of Violations

Rewards and handling of violations by small-scale financial organizations shall be carried out in accordance with the regulations of the State Bank of Vietnam.

Chapter VII

IMPLEMENTING PROVISIONS

Article 36. Exemption Clause

1. The conditions stipulated in point a, Clause 7, Article 8 of this Decree shall not apply when considering issuing Licenses to organizations that were engaged in small-scale financial activities before the effective date of this Decree.

2. This exemption clause shall only be applicable for 24 months from the date this Decree becomes effective.

Article 37. Effective Date

1. This Decree shall take effect 15 days after its publication in the Official Gazette and shall replace any previous regulations that conflict with this Decree.

2. Within 24 months from the date this Decree becomes effective, organizations currently conducting small-scale financial activities in Vietnam must complete procedures to request the State Bank of Vietnam to issue Licenses in accordance with the provisions of this Decree or cease their small-scale financial activities.

Article 38. Responsibility for Implementation

1. The Governor of the State Bank of Vietnam is responsible for guiding the implementation of this Decree.

2. The Ministers, Heads of ministerial-level agencies, Heads of government agencies, Chairpersons of People's Committees of provinces and centrally governed cities are responsible for implementing this Decree./.