Decision No. 47/1997/QĐ-NH21 On the issuance of regulations on management and use of the Rural Development Fund

Pursuant to …;

Regarding the issuance of regulations on the management and use of the rural development fund

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GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the State Bank Law dated May 23, 1990,

Pursuant to Decree No. 15/CP dated March 2, 1993 of the Government on the tasks, powers, and responsibilities for state management of ministries and ministerial-level agencies;

Pursuant to Decision No. 5551/QHQT dated October 2, 1995 of the Government regarding the State Bank's implementation of wholesale banking functions under the Rural Finance Project funded by the World Bank;

Pursuant to the Development Credit Agreement No. 2855/VN signed on July 19, 1996 between the International Development Association (IDA) and the Socialist Republic of Vietnam;

At the proposal of the Project Management Board,

DECISION:

Article 1. Now hereby promulgates along with this Decision the "Regulations on the Management and Use of the Rural Development Fund (RDF)."

Article 2. This Decision shall take effect from the date of signing.

Article 3. The Director of the Office of the Governor, the Head of the Project Management Board, the heads of relevant units under the State Bank, the Directors of the State Bank Branches in provinces and cities, and the General Managers (Directors) of financial institutions selected to participate in the "Rural Finance" project shall be responsible for implementing this Decision.

REGULATIONS

Management and use of the rural development fund

(Issued together with Decision No. 47/QĐ-NH21 dated February 28, 1997)

of the Governor of the State Bank of Vietnam)

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The International Development Association (IDA) has allocated a development credit for the "Rural Finance" project to support small and medium-sized enterprises operating in agricultural production and rural economic development. A portion of this development credit will be allocated to the Rural Development Fund (RDF) established and managed by the State Bank of Vietnam. Investment in small projects of small and medium-sized enterprises will be carried out through financial institutions.

1. These regulations guide the screening of HIV testing for blood transfusion, blood product transfusion, and the implementation of assisted reproductive techniques and organ transplantation at state-owned, private, and public health facilities (hereinafter referred to as health facilities).

Article 1. In these regulations, the following terms are understood as follows:

1. Rural Development Fund (RDF): This is a Fund established and managed by the State Bank of Vietnam within the framework of the "Rural Finance" project. The capital of this Fund comes from the development credit provided by IDA for the "Rural Finance" project.

1.2. The International Development Association is an organization belonging to the World Bank (IDA).

1.3. Project Management Unit (PMU): This is the Project Management Board established pursuant to Decision No. 269/QĐ-NH9 dated September 23, 1995 of the Governor of the State Bank of Vietnam.

1.4. Subsidy loan: The portion of the RDF Fund that the State Bank of Vietnam lends to financial institutions.

1.5. Loan repayment: The capital that financial institutions borrow from the RDF Fund to lend again to enterprises with eligible small projects.

1.6. Enterprise: Includes state-owned enterprises, joint-stock companies, limited liability companies, joint ventures, and private enterprises.

1.7. Small project: An enterprise project implemented using a loan repayment.

1.8. Financial institution: Financial institutions established and operating in the Socialist Republic of Vietnam, selected by the State Bank of Vietnam to participate in the project in accordance with the selection criteria stipulated in these Regulations.

Article 2. Objective:

Through financial institutions, the RDF Fund's resources will be lent again to enterprises engaged in agricultural production and rural economic development to achieve the following objectives:

2.1. Increase medium-term and long-term credit sources for the rural areas excluding Hanoi and Ho Chi Minh City.

2.2. Encourage competition among financial institutions in providing financial services in rural areas.

2.3. Enhance the capacity of financial institutions operating in the field of rural finance.

2.4. Improve the accessibility of poor rural people to formal credit sources, thereby reducing high-interest lending in rural areas and improving the living standards of the population.

1. Provisions on HIV screening tests:

Article 3. Financial institutions eligible for consideration for loans from the RDF Fund:

3.1. State-owned commercial banks.

3.2. Joint-stock commercial banks.

3.3. Other financial institutions.

Article 4. Criteria for selecting financial institutions eligible for RDF Fund loans.

4.1. Legality:

They must be financial institutions established, organized, and operating in compliance with the regulations of the State Bank of Vietnam and other regulations of the Vietnamese government, and must comply with all laws, regulations, and rules currently in effect in Vietnam.

4.2. Solvency:

A financial institution is considered solvent when the value of its operational assets is sufficient to cover its debts, particularly those owed to depositors and lenders.

The determination of the solvency of financial institutions will be based on the following financial indicators:

4.2.1. The ratio of overdue debt not exceeding 5% compared to the total amount of loans (overdue debt is determined by overdue debt minus provisions for uncollectible loans);

4.2.2. The adequacy ratio of capital should not be less than 10% (the adequacy ratio of capital is determined by the proportion of equity or pure share capital to risk-weighted assets - including loans and investments, except for government securities).

The lower the ratio of overdue debt and the higher the adequacy ratio of capital, the higher the solvency of financial institutions.

4.3. Liquidity:

A financial institution is considered liquid when it can quickly convert its assets into cash or when its liquid assets (cash at the bank, deposits at banks, short-term investments in gold or government securities) are sufficient to cover its short-term liabilities (determined by demand deposits, short-term deposits, and debt service for loans due within one year).

The liquidity ratio, which is the proportion of liquid assets over short-term liabilities, should not be less than 40%.

The higher the liquidity ratio, the higher the liquidity of financial institutions.

4.4. Profitability and efficiency:

The profitability and efficiency of a financial institution are determined by the following financial indicators.

4.4.1. Return on Equity (ROE), which is net profit after tax relative to equity or share capital.

4.4.2. The return on income-generating assets, where income-generating assets are determined by the total of loans granted and investments (net profit for the year on income-generating assets) exceeding 5%.

When examining the above standards, nominal profitability and actual profitability must also be considered to ensure that the equity capital of Financial Institutions is not eroded by inflation, i.e., the return on equity exceeds the annual inflation rate. Actual ROE is determined by net profit for the year on equity capital minus fixed assets at the beginning of the year.

4.5. Management capability of the staff:

Financial Institutions must have a management staff with qualifications and expertise in accordance with the regulations of the State Bank of Vietnam.

4.6. Temporary selection ability:

The criteria for selecting Financial Institutions participating (Financial Institutions) mentioned above, together with the ratios stated in Sections 4.2, 4.3, and 4.4 of this part, are based on the standards of international commercial banks set forth by IDA. In cases where a Financial Institution has not fully met the selection criteria mentioned above, such institution may still be temporarily selected. To participate in this project, the Financial Institution must submit to PMU for review and approval with the consent of IDA its institutional development plan along with an appropriate training program and a specific timeline to meet the aforementioned criteria. PMU will be responsible for monitoring and supervising the implementation of these plans through semi-annual evaluations ending on June 30 and December 31 each year and presenting the evaluation results to IDA for review before September 30 and March 31 each year.

If a Financial Institution fails to comply with the selection criteria or the approved institutional development plan and does not implement the corrective measures proposed by PMU, PMU has the right to cut off any uncommitted loan portion of the sub-loan and take necessary actions to preserve the committed outstanding balance.

Article 5. Eligible sub-projects:

5.1. The Rural Development Fund (RDF) will be used to finance short-, medium-, and long-term investments, as well as working capital, carried out by enterprises in rural areas that are feasible and consistent with the project's objectives. Sub-projects in the following sectors will be considered eligible for RDF financing:

5.1.1. Feasible production activities related to agriculture, forestry, fisheries, and other rural industries such as aquaculture, agro-industries, commodity production, construction, fruit processing, agricultural products, food processing, packaging, oil pressing...

5.1.2. Feasible investment activities carried out by service enterprises aimed at supporting rural economic activities, creating jobs, and promoting exports such as transportation, garment manufacturing, weaving and handicrafts...

5.2. To be considered eligible, sub-projects must be technically and economically feasible, financially sound, and comply with Vietnam's environmental protection regulations.

5.3. State-owned enterprises with small and medium scale can only receive a maximum loan amount not exceeding 5% of the credit limit allocated to a Financial Institution from the RDF at any given time. Small and medium-sized state-owned enterprises are those with total assets not exceeding 2,000,000 USD and having fewer than 500 employees.

5.4. Enterprises are considered eligible if they have at least 70% ownership by Vietnamese nationals.

Investment activities in land are not eligible.

Article 6. Lending, repayment, and interest:

6.1. The assessment, acceptance of sub-projects, and lending decisions are the responsibility of Financial Institutions. Financial Institutions must be responsible for recovering capital and repaying debts fully and on time, and bear all credit risks associated with these loans.

6.2. For sub-loans with a value lower than 20,000 USD equivalent, PMU will disburse funds to Financial Institutions from a special account based on expenditure statements. PMU will review the appraisal reports of sub-projects conducted by Financial Institutions after disbursement.

6.3. For sub-loans with a value over 20,000 USD equivalent and under 150,000 USD equivalent, PMU will examine and approve the project appraisal documents submitted by Financial Institutions before approving disbursement from a special account. However, depending on the performance of each Financial Institution in appraising sub-projects, PMU may request IDA to exempt PMU from having to pre-approve the appraisal documents of sub-loans made by that Financial Institution. If IDA approves, disbursement for this Financial Institution for sub-loans from the RDF over 20,000 USD equivalent and under 150,000 USD equivalent will be based on expenditure statements with subsequent review by PMU.

6.4. For sub-loans over 150,000 USD equivalent, IDA's approval of the sub-project must be obtained before PMU allows disbursement from a special account or withdrawal from a credit account.

6.5. In all cases, Financial Institutions must submit loan documentation, procurement documents, and payment vouchers in compliance with regulations to PMU within a maximum period of 60 days from the date of disbursement. If a Financial Institution fails to submit or obtain the required loan documentation, the sub-loan will be canceled and recovered, and a penalty fee will be applied.

Article 7. Loan term:

The term of the secondary loans granted by the State Bank of Vietnam to Financial Institutions shall be consistent with the term of the onward loans implemented by such Financial Institutions. Onward loans from the RDF Fund shall not be used to finance sub-projects with an expected payback period exceeding ten years. The repayment period for principal of onward loans from the RDF Fund (including grace periods determined based on the projected cash flow balance of the sub-project and the borrower's repayment capacity) shall not exceed ten years or the payback period of the sub-project if it is shorter than ten years. The term of short-term loans (onward loans from the RDF Fund) shall not exceed twelve months.

Article 8. Interest Rate:

8.1. The State Bank of Vietnam will grant loans to Financial Institutions in US dollars or Vietnamese dong, depending on the nature and requirements of eligible and suitable sub-projects, in accordance with Vietnam’s foreign exchange management regulations, at interest rates determined according to the following principles:

8.1.1. For loans in Vietnamese dong, a floating interest rate that may be adjusted quarterly will be applied, equivalent to the actual weighted average cost of funds that can be lent within the banking system. The weighted average interest rate of deposits will be used as a reference rate to calculate the cost of funds for loans to Financial Institutions. This reference rate takes into account costs related to the State Bank of Vietnam’s reserve requirement. Reference rates for short-term loans (not exceeding twelve months) are the weighted average interest rates of demand deposits and three-month time deposits. Reference rates for medium- and long-term loans (over one year) are the weighted average interest rates of six-month deposits and longer-term deposits in the banking system.

8.1.2. For loans in US dollars, a floating interest rate that may be adjusted quarterly and not less than the six-month LIBOR plus a margin of at least 1% per annum to cover the operational costs of the PMU associated with secondary loans, including provisions for loan losses, will be applied.

8.2. For onward loans implemented by Financial Institutions, interest rates consistent with each Financial Institution’s interest rate policy but conforming to the interest rate regulations published by the Governor of the State Bank of Vietnam during specific periods shall be applied. Borrowers may choose a fixed interest rate throughout the loan term or for a certain period, or a periodically adjustable floating interest rate. In cases where Financial Institutions provide onward loans at a fixed interest rate, the State Bank of Vietnam will determine the applicable fixed interest rate for secondary loans to such Financial Institutions in a manner approved by the IDA.

Article 9. Inspection and Handling of Violations:

9.1. The State Bank of Vietnam will conduct periodic or spot inspections of the use of loan funds by Financial Institutions.

9.2. In the event that a Financial Institution fails to repay the principal and interest of a secondary loan on schedule, based on the actual situation of the loan and the financial condition of the Financial Institution, the State Bank of Vietnam has the right to declare the outstanding balance of the overdue loan from the RDF Fund due or to declare the secondary loan (the loan with unpaid principal and interest) overdue; simultaneously, the State Bank of Vietnam will not consider granting further loans from the RDF Fund to the borrowing Financial Institution. The State Bank of Vietnam will calculate a monthly penalty fee rate equal to 150% of the current applicable interest rate on the overdue amount and may apply other necessary sanctions.

Article 10.Pledge, mortgage, and insurance:

All activities related to the pledge and mortgage of refinancing loans from the RDF Fund, sub-loans, and activities related to the insurance of pledged and mortgaged assets must comply with Vietnam's regulations on pledge, mortgage, and insurance.

Article 11. Microproject financing:

For each accepted microproject, Financial Institutions must provide at least 10% of the microproject cost from their own funds. The minimum contribution of the refinanced borrower shall be determined by the Financial Institution based on the assessment of each microproject, but not less than 15% of the microproject cost, which may be in cash or foreign currency, except for land. In all cases, refinancing loans from the RDF Fund for each microproject shall not exceed 75% of the microproject cost.

Article 12. Reporting System:

Periodically or upon request, Financial Institutions must provide reports and other information to the State Bank of Vietnam as required for supervisory purposes or to report to IDA.

Article 13. Auditing:

Annually, at the specified time, Financial Institutions must submit their audited financial reports to the State Bank of Vietnam by an independent auditing company approved by the State Bank of Vietnam.

III - IMPLEMENTATION PROVISIONS:

Article 14. Heads of relevant units under the State Bank of Vietnam, Branch Governors of the State Bank of Vietnam in provinces and cities, and General Directors (Directors) of selected Financial Institutions participating in the rural finance project are responsible for implementing this regulation. Any supplementation or amendment to this regulation shall be decided by the Governor of the State Bank of Vietnam.