Consolidated Document number 51/VBHN-BTC Circular guiding certain provisions on financial regime for microfinance organizations

MINISTRY OF FINANCE --------	SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness ---------------
Number: 51/CONSOLIDATED DOCUMENT - MINISTRY OF FINANCE	Hanoi, December 31, 2020

 

CIRCULAR[1]

GUIDELINES ON CERTAIN PROVISIONS REGARDING THE FINANCIAL REGIME FOR MICROFINANCE ORGANIZATIONS

Circular No. 18/2018/TT-BTC dated February 12, 2018, issued by the Ministry of Finance, provides guidelines on certain provisions regarding the financial regime for microfinance organizations, which took effect from March 29, 2018, and was amended and supplemented by:

Circular No. 84/2020/TT-BTC dated October 1, 2020, issued by the Ministry of Finance, amends and supplements regulations on periodic reporting within the authority of the Minister of Finance in the field of banking finance, which took effect from November 15, 2020.

Pursuant to the Law on Credit Institutions dated June 16, 2010, and the Law Amending and Supplementing Certain Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Enterprise Law dated November 26, 2014;

Pursuant to Decree No. 93/2017/NĐ-CP dated August 7, 2017, issued by the Government, concerning the financial regime for credit institutions, foreign bank branches, and financial supervision, assessing the effectiveness of state capital investment in credit institutions wholly owned by the State and credit institutions with state capital;

Pursuant to Decree No. 87/2017/NĐ-CP dated July 26, 2017, issued by 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 providing guidelines on certain provisions regarding the financial regime for microfinance organizations.[2]

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular provides guidelines on certain provisions regarding the financial regime for microfinance organizations operating in Vietnam according to the Law on Credit Institutions dated June 16, 2010, and the Law Amending and Supplementing Certain Articles of the Law on Credit Institutions dated November 20, 2017 (hereinafter referred to as the Law on Credit Institutions); Decree No. 93/2017/NĐ-CP dated August 7, 2017, issued by the Government, concerning the financial regime for credit institutions, foreign bank branches, and financial supervision, assessing the effectiveness of state capital investment in credit institutions wholly owned by the State and credit institutions with state capital (hereinafter referred to as Decree No. 93/2017/NĐ-CP).

Article 2. Applicability

1. Microfinance organizations in Vietnam are established, organized, and operate in accordance with the Law on Credit Institutions and any amendments, supplements, or replacements thereof (if any).

2. Other relevant agencies, organizations, and individuals.

Chapter II

SPECIFIC PROVISIONS

Article 3. Capital of microfinance organizations

1. Shareholders' equity:

a) Registered capital includes:

- Capital provided by the State (if any);

- Contributions from organizations and individuals;

- Sponsorship capital from organizations and individuals (if any).

b) Revaluation surplus is the difference between the book value of assets and their revalued value when there is a decision by the State or other revaluation cases as prescribed by law;

c) Reserves include:

- Supplementary registered capital reserve fund;

- Development investment fund;

- Financial reserve fund.

d) Accumulated undistributed profits; accumulated unprocessed losses;

đ) Other capital legally belonging to the microfinance organization as prescribed by law.

2. Raised capital in various forms:

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

- Compulsory savings as stipulated by the microfinance organization;

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

b) Entrusted capital for lending under programs and projects of the Government, domestic and foreign organizations, and individuals;

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

d) Loans from the State Bank of Vietnam.

3. Other capital as prescribed by law.

Article 4. Management and use of capital and assets

1. Microfinance organizations shall be responsible for managing capital and using capital and assets in accordance with the provisions of Chapter II of Decree No. 93/2017/ND-CP, relevant laws, and specific guidelines set forth in this Circular.

2. They must conduct accounting in compliance with current accounting regulations; fully, accurately, and promptly reflect the situation of capital and asset usage and changes during business operations; clearly define responsibilities and forms of handling for each department and individual in cases where microfinance organization assets or capital are damaged or lost.

3. Throughout their business operations, microfinance organizations must ensure to maintain investment limits and purchases of fixed assets directly serving business activities according to the principle that the remaining value of fixed assets does not exceed 50% of the charter capital and additional reserve fund recorded in the accounting books.

4. For leased, pledged, mortgaged, or custodied assets of customers, microfinance organizations shall be responsible for managing, preserving, or utilizing them in accordance with agreements with customers and applicable laws.

5. Regarding real estate held due to debt collection as stipulated in Clause 3, Article 132 of the Law on Credit Institutions:

a) For real estate temporarily held by microfinance organizations for sale or transfer to recover capital within three years, microfinance organizations shall not increase assets or depreciate them.

b) For real estate purchased by microfinance organizations to directly serve business activities, microfinance organizations shall record increased assets and depreciate them in accordance with the law and must ensure investment limits for purchasing fixed assets as stipulated in Clause 3, Article 6 of Decree No. 93/2017/ND-CP.

Article 5. Revenue

The revenue of microfinance organizations includes income items specified in Article 16 of Decree No. 93/2017/ND-CP, specifically:

1. Income from interest and similar income items, including:

a) Interest from deposits;

b) Interest income from loans;

c) Interest income from debt trading operations;

d) Other income from credit activities as prescribed by law.

2. Service income includes:

a) Income from payment services;

b) Income from cash management services;

c) Income from providing collection, disbursement, and money transfer services for microfinance clients;

d) Income from entrusted loan services;

đ) Income from financial advisory services related to microfinance activities;

e) Income from agency insurance service provision;

g) Other service income includes:

- Income from providing asset storage services, safe deposit box rentals;

- Income from providing products to support community development;

- Other service income as prescribed by law.

3. Exchange rate differential income as prescribed by accounting standards and current legal regulations.

4. Other activity income includes:

a) Income from risk-provisioned debts (including debts previously written off but now recovered);

b) Income from debt trading operations;

c) Income from asset transfers and liquidations;

d) Recovery of provisions;

đ) Other income from other activities as prescribed by law, including:

- Income from asset leasing excluding rental income from real estate temporarily held due to debt collection as stipulated in Clause 3, Article 132 of the Law on Credit Institutions to recover debts;

- Income from other activities.

5. Other income:

a) Income from debts owed that have been lost or whose creditors cannot be identified;

b) Customer penalty income and compensation income for breach of contract;

c) Insurance compensation income after offsetting losses covered by insurance;

d) Income from non-repayable grants received by microfinance organizations to implement development programs and organizational activities;

đ) Income from tax refunds or reductions (if any);

e) Other income as prescribed by law.

Article 6. Principles for Revenue Recognition

1. The determination of revenue for corporate income tax purposes shall be carried out in accordance with the provisions of the Corporate Income Tax Law and guiding documents.

2. For interest income and similar types of income:

a) Interest from lending activities: Microfinance organizations shall be responsible for assessing the ability to recover debts and classifying debts in accordance with the legal regulations on banking to serve as the basis for accounting for receivable interest and shall account for it as follows:

- Microfinance organizations shall record the receivable interest arising during the period in income for debts classified as standard loans not requiring specific risk reserves under the regulations of the State Bank of Vietnam;

- The receivable interest of debts that remain in the standard loan category due to implementation of state policies and the receivable interest arising during the period for the remaining debts shall not be accounted for as income; microfinance organizations shall monitor them off-balance sheet to urge collection, and when collected, they shall be recorded as income.

b) Interest from deposits: It is the receivable interest from deposits during the period.

3. Revenue from non-repayable grants received by microfinance organizations to implement development programs and activities: It is the actual amount received at the time of receiving the grant.

4. For foreign exchange gains and losses resulting from revaluation of foreign currencies and gold, microfinance organizations shall record them in accordance with accounting standards and relevant legal regulations.

5. For revenues from other activities: Revenue is the total amount of money from selling products, goods, and providing services during the period accepted by customers for payment regardless of whether the money has been received or not.

6. For receivables that have been recorded as income but are assessed as uncollectible or not collected by the due date, microfinance organizations shall reduce revenue if in the same accounting period or record it as expenses if in a different accounting period and monitor it off-balance sheet to urge collection. When collected, it shall be recorded as income.

Article 7. Expenses

Expenses of microfinance organizations include items specified in Article 17 of Decree No. 93/2017/ND-CP, specifically as follows:

1. Interest expense and similar expenses:

a) Interest paid on deposits; mandatory savings deposits; interest paid on other deposits;

b) Interest paid on borrowings;

c) Other expenses related to credit activities.

2. Service activity expenses:

a) Expenses for collecting payments, making payments, and transferring funds for microfinance clients;

b) Telecommunication service expenses;

c) Expenses for agency fees for lending;

d) Expenses for financial advisory services related to microfinance activities;

đ) Commissions paid to agents, brokers, and trustees for permitted agency, brokerage, and trustee activities. Among these, for brokerage commissions, the following rules apply:

- Microfinance organizations may pay brokerage commissions for permitted brokerage activities;

- Brokerage commissions paid to third parties (as intermediaries) shall not be applied to agents of microfinance organizations, management positions, employees, and related persons of microfinance organizations according to the Law on Credit Institutions and any amendments, supplements, or replacements thereof (if applicable);

- 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 expense, the amount, the method of payment, the start and end dates, and the responsibilities of each party;

- For commissions paid for leasing assets (including seized assets and debt-for-assets swaps): The maximum commission paid by microfinance organizations for leasing each asset through brokerage shall not exceed 5% of the total amount received from leasing that asset through brokerage in the year;

- For commissions paid for selling collateralized or pledged assets: The maximum brokerage commission paid by microfinance organizations for selling each collateralized or pledged asset through brokerage shall not exceed 1% of the actual amount received from selling that asset through brokerage;

- Microfinance organizations shall establish a uniform and transparent system for paying brokerage commissions within their organization. The Board of Directors or General Director (Director) shall approve the system for paying brokerage commissions.

e) Expenses for acting as an agent for insurance service provision.

3. Foreign exchange differences in accordance with accounting standards and current legal regulations.

4. Other operating expenses

a) Expenses for buying and selling debts;

b) Other business operation expenses as prescribed by law.

5. Expenses for taxes, fees, and levies as prescribed by law.

6. Expenses for staff and employees as prescribed by law, including the following items:

a) Wages, salaries, and other items with the nature of wages, including:

- Salaries for full-time members of the Board of Directors, Supervisory Board, and General Management Board; allowances for part-time members of the Board of Directors and Supervisory Board;

- Salaries and allowances paid to staff and employees of microfinance organizations based on labor contracts or collective labor agreements.

b) Contributions made according to wages: Payments for social insurance, health insurance, unemployment insurance, and trade union fees;

c) Payments for severance benefits for workers as prescribed by labor laws;

d) Purchase of personal accident insurance;

đ) Protective equipment expenses for those who need protective gear while working;

e) Uniform expenses for staff and employees working in microfinance organizations according to established regulations;

g) Meal expenses: For state-owned microfinance organizations holding 100% of the charter capital, meal expenses shall be paid according to regulations for state-owned enterprises;

h) Medical expenses including regular medical check-up expenses for workers, preventive drug purchase expenses, and other medical expenses under the responsibility of the enterprise as prescribed by current laws;

i) Other expenses for workers as prescribed by law:

- Expenses according to regulations for female workers;

- Pay annual leave allowance in accordance with the provisions of the law;

- Other expenses.

7. Expenses for management and public service activities:

a) Material and printing paper expenses;

b) Travel expenses;

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

d) Research and application of science and technology expenses, including:

- Establishment of a science and technology development fund in accordance with the provisions of the law. The use of the fund shall be carried out in accordance with current regulations;

- Expenses for the shortfall in cases where the balance of the science and technology development fund is insufficient to cover research and technology application expenses for the year.

đ) Incentive award expenses for innovation, increased productivity, and cost-saving measures: in accordance with the principle of being commensurate with actual effectiveness; microfinance organizations must establish and publicly announce incentive award regulations and form a Committee to verify innovations;

e) Postage and telephone expenses;

g) Publication, publicity, advertising, marketing, and promotional expenses;

h) Purchase of books and periodicals expenses;

i) Electricity, water, and office cleaning expenses;

k) Conference, reception, ceremonial, and foreign affairs transaction expenses;

l) Consulting and expert hiring expenses both domestically and internationally;

m) Audit expenses;

n) Fire prevention and firefighting expenses;

o) Environmental protection expenses. If the expenses in a year are large and have effects over multiple years, they may be allocated to subsequent years;

p) Other expenses:

- Security and defense expenses;

- Other expenses as prescribed by law.

8. Expenses for assets:

a) Depreciation expenses for fixed assets used in business operations shall be implemented according to the management, usage, and depreciation system for enterprises' fixed assets;

b) Fixed asset rental expenses: rental expenses for fixed assets shall be carried out according to the lease agreement. In cases where rental payments are made in one lump sum for multiple years, the rental expense shall be gradually allocated to business costs over the years of asset use;

c) Maintenance and repair expenses for fixed assets;

d) Purchase and repair expenses for tools and equipment;

đ) Asset insurance expenses;

c) Other asset expenses as prescribed by law.

9. Provision establishment expenses:

a) Provision establishment expenses include:

- Risk provision establishment expenses in operations as stipulated in Article 131 of the Law on Credit Institutions;

- Risk provision establishment expenses for special bonds issued by the Vietnam Asset Management Corporation in accordance with point a Clause 2 Article 21 of Decree No. 53/2013/NĐ-CP dated May 18, 2013 of the Government on the establishment, organization, and operation of the Vietnam Asset Management Corporation and Clause 12 Article 1 of Decree No. 34/2015/NĐ-CP dated March 31, 2015 of the Government amending and supplementing certain articles of Decree No. 53/2013/NĐ-CP; guidelines of the State Bank of Vietnam and other legal documents that amend and supplement (if any);

- Provision establishment expenses for inventory write-downs, investment loss provisions, bad debt provisions, and other provisions (if any) in accordance with general provisions applicable to enterprises.

b) The portion of risk provision establishment expenses deductible when determining corporate income tax shall be implemented in accordance with the legal provisions on corporate income tax.

10. Expenses for participating in deposit guarantee and insurance organizations in accordance with the provisions of the law.

11. Other expenses:

a) Membership fee expenses for industry associations that microfinance organizations join at the level set by these associations;

b) Party and mass organization work expenses at microfinance organizations (the portion of expenses outside the organizational budget funded from designated sources);

c) Sale and liquidation expenses for assets (if any), including the remaining value of liquidated fixed assets;

d) Expenses for recovering debts that have been written off, including expenses for recovering non-performing loans, which include service fees paid to organizations permitted to provide debt recovery services under the law, and expenses incurred in purchasing and selling debts;

đ) Loss processing expenses for remaining asset losses: microfinance organizations record the remaining loss value after offsetting with compensation from individuals, groups, or insurance organizations; using provisions established in expenses; utilizing the financial reserve fund of the microfinance organization;

e) Expenses for revenues that have been recorded but not actually received;

g) Social work expenses in accordance with the legal provisions on taxes;

h) Administrative penalty payment expenses, excluding expenses that individuals must pay according to the law;

i) Other expenses:

- Expenses for debts that were previously determined to be uncollectible and recorded as income but later identified as collectible;

- Payment and compensation expenses for economic contract violations within the responsibility of microfinance organizations;

- Enforcement fees and charges within the responsibility of microfinance organizations;

- Community development expenses in accordance with the law.

- Other expenses as prescribed by law.

Article 8. Principles for Recording Expenses

1. The expenses of microfinance organizations are actual expenses incurred during the period related to the business activities of the microfinance organization.

2. Expenses recorded as business expenses of microfinance organizations must comply with the matching principle between revenue and expenses and have valid invoices and supporting documents as prescribed by law. Microfinance organizations shall not record expenses funded by other sources of funds. The determination and recording of expenses shall be carried out in accordance with Vietnamese accounting standards and relevant legal provisions.

3. The determination of expenses when calculating corporate income tax shall be implemented in accordance with the Corporate Income Tax Law and guiding documents.

4. For microfinance organizations held 100% by the State, only deductible expenses as prescribed by the Corporate Income Tax Law may be recorded as business expenses. Specifically, for the portion of risk reserve contributions exceeding the prescribed limit, which can be deducted when determining corporate income tax due to differences between the risk reserve contribution regulations under the Corporate Income Tax Law and those of the State Bank of Vietnam (if applicable), and fines for administrative violations (excluding fines for administrative violations that individuals must pay according to the law), microfinance organizations held 100% by the State may use post-tax profits to offset these costs.

Article 9. Profit Distribution

After covering previous year losses as stipulated by the Corporate Income Tax Law, paying corporate income tax, and deducting other expenses, the remaining profit of microfinance organizations shall be distributed in the following order:

1. Covering losses from previous years that have exceeded the allowable deduction period before corporate income tax as prescribed.

2. The remaining profit after deducting the amount specified in Clause 1 of this Article shall be distributed as follows:

a) Allocating 5% to the supplementary capital reserve fund, with the maximum level of this fund not exceeding the registered capital of the microfinance organization;

b) Allocating 10% to the financial reserve fund.

3. The remaining profit after deducting the amounts specified in Clauses 1 and 2 of this Article shall be distributed as follows:

a) For microfinance organizations held 100% by the State:

- Allocating up to 25% to the development investment fund;

- The representative body of the microfinance organization shall base its review of financial plans, set evaluation criteria, and conduct evaluations for similar microfinance organizations in accordance with the regulations on assessment and classification for state-owned credit institutions. Based on the results of the assessment and classification, the microfinance organization shall distribute the remaining profit in accordance with the regulations for state-owned credit institutions.

b) For other microfinance organizations: the microfinance organization shall decide on the distribution of the remaining profit according to its charter and relevant laws.

Article 10. Reporting System

1. At the end of the accounting period, microfinance organizations must prepare and submit financial reports as prescribed by law.

2. The Chairman of the Board of Members or General Director (Director) of the microfinance organization is responsible for the accuracy and truthfulness of these reports.

3. Deadline for submitting reports:

a) Interim financial report: no later than the first day of the next quarter;

b) Unaudited annual financial report: no later than 90 days from the end of the fiscal year;

c) Annual audited financial report: The microfinance organization shall send the audited annual financial report along with the independent auditor's conclusion immediately upon completion of the audit.

4. Recipients of the reports:

a) State-held microfinance organizations shall submit financial reports to the provincial or centrally-administered city branch of the State Bank where the microfinance organization is headquartered, the State Bank of Vietnam (Supervisory Authority), and simultaneously send them to the Ministry of Finance for coordination;

b) Other microfinance organizations shall submit financial reports to the provincial or centrally-administered city branch of the State Bank where the microfinance organization is headquartered and the State Bank of Vietnam (Supervisory Authority).

Article 11. Responsibilities of Management Agencies and Microfinance Organizations

1. The Ministry of Finance and the State Bank of Vietnam shall perform their responsibilities as stipulated in Articles 37 and 38 of Decree No. 93/2017/ND-CP regarding microfinance organizations.

2.[3] The State Bank of Vietnam shall take the lead in supervising the financial regime of microfinance organizations.

a) Regularly submit reports every six months and annually to the Ministry of Finance on the financial situation of microfinance organizations and any violations of the financial regime discovered during inspection, audit, and supervision (if any). For the six-month report, the State Bank of Vietnam shall send it to the Ministry of Finance before August 15; for the annual report, the State Bank of Vietnam shall send it to the Ministry of Finance before April 15 of the following year.

b) Time period for data consolidation:

- For the six-month report: From January 1 of the reporting period to June 30 of the reporting period (excluding data reflecting a specific point in time).

- For the annual report: From January 1 of the reporting year to December 31 of the reporting year (excluding data reflecting a specific point in time)..

c) Methods of submitting reports shall be carried out through one of the following methods:

- Direct submission in paper form; document;

- Submission via postal service in paper form; document;

- Sending via email systems or specialized information reporting software systems;

- Other methods as prescribed by law.

3. Microfinance organizations:

a) Implement the financial regime as prescribed by the Law on Credit Institutions; Decree No. 93/2017/ND-CP; specific guidance provided in this Circular and other regulatory legal documents related to financial management;

b) Implement the reporting regime and bear full responsibility under the law for the completeness, timeliness, and accuracy of the reported data as stipulated in Decree No. 93/2017/ND-CP and the guidance provided in this Circular.

Chapter III

IMPLEMENTING PROVISIONS

[4]

Article 12. Effective Date

1. This Circular takes effect from March 29, 2018.

2. This Circular replaces Circular No. 06/2013/TT-BTC dated January 9, 2013, issued by the Ministry of Finance guiding the financial regime for microfinance organizations.

3. In the course of implementation, if there are difficulties, please reflect them to the Ministry of Finance for research, consideration, and resolution./.

 

CERTIFIED CONSOLIDATED DOCUMENT DEPUTY MINISTER DEPUTY MINISTER Huynh Quang Hai