Circular No. 62/2006/TT-BTC guides the financial regime for grassroots People's Credit Funds.

CIRCULAR

Guidelines for financial regime implementation

for People's Credit Funds at grassroots level

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Pursuant to Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on the financial regime for credit organizations, based on the scale and nature of operations of People's Credit Funds at grassroots level, the Ministry of Finance provides guidelines for the financial regime for People's Credit Funds at grassroots level as follows:

PART I

GENERAL PROVISIONS

1. The subject of this Circular is People's Credit Funds at grassroots level established, organized, and operating in accordance with Law No. 02/1997/QH10 dated December 12, 1997 on Credit Organizations and Law No. 20/2004/QH11 dated June 15, 2004 amending and supplementing certain articles of the Law on Credit Organizations.

2. Financial activities of People's Credit Funds at grassroots level shall be carried out in accordance with Decree No. 146/2005/NĐ-CP dated November 23, 2005 of the Government on the financial regime for credit organizations, specific guidance provided in this Circular, and other legal documents on financial management.

3. The Chairman of the Board of Directors and the General Director of People's Credit Funds at grassroots level are responsible under the law, before state management agencies, and the Members' Assembly for implementing the financial regime of People's Credit Funds at grassroots level.

PART II

SPECIFIC PROVISIONS.

I. MANAGEMENT AND USE OF CAPITAL AND ASSETS

1. Capital Management

1.1. The operational capital of People's Credit Funds at grassroots level includes:

a) Registered capital, which is the amount of capital contributed by members recorded in the charter of the People's Credit Fund at grassroots level.

b) Revaluation surplus.

c) Supplementary registered capital reserve fund, business development investment fund, financial reserve fund.

d) Undistributed profits.

e) Raised capital.

g) Borrowed capital.

h) Entrusted service capital from domestic and foreign organizations and individuals.

i) Other capital as prescribed by law.

1.2. During operation, People's Credit Funds at grassroots level must maintain registered capital not lower than the statutory capital requirement set by the Government for People's Credit Funds at grassroots level.

1.3. Own capital of People's Credit Funds at grassroots level as stipulated by the Governor of the State Bank.

2. Utilization of Capital of People's Credit Funds at Grassroots Level:

2.1. People's Credit Funds at grassroots level may use their operational capital for business activities in accordance with Law No. 02/1997/QH10 dated December 12, 1997 on Credit Organizations and Law No. 20/2004/QH11 dated June 15, 2004 amending and supplementing certain articles of the Law on Credit Organizations, following the principle of ensuring safety and developing capital. People's Credit Funds at grassroots level may purchase and invest in fixed assets according to the principle that the remaining value of fixed assets does not exceed 50% of primary own capital and must comply fully with all state regulations on investment and construction management.

2.2. Grant loans to members, grant loans to poor households who are not members, and grant loans to customers who have deposits at People's Credit Funds at grassroots level in accordance with the law.

2.3. People's Credit Funds at grassroots level may use registered capital and supplementary registered capital reserve fund to contribute capital in accordance with the law.

2.4. Participate in capital coordination within the system.

2.5. Use for other purposes as prescribed by law.

3. People's Credit Funds at grassroots level are responsible for monitoring all current assets and capital, conducting accounting entries, opening and recording ledgers in accordance with current laws on accounting and statistics, reflecting comprehensively, accurately, and promptly the situation of capital and asset usage, changes, loan amounts, receivables during the course of business.

4. Regularly and at the end of each fiscal year, People's Credit Funds at grassroots level must conduct a comprehensive inventory of all current assets and capital. Accurately determine excess and shortage of assets, financial status, overdue debts, difficult-to-collect debts, identify causes and responsibilities for handling. In cases of loss or damage to assets, clearly identify causes and responsibilities of each department and individual.

5. Ensuring Safety and Development of Capital: People's Credit Funds at grassroots level implement measures to ensure capital safety as follows:

5.1. Implement the management and use of capital and assets in accordance with the law.

5.2. Maintain all safety ratios in operations as guided by the State Bank.

5.3. Purchase insurance for assets in accordance with the law.

5.4. Participate in deposit insurance organizations or systemic safety organizations as prescribed by the law.

5.5. Record provisions for risk handling expenses in costs and use such provisions for risk handling as prescribed by the Governor of the State Bank.

5.6. Record provisions for unemployment assistance funds in costs in accordance with the Labor Code and the Ministry of Finance's guidelines on establishing, managing, using, and recording unemployment assistance funds at enterprises.

6. All property losses of People's Credit Funds at grassroots level must be documented to determine the extent, cause, responsibility, and handling according to the following principles:

6.1. If property loss is due to subjective reasons of a collective or individual, the party causing the loss must compensate.

6.2. For insured property, handle according to the insurance contract.

6.3. Use the provision expense account to offset losses as stipulated in Point 5, Section I, Chapter II of this Circular.

6.4. The residual loss value after compensation by individuals, collectives, insurance organizations, and use of provision expense accounts shall be covered by the financial reserve fund of People's Credit Funds at grassroots level. If the financial reserve fund is insufficient, the shortfall shall be recorded as other expenses in the period.

7. Sale of Assets:

7.1. People's Credit Funds at grassroots level may sell assets to recover capital for business purposes.

7.2. The difference between the proceeds from selling assets and the remaining value of the sold assets and sale expenses is recorded as income or expense in the business results report of People's Credit Funds at grassroots level.

8. Liquidation of assets:

8.1. The People's Credit Fund at the grassroots level may liquidate assets that are substandard, have lost quality, are damaged beyond repair, are technologically obsolete and not needed for use, or are not used effectively to recover capital for business purposes.

8.2. The sale and liquidation of assets of the People's Credit Fund at the grassroots level must ensure the following principles:

a) Establish a committee to assess the current technical status and appraise the value of the assets.

b) The difference between the amount received from the liquidation of assets and the remaining value of the liquidated assets and the costs of liquidating the assets shall be recorded as income or expense on the report of business results of the People's Credit Fund at the grassroots level.

9. For assets leased, pledged, or mortgaged by the People's Credit Fund at the grassroots level, the fund is responsible for managing, preserving, or using them according to the laws and agreements with customers.

II. MANAGEMENT OF INCOME AND EXPENSES.

1. Management of income:

1.1. The income of the People's Credit Fund at the grassroots level includes the following items:

a) Income from business activities including: interest income from loans to customers; interest income from deposits; interest income from investments; service fee income from payment and banking operations; income from other business activities.

b) Other income including: commission income from entrusted transactions of organizations and individuals both domestically and internationally; income from the sale and liquidation of fixed assets; income from the recovery of provisions previously deducted from expenses according to current regulations; income from the resolution of capital through risk provisions; other income.

1.2. Conditions and timing for recognizing income:

a) For credit activities: the People's Credit Fund at the grassroots level records accrued interest income within the period for income from debts determined to be recoverable both principal and interest on time without having to set aside specific risk provisions according to regulations.

For accrued interest income already recorded as income but not paid by the customer at maturity (principal and interest), the People's Credit Fund at the grassroots level records it as operating expense and tracks it off-balance sheet to urge collection. When collected, it is recorded as business income.

For accrued interest income within the period from remaining debts not recorded as income, the People's Credit Fund at the grassroots level tracks it off-balance sheet to urge collection. When collected, it is recorded as business income.

b) For deposit interest income, it is the accrued interest income within the period.

c) For profit distributed from investment activities: it is recorded when there is a resolution or decision to distribute.

d) For income from remaining activities: income is the total money from selling products, goods, and providing services within the period accepted for payment by customers after deducting trade discounts, sales reductions, and the value of returned goods (if valid documentation exists), regardless of whether the money has been received or not.

1.3. The People's Credit Fund at the grassroots level has the right to waive or reduce loan interest for customers according to the Law on Credit Institutions and guidelines of the State Bank.

1.4. Income generated by the People's Credit Fund at the grassroots level within the period must have invoices and supporting documents as required and must be fully recorded as income.

2. Expenses of the People's Credit Fund include:

2.1. Business operation expenses:

a) Interest expenses on deposits and loans.

b) Interest expenses on entrusted funds from organizations and individuals both domestically and internationally.

c) Other expenses for business operations.

2.2. Employee expenses:

a) Wages and allowances with wage characteristics for employees working at the People's Credit Fund at the grassroots level, including:

Wages and allowances for full-time members of the Board of Directors and Supervisory Board; allowances for part-time members of the Board of Directors and Supervisory Board. The amount of expenditure is decided by the Board of Directors of the People's Credit Fund at the grassroots level based on the Resolution of the Member Assembly.

Wages and allowances for employees of the People's Credit Fund at the grassroots level are based on labor contracts or collective labor agreements.

Annually, the People's Credit Fund at the grassroots level must register with the tax authority (where corporate income tax is registered) about the total wages and allowances to be paid in the year, based on the wage payment method.

b) Social insurance, health insurance, and trade union fees for employees directly working at the People's Credit Fund at the grassroots level that the employer must contribute according to current state regulations.

c) Protective equipment expenses for those who need protective gear while working and uniform expenses for employees working at the People's Credit Fund at the grassroots level according to established regulations.

d) Meal expenses during shifts for employees provided by the People's Credit Fund at the grassroots level, consistent with business efficiency, with each person's expense not exceeding the minimum wage stipulated by the state for civil servants.

đ) Expense for setting up a reserve fund for unemployment benefits according to current legal provisions.

2.3. Asset expenses.

a) Depreciation expenses for fixed assets used in business operations and repair expenses for fixed assets carried out according to the current management, use, and depreciation system for fixed assets prescribed by the Ministry of Finance for enterprises.

b) Rental expenses for fixed assets used in business operations are recorded as business operation expenses based on the amount payable in the year according to the lease agreement. In cases where rental payments are made in one lump sum for multiple years, the rental expenses are allocated gradually into business operation expenses over the years of asset usage. For expenses related to land rental, which cannot be deducted according to the law, the People's Credit Fund at the grassroots level allocates them into expenses over the period of land use.

c) Insurance expenses for assets.

d) Expenses for selling and liquidating assets.

đ) Remaining value of fixed assets when sold or liquidated.

2.4. External service expenses:

a) Transportation expenses, electricity, water, telephone, office supplies, tools, fire protection, consulting, auditing, travel expenses, and other service expenses.

b) The expenses mentioned above must be supported by complete vouchers or valid invoices as prescribed by the Ministry of Finance.

2.5. Expenses for ensuring safety in the operations of grassroots credit unions:

a) Provisions for bad debt reserves in the operations of grassroots credit unions as stipulated in point 5, Section I, Chapter II of this Circular.

b) Costs for participating in Deposit Insurance or organizations ensuring system safety as prescribed by law.

c) Fees for joining domestic industry associations as prescribed by law.

2.6. Other expenses:

a) Training costs for staff working at grassroots credit unions including organizing training classes at grassroots credit unions and sending staff to training institutions.

b) Costs for Party and mass organizations at grassroots credit unions shall be covered from their own budget sources; if such sources are insufficient, the shortfall shall be recorded as expenses of the grassroots credit union.

c) Costs related to warehouse operations.

d) Security costs for the office.

đ) Costs for recovering overdue debts that are difficult to collect.

+ Grassroots credit unions may allocate funds to organizations with legal status that have contributed to the recovery of overdue debts based on the effort and results of debt recovery achieved by these organizations.

+ Grassroots credit unions shall establish regulations for allocating funds for the recovery of overdue debts, submit them to the Board of Directors for approval, and publicly announce these regulations. The Director of the grassroots credit union shall be responsible for these allocations.

+ The amount allocated to organizations with legal status contributing to the recovery of overdue debts in a year shall not exceed 5% of the recovered debt. The maximum allocation for a single debt shall not exceed 20 million dong.

e) Costs for hiring organizations permitted to provide debt collection services as prescribed by law.

g) Costs for losses of assets remaining after compensation according to the provisions set out in point 6, Section I, Chapter II of this Circular.

h) Costs for payment service and treasury activities.

i) Penalties for breach of economic contracts.

k) Expenses for revenues that have been recorded but were actually not collected by the grassroots credit union.

2.7. Advertising, marketing, promotional, reception, ceremonial, transaction, external relations, brokerage commission, conference, and other expenses as actually incurred and supported by valid invoices or vouchers as prescribed by the Ministry of Finance, linked to business results. The maximum allowable expense shall not exceed 10% of the total reasonable expenses from items 2.1 to 2.6 of this section.

2.8. Taxes, fees, and land rental payments related to business operations (excluding corporate income tax) include: business license tax, land use tax or land rental fee, resource tax, bridge tolls, airport fees, and other taxes and fees.

3. Grassroots credit unions shall not include the following expenses in their costs:

3.1. Penalties for violations of laws caused by individuals acting in their personal capacity and not in the name of the grassroots credit union, such as traffic law, tax law, environmental law, labor law, failure to report statistical and financial accounting data, and other laws.

3.2. Basic construction investment expenses, tangible and intangible fixed asset purchase expenses, and support expenses for organizations and individuals.

3.3. Expenses unrelated to the business operations of grassroots credit unions, and expenses without valid vouchers.

3.4. Expenses covered by other funding sources such as public funds for social purposes provided by the State Budget, superior agencies, or other organizations; interest payments on borrowed capital for basic construction projects during the period before completion, which are recorded as construction investment expenses.

3.5. Other unreasonable expenses.

III. DISTRIBUTION OF PROFITS AND ESTABLISHMENT OF FUNDS.

1. Profit Distribution.

After covering previous years' losses according to the Corporate Income Tax Law and paying corporate income tax as prescribed by law, the profits of grassroots credit unions shall be distributed as follows:

1.1. Establishing a Supplementary Capital Reserve Fund at 5%, with the maximum level of this fund not exceeding the registered capital of the grassroots credit union.

1.2. Dividing profits among associated members according to the contract (if applicable).

1.3. Covering previous years' losses that have exceeded the allowable deduction period before corporate income tax.

1.4. The remaining profit, considered as 100%, shall be further distributed as follows:

a) Establishing a Financial Provision Fund at 10%, with the balance of this fund not exceeding 25% of the registered capital of the grassroots credit union.

b) Establishing a Development Investment Fund at a minimum of 20%.

c) Allocating to two Reward and Welfare Funds, the annual contribution levels to these two funds shall be proposed by the Board of Directors and approved by the General Assembly of Members.

d) Dividing profits among members based on their contributions. The dividend rate for members shall be based on their contributions, proposed by the Board of Directors of the grassroots credit union, and decided annually by the General Assembly of Members, but not exceeding the average loan interest rate of the grassroots credit union for the year.

e) Any remaining amount (if any) shall be used to supplement the Development Investment Fund.

2. Principles for Using Funds.

2.1. The Supplementary Capital Reserve Fund shall be used to increase registered capital. Based on the need to increase registered capital and the current balance of the Supplementary Capital Reserve Fund, the Board of Directors shall propose the amount to be allocated from the Supplementary Capital Reserve Fund to increase registered capital, subject to approval by the General Assembly of Members.

2.2. The Development Investment Fund shall be used for expanding business operations and modernizing equipment and working conditions of the grassroots credit union.

Based on investment needs and the capabilities of the grassroots credit union, the Board of Directors of the grassroots credit union shall decide on the form and methods of investment according to the principles of efficiency, safety, and capital development.

2.3. The financial reserve fund is used to cover the remaining losses and damages to assets occurring during business operations after compensation has been provided by the organizations, individuals causing the loss, insurance organizations, and the risk reserve funds already deducted from expenses.

2.4. The incentive fund is used for:

Year-end or regular bonuses for staff members of the People's Credit Fund at the grassroots level. The bonus amount is determined by the Management Board of the Fund based on the proposal of the director and the trade union (if any) of the Fund, based on productivity and work achievements of each staff member.

Special bonuses for individuals or groups within the People's Credit Fund at the grassroots level who have innovative ideas improving technology or business processes that bring benefits to business operations. The bonus amount is decided by the Management Board of the People's Credit Fund at the grassroots level.

Bonuses for members of the Fund; external units or individuals with economic relations who have successfully fulfilled contractual conditions and made effective contributions to the business operations of the People's Credit Fund at the grassroots level. The bonus amount is decided by the Management Board of the People's Credit Fund at the grassroots level.

2.5. The welfare fund is used for:

Investing in construction or repair and supplementing capital for welfare projects of the People's Credit Fund at the grassroots level.

Spending on sports, cultural, and public welfare activities for the collective of staff members and members of the People's Credit Fund at the grassroots level.

Contributing to the social welfare fund.

Providing regular or emergency hardship assistance to staff members and members of the People's Credit Fund at the grassroots level.

Other welfare activities.

The Management Board of the People's Credit Fund at the grassroots level shall stipulate the management and use of the welfare fund in accordance with the regulations on organization and operation of the People's Credit Fund at the grassroots level, and entrust the Director of the People's Credit Fund at the grassroots level to manage and use this fund in coordination with the Trade Union Executive Committee of the People's Credit Fund at the grassroots level (if any).

IV. ACCOUNTING, AUDITING, REPORTING AND FINANCIAL TRANSPARENCY REGIME

1. The People's Credit Fund at the grassroots level shall implement accounting systems as prescribed by law, record all original vouchers, update accounting books, and accurately, timely, truthfully, and objectively reflect all financial activities.

2. The fiscal year of the People's Credit Fund at the grassroots level begins on January 1 and ends on December 31 of the Gregorian calendar year.

3. The People's Credit Fund at the grassroots level shall settle its financial accounts and comply fully with the regulations on financial reporting, prepare and submit them to the Department of Finance and the branch of the State Bank of Vietnam in the province or city.

3.1. Financial reports: The People's Credit Fund at the grassroots level is responsible for preparing and submitting the following complete financial reports:

a) The balance sheet of the People's Credit Fund at the grassroots level.

b) Report on business results and implementation of state budget revenue collection.

3.2. The Chairman of the Management Board and the Director of the People's Credit Fund at the grassroots level are responsible for the accuracy and truthfulness of these reports.

3.3. Deadline for submission of financial reports:

a) Quarterly reports must be submitted no later than 45 days after the end of the quarter.

b) Annual reports must be submitted no later than 90 days after the end of the fiscal year.

4. Auditing work.

The People's Credit Fund at the grassroots level shall organize internal auditing to audit its financial reports in accordance with the Law on Credit Organizations and the scope and scale of its operations.

The auditing of financial reports of the People's Credit Fund at the grassroots level shall be carried out in accordance with the regulations of the State Bank.

5. Financial transparency for the People's Credit Fund at the grassroots level.

The People's Credit Fund at the grassroots level shall implement financial transparency according to the accounting laws.

The People's Credit Fund at the grassroots level shall disclose financial information to state management agencies, capital contributors, and organizations or individuals with economic relations with the People's Credit Fund at the grassroots level.

V. INSPECTION, AUDITING OF FINANCIAL MATTERS AND HANDLING OF VIOLATIONS

1. The People's Credit Funds at the grassroots level are responsible for the accuracy and truthfulness of their financial reports. The Departments of Finance and Prices shall be responsible for inspecting compliance with financial regulations of the People's Credit Funds at the grassroots level. Financial inspections shall be conducted in the following forms:

1.1. Regular or surprise financial inspections.

1.2. Inspections on specific topics as required by financial management.

In cases where necessary, the Ministry of Finance may conduct inspections on compliance with financial regulations of the People's Credit Funds at the grassroots level as required by state financial management.

2. Handling of Violations.

2.1. The People's Credit Fund at the grassroots level which violates state financial regulations will be subject to penalties as prescribed by law.

2.2. In cases where the People's Credit Fund at the grassroots level fails to comply with the provisions on financial reporting regulations set forth in Point 3, Section IV, Chapter II of this Circular, it will be subject to penalties under the Accounting Law.

Chapter III

IMPLEMENTATION

1. This Circular takes effect 15 days after its publication in the Official Gazette. This Circular replaces Circular No. 97/2000/TT-BTC dated October 12, 2000 and Circular No. 17/2004/TT-BTC dated March 12, 2004 of the Ministry of Finance.

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