Circular No. 18/2018/TT-BTC dated February 12, 2018 of the Ministry of Finance on guiding a number of articles regarding the financial regime applicable to microfinance institutions

CIRCULAR

Guiding a number of articles regarding the financial regime applicable to microfinance institutions^[1]

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

Pursuant to the November 26, 2014 Law on Enterprises;

Pursuant the Government’s Decree No. 93/2017/ND-CP of August 7, 2017, on the financial regime applicable to microfinance institutions and financial supervision and assessment of efficiency of state capital investment at credit institutions with 100% state-owned charter capital and credit institutions with state capital;

Pursuant to the Government’s Decree 87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the Director of the Department of Bank and Credit Institution Finance;

The Minister of Finance promulgates the Circular guiding a number of articles regarding the financial regime applicable to microfinance institutions.

Chapter I

GENERAL PROVISIONS

Article 1.Scope of regulation

This Circular guides a number of articles regarding the financial regime applicable to microfinance institutions operating in Vietnam under the June 16, 2010 Law on Credit Institutions and the November 20, 2017 Law Amending and Supplementing a Number of Articles of the Law on Credit Institutions (below referred to the Law on Credit Institutions) and the Government’s Decree No. 93/2017/ND-CP of August 7, 2017, on the financial regime applicable to microfinance institutions and financial supervision and assessment of efficiency of state capital investment at credit institutions with 100% state-owned charter capital and credit institutions with state capital (below referred to as Decree No. 93/2017/ND-CP).

Article 2.Subjects of application

1. Microfinance institutions in Vietnam that are established, organized and operate under the Law on Credit Institutions and its amending, supplementing and replacing documents (if any).

2. Other related agencies, organizations and individuals.

Chapter II

SPECIFIC PROVISIONS

Article 3.Capital of microfinance institutions

1. Equity:

a/ Charter capital, including:

- Capital allocated by the State (if any);

- Capital contributed by organizations and individuals;

- Capital donated by organizations and individuals (if any).

b/ Difference due to revaluation of assets, which is the difference between the book value of assets and the value of assets revaluated under decisions of the State or in other cases prescribed by law;

c/ Funds, including:

- Charter capital addition reserve fund;

- Development investment fund;

- Financial provision fund.

d/ Undistributed accumulative profits; unhandled accumulative losses;

dd/ Other capital under lawful ownership of microfinance institutions in accordance with law.

2. Capital mobilized in various forms:

a/ Vietnam-dong deposits in the following forms:

- Compulsory deposits under regulations of microfinance institutions;

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

b/ Capital trusted by domestic and overseas organizations and individuals for lending under programs and projects of the Government;

c/ Loans from credit institutions, financial institutions and other domestic and foreign individuals and organizations in accordance with law;

d/ Capital borrowed from the State Bank of Vietnam.

3. Other capital in accordance with law.

Article 4.Management and use of capital and assets

1. Microfinance institutions shall manage and use capital and assets as prescribed in Chapter II of Decree No. 93/2017/ND-CP, relevant laws and specific guidance in this Circular.

2.  To perform accounting work under the current accounting regime; to reflect fully, accurately and promptly the use and change of their capital and assets during operation; to define responsibilities for and forms of handling each collective and individual upon occurrence of damage to or loss of assets and capital of microfinance institutions.

3.  During their business, operation microfinance institutions shall maintain the limits of investment in and procurement of fixed assets that directly serve business activities, adhering to the principle that the residual value of fixed assets must not exceed 50% of the charter capital and the charter capital addition reserve fund recorded in their account books.

4. Microfinance institutions shall manage, preserve or use rented assets, assets mortgaged or pledged by clients and assets consigned by clients for preservation or safe-deposit as agreed with clients in accordance with law.

5. For immovable assets held as a result of debt handling in accordance with Clause 3, Article 132 of the Law on Credit Institutions:

a/ For immovable assets which microfinance institutions temporarily hold for sale or transfer to recover capital within 3 years, microfinance institutions shall neither account as asset increase nor amortize them;

b/ For immovable assets which microfinance institutions redeem to directly serve their business activities, microfinance institutions shall account as asset increase and amortize them in accordance with law and ensure limits of investment in and procurement of fixed assets prescribed in Clause 3, Article 6 of Decree No. 93/2017/ND-CP.

Article 5.Turnover

Turnover of microfinance institutions includes the revenues prescribed in Article 16 of Decree No. 93/2017/ND-CP, specifically:

1. Revenues from interests and similar incomes, including:

a/ Deposit interests;

b/ Loan interests;

c/ Interests on debt trading;

d/ Other revenues from credit activities in accordance with law.

2. Revenues from provision of services, including:

a/ Revenues from payment services;

b/ Revenues from cashiering services;

c/ Revenues from provision of authorized collection and authorized payment services and money transfer services for microfinance clients;

d/ Revenues from provision of services of entrusted loan provision;

dd/ Revenues from provision of financial consultancy related to microfinance activities;

e/ Revenues from provision of insurance agent services;

g/ Revenues from other services, including:

- Revenues from provision of asset preservation services, safe deposit box lease,

- Revenues from provision of products serving community interests;

- Revenues from other services in accordance with law.

3. Revenues from exchange-rate difference according to accounting standards and current regulations.

4. Revenues from other activities, including:

a/ Revenues from debts already handled with risk provisions (including also debts recovered after being written off);

b/ Revenues from debt trading;

c/ Revenues from asset transfer and liquidation;

d/ Revenues from reversal of provisions;

dd/ Revenues from other activities in accordance with law, including:

- Revenues from lease of assets, excluding revenues from lease of immovable assets temporarily held as a result of debt handling to recover debts under Clause 3, Article 132 of the Law on Credit Institutions;

- Revenues from other activities.

5. Other incomes:

a/ Revenues from payables whose creditors no longer exist or cannot be identified in accordance with law, which are accounted as an income increase;

b/ Revenues from fines and compensations paid by customers for contract breaches, which are accounted as income;

c/ Revenues from collection of insurance indemnities, minus expenses to make up for the insurance-covered loss, which are accounted as income;

d/ Revenues from non-refundable donations for development programs and activities of microfinance institutions;

dd/ Tax amounts already paid and later reduced or refunded (if any);

e/ Other revenues in accordance with law.

Article 6.Turnover recognition principles

1. The determination of turnover when calculating enterprise income tax must comply with the Law on Enterprise Income Tax and guiding documents.

2. For income from interests and similar incomes:

a/ Interests on provided loans: Microfinance institutions shall assess debt recovery capacity and classify debts in accordance with the banking law as a basis for accounting receivable interest amounts and perform the accounting as follows:

- Microfinance institutions shall account as income receivable interests arising in the period, for debts classified as standard debts for which no risk provision is required to be set aside under regulations of the State Bank of Vietnam.

- For receivable interests on debts kept in the group of standard debts arising due to implementation of the State’s policies and interests on other debts arising in the period, microfinance institutions are not required to account them as income but shall monitor them off-balance-sheet for collection; once collected, such interests shall be accounted as income.

b/ Deposit interests, which are interests on deposits receivable in the period.

3. Non-refundable donations for development programs and activities of microfinance institutions, which are the amounts of money actually collected at the time of donation.

4. For the exchange-rate difference arising due to the revaluation of foreign currencies and gold, microfinance institutions shall record this revenue in accordance with the accounting standards and relevant laws.

5. Turnover from remaining activities, which is the entire proceeds from the sale of products and goods and provision of services in the period as accepted to be paid by clients, regardless of whether it is collected or not.

6. For receivable amounts which have been accounted as income but later are assessed as irretrievable or cannot be retrieved upon their maturity, microfinance institutions shall account such amounts as income reduction, if such amounts arise in the same accounting period, or account them as costs if they do not arise in the same accounting period and monitor them off-balance-sheet for collection. Once collected, they shall be accounted as income.

Article 7.Expenses

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

1. Expenses for payment of interests and similar expenses:

a/ Expenses for payment of interests on deposits; compulsory deposits; and other deposits;

b/ Expenses for payment of interests on borrowed loans;

c/ Other expenses for credit activities.

2. Expenses for services:

a/ Expenses for provision of authorized collection and payment services and money transfer services for microfinance clients;

b/  Expenses for telecommunications services;

c/ Expenses for payment of charge for lending entrustment;

d/ Expenses for financial consultancy services related to microfinance activities;

dd/ Expenses for agency, brokerage and entrustment commissions for licensed agency, brokerage and entrustment activities in which brokerage commissions must comply with the following provisions:

- Microfinance institutions may only pay brokerage commissions for brokerage activities permitted by law;

- Brokerage commissions shall only be paid to third parties (acting as intermediaries) and not to agents of microfinance institutions; and managers, staff members and affiliated persons of microfinance institutions in accordance with the Law on Credit Institutions and its amending, supplementing and replacing documents (if any);

- Brokerage commissions shall be paid under contracts or written certifications between microfinance institutions and brokers. A contract or written certification must at least contain the following details: name of the recipient; spending content; spending level; method of payment; time of implementation and completion; responsibilities of the involved parties;

- For commissions for brokerage for lease of assets (including foreclosed assets and assets assigned in replacement of debts): the level of commission paid by microfinance institutions for brokerage for lease of each asset must not exceed 5% of the total proceeds from the lease of such asset brought about in the year;

- For commissions for brokerage for sale of mortgaged or pledged assets: the level of commission paid by microfinance institutions for brokerage for sale of each mortgaged or pledged asset must not exceed 1% of the actual proceeds from sale of such asset via brokerage;

- Microfinance institutions shall formulate regulations on payment of brokerage commissions for consistent application in a public manner. Members’ Councils or directors general (directors) shall approve these regulations.

e/ Expenses for provision of insurance agent services.

3. Expenses to cover exchange-rate difference according to accounting standards and current laws.

4. Expenses for other activities

a/ Expenses for debt trading;

b/ Expenses for other business activities in accordance with law.

5. Expenses for payment of taxes, fees and charges in accordance with law.

6. Payments to employees as prescribed by law, including:

a/ Salaries, remuneration and amounts of salary nature, including:

- Salaries for full-time members of the Members’ Council, Control Board, director general and deputy directors general; allowances for part-time members of the Members’ Council and Control Board;

- Salaries and allowances for employees of microfinance institutions based on employment contracts or collective labor accords.

b/ Salary-based contributions: social insurance, health insurance and unemployment insurance premiums, trade union dues;

c/ Job-loss allowances for employees in accordance with the labor law;

d/ Payment for purchase of human accident insurance;

dd Labor protection expenses for those who need to be equipped with labor protection devices while working;

e/ Expenses for employees’ outfits according to regulations;

g/ Shift meal expenses: Microfinance institutions with 100% state-owned charter capital shall pay shift meal expenses at the level prescribed for state enterprises;

h/ Medical care expenses, which include expenses for periodical health check-ups for employees, expenses for procurement of preventive medicines and other health care expenses falling under responsibility of enterprises in accordance with current regulations;

i/ Other expenses for employees in accordance with law:

- Expenses for female employees under regulations;

- Annual leave expenses under regulations;

- Other expenses.

7. Expenses for management and official duties:

a/ Expenses for materials and printing papers;

b/ Working-trip expenses;

c/ Expenses for training and capacity building for employees, including also expenses for training collaborators and clients within the scope of microfinance activities;

d/ Expenses for scientific and technological research and application, including:

- Expenses for setting aside science and technology development funds in accordance with law. The use of these funds must comply with the current regulations;

- Expenses for covering the deficit in case the balance of science and technology development funds is not enough to cover expenses for scientific and technological research and application in the year.

dd/ Payment of rewards for innovations, productivity improvement and cost reduction in proportion to benefits and efficiency actually brought about; microfinance institutions shall formulate and publicize regulations on payment of rewards and establishment of councils for evaluation of innovations.

e/ Expenses for postal services and telephone charge;

g/ Expenses for publication, public information, advertisement, marketing, and sales promotion;

h/ Expenses for purchase of documents, newspapers and books;

i/ Expenses for electricity, water and office cleaning;

k/ Expenses for conferences, guest reception, and public relations;

l/ Expenses for hiring domestic and foreign consultants and specialists;

m/ Expenses for audit;

n/ Expenses for fire prevention and fighting;

o/ Expenses for environmental protection; in case environmental protection activities in a year require great expenses but can bring about benefits for several years, such expenses may be allocated for several subsequent years.

p/ Other expenses:

- Expenses for office safeguarding; expenses for security and national defense;

- Other expenses in accordance with law.

8. Asset-related expenses:

a/ Expenses for amortization of fixed assets used for business activities must  comply with the regime of management, use and amortization of fixed assets of enterprises.

b/ Expenses for rent of fixed assets: Expenses for rent of fixed assets must comply with lease contracts. In case the rental of a fixed asset is paid in a lump sum for several years, the rental shall be incrementally accounted as business expenses by the number of years of asset use.

c/ Expenses for fixed asset maintenance and repair;

d/ Expenses for procurement and repair of instruments and tools;

dd/ Expenses for asset insurance;

e/ Other asset-related expenses in accordance with law.

9. Expenses for setting aside provisions:

a/ Expenses for setting aside provisions include:

- Expenses for setting aside provisions for operational risks under Article 131 of the Law on Credit Institutions;

- Expenses for setting aside provisions for risks related to special bonds issued by the Vietnam Debt and Asset Management Corporation under Point a, Clause 2, Article 21 of the Government’s Decree No. 53/2013/ND-CP of May 18, 2013, on the establishment, organization and operation of the Vietnam Debt and Asset Management Corporation and Clause 12, Article 1 of the Government’s Decree No. 34/2015/ND-CP of March 31, 2015, amending and supplementing a number of articles of Decree No. 53/2013/ND-CP, and amending and supplementing legal documents (if any);

- Expenses for setting aside provisions for devaluation of inventories, loss of financial investments, and bad debts and other provisions (if any) according to applicable regulations.

b/ Expenses for setting aside risk provisions which are deductible when determining enterprise income tax must comply with the law on enterprise income tax.

10. Expenses for participation in deposit preservation and insurance institutions in accordance with law.

11. Other expenses:

a/ Payment of dues to professional associations of which microfinance institutions are members at the rates set by these associations;

b/ Expenses for Party Committees and mass organizations at microfinance institutions (expenses in excess of designated funds for Party Committees and mass organizations);

c/ Expenses for asset sale and liquidation (if any), including residual value of liquidated or sold fixed assets;

d/ Expenses for recovery of written-off debts or collection of bad debts, which are expenses for debt recovery, including also payments for debt recovery services provided by organizations licensed to provide debt recovery services in accordance with law and expenses for debt trading;

dd/ Expenses for handling remaining asset-related loss: microfinance institutions shall account as costs the remainder after being offset with compensations of responsible individuals, collectives and insurers; use provisions already deducted; then use their financial provision funds;

e/ Amounts which have been accounted as revenues but are actually unreceivable;

g/ Expenses for social activities in accordance with the tax laws;

h/ Payment of fines for administrative violations, except those to be paid by individuals in accordance with law;

i/ Other expenses:

- Expenses for debts which creditors had been determined to be unidentifiable and which have been accounted as income but their creditors are later identified;

- Expenses for payment of fines and compensations for breaches of economic contracts for which microfinance institutions are held liable;

- Expenses for court and judgment execution fees under the responsibility of microfinance institutions;

- Expenses for community development in accordance with law;

- Other expenses as prescribed by law.

Article 8.Expense recognition principles

1. Expenses of a microfinance institution are those actually arising in a period and related to its business activities.

2. Expenses recognized as business expenses of microfinance institutions must comply with the principle of balancing between turnover and expenses; and have sufficient valid invoices and documents in accordance with law. Microfinance institutions may not account as expenses spending items funded by other sources. The determination and accounting of expenses must comply with Vietnam’s accounting standards and other relevant regulations.

3. The determination of expenses when calculating enterprise income tax must comply with the Law on Enterprise Income Tax and its guiding documents.

4. Microfinance institutions with 100% state-owned charter capital may account as business costs expenses deductible under the law on enterprise income tax. Particularly, expenses for setting aside a risk provision which exceed the deductible level when determining enterprise income tax due to a difference between the enterprise income tax law’s provisions on setting aside of risk provisions and the State Bank of Vietnam’s regulations (if any) and expenses for payment of fines for administrative violations (except fines to be paid by individuals in accordance with law), microfinance institutions with 100% state-owned charter capital may cover them with their after-enterprise income tax profits.

Article 9.Profit distribution

After being used for offsetting the previous year’s loss in accordance with the Law on Enterprise Income Tax and paying enterprise income tax, profits of microfinance institutions shall be distributed according to the following order:

1. Offsetting previous years’ loss for which the prescribed time limit for being deducted to post-enterprise income tax profits has expired.

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

a/ 5% shall be the charter capital addition reserve fund. A microfinance institution’s charter capital addition reserve fund must not exceed its charter capital;

b/ 10% shall be appropriated into the financial provision fund.

3. After deducting the amounts prescribed in Clauses 1 and 2 of this Article, the remaining profit shall be distributed as follows:

- At most 25% shall be appropriated into the development investment fund;

- Agencies representing the owners of microfinance institutions shall base themselves on the regulations on assessment and grading of credit institutions with 100% state-owned charter capital, review financial plans of, assign assessment and grading norms to, and assess and grade, microfinance institutions similarly to credit institutions with 100% state-owned charter capital. Based on assessment and grading results, microfinance institutions shall distribute remaining profits under regulations applicable to credit institutions with 100% state-owned charter capital.

b/ Other microfinance institutions shall decide on the distribution of profits according to their charters and relevant regulations.

Article 10.Reporting contents, forms, periods and deadlines, time limits, and report recipients

1. At the end of an accounting period, microfinance institutions shall make and submit financial statements in accordance with law.

2. Chairpersons of Members’ Councils or directors general (directors) of microfinance institutions shall take responsibility for the accuracy and truthfulness of these reports.

3. Deadlines and time limits for submission of reports:

a/ Mid-year financial statements: the 30^thof the first month of the subsequent quarter;

b/ Unaudited annual financial statements: within 90 days from the last day of the fiscal year;

c/ Reports on audit results of annual financial statements: Microfinance institutions shall submit audited financial statements, enclosed with independent audit firms’ conclusions right after the audit is completed.

4. Report recipients:

a/ Microfinance institutions with 100% state-owned charter capital shall submit financial statements to the State Bank offices of the provinces or centrally run cities where they are headquartered, the State Bank of Vietnam (the Banking Supervision Agency) and the Ministry of Finance for coordinated management;

b/ Other microfinance institutions shall submit financial statements to the State Bank offices of the provinces or centrally run cities where they are headquartered, and the State Bank of Vietnam (the Banking Supervision Agency).

Article 11.Responsibilities of management agencies and microfinance institutions

1. The Ministry of Finance and the State Bank of Vietnam shall discharge their responsibilities as prescribed in the microfinance institutions-related provisions of Articles 37 and 38 of Decree No. 93/2017/ND-CP.

2. The State Bank of Vietnam shall supervise the implementation of the financial regime by microfinance institutions; biannually and annually send to the Ministry of Finance reports on the financial status of microfinance institutions and violations detected through inspection, examination and supervision (if any), Biannual reports and annual reports shall be sent before July 31 of the current year and March 31 of the subsequent years, respectively.

3. Microfinance institutions shall:

a/ Implement the financial regime prescribed in the Law on Credit Institutions; Decree No. 93/2017/ND-CP, specific guidance in this Circular and relevant legal documents on financial management.

b/ Observe the reporting regime and take responsibility before law for the accuracy, timeliness and accuracy of reported data as prescribed in Decree No. 93/2017/ND-CP and guidance in this Circular.

Chapter III

ORGANIZATION OF IMPLEMENTATION

Article 12.Implementation provisions

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

2. This Circular replaces the Ministry of Finance’s Circular No. 06/2013/TT-BTC of January 9, 2013, guiding the financial regime applicable to microfinance institutions.

3. Any problems arising in the course of implementation of this Circular should be reported to the Ministry of Finance for study, consideration and settlement.-

For the Minister of Finance
Deputy Minister
TRAN VAN HIEU