Circular No. 37/2019/TT-BTC dated June 25, 2019 of the Ministry of Finance, guiding the financial regime applicable to microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations

CIRCULAR

Guiding the financial regime applicable to microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations^[1]

Pursuant to the Government’s Decree No. 87/2017/ND-CP of July 26, 2017, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Prime Minister’s Decision No. 20/2017/QD-TTg of June 12, 2017, prescribing the operation of microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations;

At the proposal of the Director of the Department of Banking and Financial Institutions;

The Minister of Finance promulgates the Circular guiding the financial regime applicable to microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations.

Chapter I

GENERAL PROVISIONS

Article 1.Scope of regulation

This Circular guides the financial regime applicable to microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations (below referred to as microfinance programs and projects).

Article 2.Subjects of application

1. Microfinance programs and projects that are established and operate in Vietnam under the Prime Minister’s Decision No. 20/2017/QD-TTg of June 12, 2017, prescribing the operation of microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations (below referred to as Decision No. 20/2017/QD-TTg), and other relevant legal documents.

2. Other related agencies, organizations and individuals.

Chapter II

SPECIFIC PROVISIONS

Article 3.Capital of microfinance programs and projects

1. Capital of microfinance programs and projects

a/ Capital for implementation of microfinance programs and projects, including:

- Capital allocated by political organizations, socio-political organizations or non-governmental organizations to microfinance programs and projects;

- Capital contributed by organizations and individuals (if any);

- Non-refundable aid or financial donation of organizations and individuals.

b/ Difference resulting from asset revaluation, which means the difference between the book value and revaluated value of an asset which is carried out under the State’s decision or in other cases of evaluation in accordance with law.

c/ Funds allocated for preparation and implementation of microfinance programs and projects and funds set aside in accordance with law.

d/ Retained accumulated profits; and unsettled accumulated losses (if any).

dd/ Other capital sources lawfully owned by microfinance programs and projects in accordance with law.

2. Forms of capital raising

a/ Receiving compulsory savings deposits or voluntary savings deposits of microfinance clients under regulations of microfinance programs or projects. The total amount of voluntary savings deposits must not exceed 30% of the total capital allocated to a microfinance program or project.

b/ Borrowing entrusted loans from the Government, organizations and individuals in accordance with law.

c/ Borrowing loans from credit institutions, financial institutions and other organizations in accordance with law.

d/ Receiving financial donation, non-refundable aid or refundable aid from the Government and domestic and foreign organizations and individuals.

3. Other capital sources in accordance with law.

Article 4.Management and use of capital and assets of microfinance programs and projects

1. Microfinance programs and projects must manage and use their capital and assets in accordance with law and this Circular.

2. Microfinance programs and projects must monitor and account their capital and assets separately from other capital and assets of political organizations, socio-political organizations or non-governmental organizations.

3. Microfinance programs and projects must account their capital and assets under the Ministry of Finance’s regulations; fully, accurately and promptly reflect the use and change of capital and assets in the course of business operation; and clarify the responsibilities of and forms of handling violations for each unit or individual that causes damage to or loss of their assets or capital.

4. For hired assets, microfinance programs and projects must manage, preserve and use them as agreed upon in accordance with law.

5. Microfinance programs and projects must comply with regulations on the setting aside and use of provisions for loans applicable to microfinance institutions.

Article 5.Revenues

Revenues of microfinance programs and projects include:

1. Interests and similar incomes, including:

a/ Deposit interests at credit institutions.

b/ Loan interests from microfinance clients.

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

2. Revenues from service provision, including:

a/ Revenue from entrusted loans.

b/ Revenue from provision of consultancy, support and training services for microfinance clients involved in microfinance activities.

c/ Revenue from insurance agents.

3. Exchange rate differences according to the relevant accounting standards and current regulations.

4. Voluntary contributions and lawful financial donations of domestic and foreign organizations and individuals, which shall be accounted as income in accordance with law.

5. Other revenues in accordance with law, including:

a/ Revenue from reimbursement of provisions.

b/ Revenue from debts already settled with the use of risk provisions, written-off debts, and debts whose creditors are lost or unidentifiable and which are now recovered.

c/ Revenue from fines or compensations paid by clients for breach of contracts.

d/ Revenue from compensations paid by insurers after offsetting the ensured damages.

dd/ Revenue from asset liquidation.

e/ Other revenues.

Article 6.Principles of recording revenues

1. The recording and accounting of revenues and incomes liable to enterprise income tax must comply with Vietnam’s accounting standards, Law on Enterprise Income Tax and guiding documents, and relevant legal documents.

2. For revenues from interests and similar incomes:

a/ Interests from microlending: A microfinance program or project must account the receivable interests on undue loans as income. For receivable interests on overdue loans, such program or project is not required to account them as income, but must monitor them off-balance sheet for urging their collection; when collected, such interests shall be accounted as income.

b/ Deposit interests, which are interests receivable from deposits of microfinance programs and projects at credit institutions in the period.

3. Non-refundable financial donation for implementation of development programs and activities of microfinance programs and projects other than amounts collected or paid on one’s behalf means the actual amount collected at the time of receipt of the aid.

4. For revenues from exchange rate differences due to revaluation of foreign currencies and gold under microfinance programs and projects, they shall be recorded according to the relevant accounting standards and regulations.

5. For revenues from other activities, they are the proceeds from the sale of products and goods and provision of services arising in the period for which clients accept to pay (with valid documents), regardless of whether the money has been collected or not.

6. For receivable revenues which have been accounted as income but are considered uncollectible or which are uncollectible though being due, a microfinance program and project must account them as a revenue reduction if they arise in the same accounting period, or account them as other expenses if they arise in different accounting periods, and monitor them off-balance sheet for urging their collection. When collected, such revenues shall be accounted as income.

Article 7.Expenses

Expenses of microfinance programs and projects include:

1. Expenses for payment of interests and similar expenses

a/ Payment of interests on compulsory savings deposits, including:

b/ Payment of interests on voluntary savings deposits.

c/ Payment of loan interests.

d/ Other expenses for credit activities.

2. Expenses for services, including:

a/ Payment for telecommunications services.

b/ Payment of charges for entrusted lending.

c/ Payment for financial consultancy services related to microfinance activities.

d/ Payment of commissions for agency, brokerage, entrustment services for brokerage and agency activities, and entrustment services allowed by law. Specifically, the payment of brokerage commissions must comply with the following regulations:

- Microfinance programs and projects may pay brokerage commissions for brokerage activities allowed by law;

- Brokerage commissions shall be paid to third parties (intermediaries) but not for agents of microfinance programs and projects; and holders of managerial titles and staff members of such microfinance programs and projects;

- The payment of brokerage commissions shall be based on a contract or written certification between a microfinance program or project and brokerage commission beneficiary, which must have the following principal contents: name of the commission beneficiary, expense items, expense levels, payment method, implementation and completion time, and responsibilities of the involved parties;

- For brokerage commissions for lease of assets (including assets which are distrained as debt payment (if any)): The level of brokerage commission for lease of each asset of a microfinance program or project must not exceed 5% of the total amount collected from the lease of such asset in a year through brokerage;

- For brokerage commissions for sale of mortgaged or pledged assets: The level of brokerage commission for sale of each mortgaged or pledged asset of a microfinance program or project must not exceed 1% of the value actually collected from the sale of such asset through brokerage;

- Microfinance programs and projects must formulate regulations on payment of brokerage commissions for unified and public application.

dd/ Expense for insurance agency activities.

3. Expense for exchange rate differences according to the relevant accounting standards and regulations.

4. Expenses as contributions to and support for the operation and management and training activities of political organizations, socio-political organizations or non-governmental organizations.

5. Expense for programs, schemes, and activities of organizations and individuals to support the community in line with the principles and purposes of microfinance programs and projects.

6. Expense for payment of taxes, charges and fees in accordance with law.

7. Payments to cadres and staff members in accordance with law, including:

a/ Salaries, wages and salary-based amounts, including:

- Salaries for full-time members of management units or steering committees, directors, and members of control boards, and remunerations for members;

- Salaries and allowances for officers and staff members of microfinance programs and projects under labor contracts or collective labor agreements.

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

c/ Expense for unemployment allowances to laborers in accordance with the labor law.

d/ Allowances for managers and staff members assigned by political organizations, socio-political organizations or non-governmental organizations to work for microfinance programs and projects on a part-time basis.

dd/ Expense for purchase of personal accident insurance.

e/ Expense for labor protection gears for those required to be equipped with labor protection gears.

g/ Expense for formal attires of officers and staff members of microfinance programs and projects under regulations.

h/ Shift meal expense.

i/ Medical care expenses, including expenses for periodical health check-ups for laborers, purchase of medicines, and other expenses for medical care in accordance with law.

k/ Other expenses for laborers in accordance with law:

- Expense for female laborers under regulations;

- Expense for annual leaves in accordance with law;

- Welfare allowances directly paid to laborers in accordance with the law on enterprise income tax;

- Other expenses.

8. Expenses for management activities and official duties, including:

a/ Expense for printing materials and papers.

b/ Expense for work-trip allowances and fuel.

c/ Expense for skills training and capacity building for cadres and staff members, including training of collaborators and clients engaged in microfinance activities.

d/ Expense for postal and telephone charges.

dd/ Expense for public information, advertising, marketing and sales promotion.

e/ Expense for purchase of documents, books and newspapers.

g/ Expense for electricity, water and office cleaning.

h/ Expense for conferences, guest reception, and external-relation activities.

i/ Expense for hiring of consultants and domestic and foreign experts.

k/ Expense for audit.

l/ Other expenses, including:

- Expense for security, fire prevention and fighting, security and national defense activities;

- Expense for environmental protection activities: In case this expense in a year is large but environmental protection activities are proved to be effective for many years, it shall be allocated for the subsequent years provided that such expense is only allocated for the years when environmental protection activities are proved to be effective, and that the allocation does not cause loss in the year when the expense is allocated;

- Other expenses in accordance with law.

9. Asset-related expenses, including:

a/ Expense for depreciation of fixed assets used for business activities under the regulations on management, use and deduction of the depreciation of fixed assets applicable to enterprises.

b/ Expense for fixed asset maintenance and repair.

c/ Expense for procurement and repair of tools and instruments.

d/ Expense for asset insurance.

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

10. Expense for setting aside provisions prescribed in Clause 5, Article 4 of this Circular.

11. Expense for asset rent.

12. Other expenses, including:

a/ Payment of dues to a trade association of which the microfinance program or project is a member at the rate set by such association.

b/ Expense for party organizations’ and mass organizations’ activities at the microfinance program or project (the expense not covered by the budget of such organizations shall be paid from funding sources under regulations).

c/ Expense for the sale and liquidation of assets (if any), including the residual value of the liquidated or sold fixed assets.

d/ Expense for the collection of written-off debts or bad debts, which means an expense for debt collection, including also charges for debt collection services paid to organizations allowed to provide debt collection services in accordance with law, and expense for debt trading.

dd/ Expense for dealing with the remaining asset loss: Microfinance programs and projects must account this expense as an expense for the remaining value loss after compensations are paid by insurers with the use of provisions set aside in the expense.

e/ Expense for amounts already accounted as revenue but actually not collected.

g/ Expense for social affairs in accordance with law.

h/ Expense for fines for administrative violations, excluding fines to be paid by individuals in accordance with law.

i/ Other expenses:

- Expense for payable debts whose creditors are lost and which are accounted as income, but then such creditors are identified;

- Fines or compensations due to breach of economic contracts which fall under the responsibility of microfinance programs and projects;

- Court fees and fees for judgment enforcement which fall under the responsibility of microfinance programs and projects.

- Other expenses in accordance with law.

Article 8.Principles of recording expenses

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

2. Expenses of microfinance programs and projects are those actually paid in relation to business activities of these programs and projects in the period.

3. Expenses recorded as business expenses of microfinance programs and projects must adhere to the matching principle and be accompanied by valid invoices and documents as prescribed by law. Microfinance programs and projects may not account as expenses the expenses covered by other funding sources. The determination and accounting of expenses must comply with Vietnam’s accounting standards and relevant regulations.

Article 9.Policies on taxes, charges and fees

Microfinance programs and projects must comply with the laws on taxes, charges and fees.

Article 10.Profit distribution

Profits of microfinance programs and projects after being used to offset previous years’ losses (if any) and perform obligations to the state budget in accordance with law shall be decided by such microfinance programs and projects but may not be divided or used for activities other than microfinance activities in any form.

Article 11.Responsibilities of management agencies and microfinance programs and projects

1. The Ministry of Finance shall promulgate, and answer queries about, regulations on finance, accounting, and financial statements of microfinance programs and projects.

2. The State Bank of Vietnam shall assume the prime responsibility for supervising the implementation of the financial regime applicable to microfinance programs and projects; and send before March 31 of the subsequent year to the Ministry of Finance reports on the financial situation of microfinance programs and projects and violations of the financial regime applicable to microfinance programs and projects which are detected in the process of examination, inspection and supervision (if any).

3. Political organizations, socio-political organizations and non-governmental organizations shall:

a/ Perform the responsibilities prescribed in Article 20 of Decision No. 20/2017/QD-TTg, for those having microfinance programs and projects.

b/ Make reports under Article 14 of Decision No. 20/2017/QD-TTg  and relevant laws, and be responsible for the accuracy and truthfulness of their reports.

4. Microfinance programs and projects must:

a/ Implement the financial regime prescribed in Decision No. 20/2017/QD-TTg; this Circular, and other relevant legal documents on financial management.

b/ Implement the reporting regime and take full responsibility before law for the adequacy, promptness and accuracy of reported figures prescribed in Decision No. 20/2017/QD-TTg and this Circular.

Chapter III

IMPLEMENTATION PROVISIONS

Article 12.Effect

1. This Circular takes effect on August 9, 2019.

2. 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
HUYNH QUANG HAI