CIRCULAR[1]

PROVIDING GUIDANCE ON FINANCIAL POLICIES FOR MICROFINANCE INSTITUTIONS

The Circular No. 18/2018/TT-BTC dated February 12, 2018 of the Ministry of Finance providing guidance on financial policies for microfinance institutions, which comes into force from March 29, 2018, is amended by:

The Circular No. 84/2020/TT-BTC dated October 01, 2020 of the Ministry of Finance providing amendments to regulations on periodic reporting under the authority of the Minister of Finance in the fields of finance and banking, coming into force from November 15, 2020.

Pursuant to the Law on Credit Institutions dated June 16, 2010 and the Law on amendments to the Law on Credit Institutions dated November 20, 2017;

Pursuant to the Law on Enterprises dated November 26, 2014;

Pursuant to the Government’s Decree No. 93/2017/ND-CP dated August 07, 2017 on the financial regime applicable to credit institutions, branches of foreign banks and financial supervision, assessment of effectiveness of state capital investment in wholly state-owned credit institutions and partially state-owned credit institutions;

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

...

...

...

The Minister of Finance promulgates a Circular to provide guidance on financial policies for microfinance institutions.[2]

Chapter I

GENERAL PROVISIONS

Article 1. Scope

This Circular provides guidance on financial policies for microfinance institutions that operate in Vietnam in accordance with the Law on credit institutions dated June 16, 2010 and the Law dated November 20, 2017 on amendments to the Law on credit institutions (hereinafter referred to as "the Law on credit institutions"), and the Government’s Decree No. 93/2017/ND-CP dated August 07, 2017 on the financial regime for credit institutions, branches of foreign banks and financial supervision, assessment of effectiveness of state capital investment in wholly state-owned credit institutions and partially state-owned credit institutions (hereinafter referred to as “Decree No. 93/2017/ND-CP”).

Article 2. Regulated entities

1. Microfinance institutions that are duly established and organized, and operate in Vietnam in accordance with regulations of the Law on credit institutions and its amending and superseding documents (if any).

2. Relevant authorities and entities.

Chapter II

...

...

...

Article 3. Capital of a microfinance institution

1. Equity:

a) Charter capital, including:

- Funding allocated by the Government (if any);

- Capital contributed by entities;

- Finances granted by sponsors (if any).

b) The difference upon asset revaluation is the difference between the book value of assets and the value of assets recorded upon the revaluation which is carried out according to the Government’s decision or in other revaluation cases as prescribed by law;

c) Funds, including:

- Additional reserve fund of charter capital;

...

...

...

- Financial reserve fund.

d) Undistributed profits; accumulated unrealized losses;

dd) Other capital lawfully owned by the microfinance institution in accordance with regulations of law.

2. Capital raised in the following forms:

a) Deposits in VND in the following forms:

- Compulsory savings of the microfinance institution;

- Deposits of entities, including deposits voluntarily made by microfinance clients (excluding deposits for payment purposes).

b) Entrusted loans granted under the Government's programs and projects, and those given by domestic and foreign entities;

c) Loans granted by credit institutions, financial institutions and other domestic and foreign entities in accordance with regulations of law;

...

...

...

3. Other funding as prescribed by law.

Article 4. Management and use of capital and assets

1. Every microfinance institution shall assume responsibility to manage and use its capital and assets in accordance with regulations in Chapter II of the Decree No. 93/2017/ND-CP, relevant laws and specific guidelines herein.

2. Every microfinance institution must do bookkeeping in accordance with regulations on accounting in force; fully, exactly and promptly reflect the use or changes in capital and assets during its business; clearly assign responsibilities to and announce sanctions for each department or individual for each case of damage or loss of assets or capital.

3. During its operation, every microfinance institution must comply with the prescribed limits on investment in and purchase of fixed assets in direct service to its business in the following principle: the residual value of fixed assets shall not exceed 50% of the sum of its charter capital and additional reserve fund of charter capital as recorded on its accounting book.

4. Microfinance institutions shall assume responsibility to manage, maintain or use assets leased, pledged, mortgaged or kept on behalf of clients as agreed upon with their clients in accordance with regulations of law.

5. With regard to real estate temporarily held from settlement of loans in accordance with regulations in Clause 3 Article 132 of the Law on credit institutions:

a) With regard to real estate temporarily held by a microfinance institution for sale or transfer for debt recovery within a period of 03 years, it shall not record such assets as an increase in assets and depreciate assets as prescribed.

b) With regard to real estate purchased by a microfinance institution to serve its business, it shall record such real estate acquired as an increase in assets and depreciate assets as regulated by law, and maintain the limits on investment in and purchase of fixed assets prescribed in Clause 3 Article 6 of the Decree No. 93/2017/ND-CP.

...

...

...

Revenues of a microfinance institution include the amounts receivable prescribed in Article 16 of the Decree No. 93/2017/ND-CP. To be specific:

1. Interest income and similar incomes, including:

a) Deposit interest;

b) Loan interest;

c) Interests from debt trading;

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

2. Income from service provision, including:

a) Income from payment services;

b) Income from treasury services;

...

...

...

d) Income from receipt of trust funds for lending;

dd) Income from financial consulting services concerning microfinance operations;

e) Income from insurance agents;

g) Income from provision of other services, including:

- Income from asset management services and leasing of safes;

- Income from provision of products for public interests;

- Income from other services as prescribed by law.

3. Income from exchange rate differences as prescribed in accounting standards and laws in force.

4. Income from other activities, including:

...

...

...

b) Income from debt trading;

c) Income from transfer or liquidation of assets;

d) Income from reversal of provisions;

dd) Income from other activities as prescribed by law, including:

- Income from leasing of assets, excluding income from leasing of real estate temporarily held by settlement of loans in accordance with Clause 3 Article 132 of the Law on credit institutions for the purpose of debt recovery;

- Income from other activities.

5. Other incomes, including:

a) Income from debts to creditors that cease to exist or are not identified, which are recorded as an increase in income;

b) Income from breach of contract fines and compensations paid by clients, which are recorded as income;

...

...

...

d) Income from grants received by a microfinance institution for implementing its development programs and operations;

dd) Income from tax refunds (if any);

e) Other incomes as prescribed by law.

Article 6. Revenue recognition principle

1. Determination of revenue for the purpose of calculation of corporate income tax shall be done in accordance with the Law on corporate income tax and its guiding documents.

2. With regard to interest income and similar income:

a) Interest income from credit extension:  Every microfinance institution shall evaluate the debt recoverability and classify debts as prescribed by the Law on banking as the basis for accounting for interests receivable as follows:

- The microfinance institution shall record the interest receivable in the period as income associated with the debts classified as standard debts for which loss reserves are not required as prescribed by SBV;

- The interest receivable of debts remaining classified in the standard debt category as a result of implementation of the State policies and the interest receivable in the period of remaining debts shall not be recorded as income. In such cases, the microfinance institution shall monitor them in off-balance sheet so as to expedite the collection. They shall be recorded as income, when collected.

...

...

...

3. Income from grants received by a microfinance institution for implementing its development programs and operations shall be actual amounts of grants received.

4. The microfinance institution shall recognize income from exchange rate differences as a result of revaluation of foreign currency and gold according with accounting standards and relevant laws.

5. Revenue from other activities is total proceeds from goods sale and service provision in the period, for which clients accept to make payments regardless of whether they are realized or unrealized.

6. With regard to accounts receivable which have been recorded as income but are considered unrecoverable or not collected on due dates, the microfinance institution shall record them as a decrease in revenue in the same period or as expenses in another period, and monitor them in off-balance sheet to expedite the collection. They shall be recorded as income, when collected.

Article 7. Expenses

Expenses of a microfinance institution include the amounts payable prescribed in Article 17 of the Decree No. 93/2017/ND-CP. To be specific:

1. Interest expense and similar expenses, including:

a) Interests on deposits; compulsory saving deposits; interests on other deposits;

b) Interest on loans;

...

...

...

2. Expenses on service provision:

a) Costs of collection, payment and transfer of money on behalf of microfinance clients;

b) Costs of telecommunication services;

c) Costs of entrustment services;

d) Costs of provision of financial consulting services concerning microfinance operations;

dd) Costs of commissions for agents and brokers that are entrusted or authorized to perform relevant activities. In which commissions for brokers shall be paid as follows:

- The microfinance institution may pay commissions to brokers that provide brokerage services as permitted by the law;

- Brokerage commissions are paid to third parties (that are brokers) and not paid to agents of the microfinance institution, its managerial officers, employees and related parties as prescribed in the Law on credit institutions and its amending and superseding documents (if any).

- Brokerage commissions shall be paid under written agreements or certifications made by and between the microfinance institution and relevant brokers. Such written agreement or certification shall include the broker’s name, payment contents, amounts and methods, period for performance and completion of brokerage service, and responsibilities of the parties;

...

...

...

- With regard to commissions paid to brokers for sale of mortgaged and pledged assets, the commission paid to a broker for each sale of mortgaged or pledged assets of the microfinance institution shall not exceed 1% of actual proceeds from the sale of such mortgaged or pledged assets through that broker;

- Every microfinance institution shall promulgate regulations on payment of brokerage commissions which must be applied consistently and transparently. The Board of Members or General Director (or Director) of the microfinance institution shall consider giving approval for its regulations on payment of brokerage commissions.

e) Costs of provision of insurance agent services.

3. Expenses from exchange rate differences as prescribed in accounting standards and laws in force.

4. Expenses for other activities, including:

a) Costs for debt trading;

b) Costs for other business activities as prescribed by law.

5. Expenses on taxes, fees and charges to be paid as prescribed by law.

6. Expenses on employees as prescribed by law, including:

...

...

...

- Salaries paid to full-time members of the Board of Members, the Board of Controllers, or the Board of General Directors; allowances paid to part-time members of the Board of Members and the Board of Controllers;

- Salaries and allowances paid to employees of the microfinance institution according to the signed employment contracts or the collective bargaining agreement.

b) Compulsory salary-based payments:  Compulsory contributions of social insurance, health insurance and unemployment insurance, and trade union contribution;

c) Redundancy payments made to employees as prescribed by the Labor Code;

d) Payments for purchase of accident insurance;

dd) Costs of personal protective equipment provided for employees as prescribed;

e) Costs of workplace uniforms for employees working at the microfinance institution as prescribed;

g) Expenses on shift meals: The wholly state-owned microfinance institution shall pay shift meals in accordance with regulations applicable to state-owned enterprises;

h) Medical expenses, including expenses for periodic health examinations for employees, purchase of occupational medicines and other medical expenses incurred by the enterprise as regulated by applicable laws;

...

...

...

- Compulsory payments for female employees;

- Payment for unused annual leave as prescribed by law;

- Other expenses.

7. Management and administration expenses:

a) Costs for printing materials and papers;

b) Work-trip allowances;

c) Costs of training activities, including training for collaborators and clients within the scope of operation of the microfinance institution;

d) Expenses on scientific and technological research, including:

- Contributions paid to the science and technology development fund as prescribed by law. This fund shall be used in accordance with applicable laws;

...

...

...

dd) Expenses on rewards for initiatives in improving and increasing labor productivity, rewards for practice of costs saving paid according to the principle in conformity with the actual effectiveness; the microfinance institution must establish and announce regulations on rewards for initiatives, and establish a Council in charge of appraising initiatives;

e) Telephone and postage charges;

g) Costs for publishing of materials, dissemination, advertisement, marketing and sales promotion;

h) Costs for purchase of materials and journals;

i) Costs for electricity, water and workplace cleaning;

k) Costs for conventions, reception activities and external relations;

l) Costs of hiring of consultants, Vietnamese and foreign experts/ specialists;

m) Auditing expenses;

n) Costs for fire prevention and fighting;

...

...

...

p) Other expenses:

- Costs for workplace security; national defense and security costs;

- Other costs as regulated by law.

8. Asset expenses:

a) Costs of depreciation of fixed assets used to serve business operations shall comply with regulations on management, use and depreciation of fixed assets of enterprises;

b) Costs for leasing of fixed assets: Costs for leasing of fixed assets shall be determined according lease agreements. In case of lump-sum payment for leased assets for many years, the rental shall be apportioned and recorded as business expenses by the number of years of use of leased assets;

c) Costs for repair and maintenance of fixed assets;

d) Costs for purchase and repair of tools and devices;

dd) Costs for purchase of asset insurance;

...

...

...

9. Expenses for setting aside provisions:

a) Expenses for setting aside provisions include:

- Costs for risk provision as prescribed in Article 131 of the Law on credit institutions;

- Costs for risk provision for special bonds issued by the Vietnam Asset Management Company as prescribed in Point a Clause 2 Article 21 of the Government’s Decree No. 53/2013/ND-CP dated May 18, 2013 on establishment, organizational structure and operation of the Vietnam Asset Management Company and Clause 12 Article 1 of the Government’s Decree No. 34/2015/ND-CP dated March 31, 2015 providing amendments to the Decree No. 53/2013/ND-CP, SBV’s guidelines and other amending documents (if any);

- Costs for provision against devaluation of goods in stock, provision for loss of financial investments, provision for bad debts and other provisions (if any) according to the general regulations applicable to enterprises.

b) Costs for risk provision which are deducted when determining the corporate income tax shall comply with regulations of the Law on corporate income tax.

10.  Expenses for deposit preservation and insurance as prescribed by law.

11. Other expenses:

a) Membership fees paid to trade associations of which the microfinance institution is a member;

...

...

...

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

d) Costs for recovery of debts written off and collection of bad debts are debt recovery costs, including payments made to debt recovery service providers, that are licensed to provide debt recovery services as prescribed by law, and debt trading costs;

dd) Costs for settlement of remaining loss on assets:  The microfinance institution shall record the remaining loss on assets as expense after it has been made up for by compensations paid by relevant individuals, groups or insurer, its provisions available and financial reserve fund.

e) Expenses on amounts accounted for as revenues but actually unearned;

g) Expenses on social activities as prescribed by the Law on taxation;

h) Expenses on fines for administrative violations, excluding those to be paid by individuals as prescribed by law;

i) Other expenses:

- Expenses on debts recorded as income and creditors of which are lost at first but are identified thereafter;

- Expenses on fines/compensations due to breach of economic contracts under liability of the microfinance institution;

...

...

...

- Expenses on community development contributions as prescribed by law;

- Other expenses as prescribed by law.

Article 8. Expense recognition principle

1. Expenses of a microfinance institution are those actually incurred in the period related to business activities of the microfinance institution.

2. Expenses of recorded as business expenses of the microfinance institution shall conform to the matching principle between revenue and expenses and adequate lawful invoices and documents as prescribed by law. The microfinance institution shall not record expenses covered by other sources of funding as its expenses.  Expenses shall be determined and recorded in accordance with Vietnam’s accounting standards and relevant laws.

3. When calculating corporate income tax, expenses shall be determined in accordance with the Law on corporate income tax and its guiding documents.

4. A wholly state-owned microfinance institution shall only record expenses which are deductible as prescribed in the Law on corporate income tax as its business expenses. The wholly state-owned microfinance institution may use its after-tax profits to make up the costs for risk provisions in excess of the statutory amount which is deductible upon calculation of the corporate income tax due to difference in risk provision between the Law on corporate income tax and SBV’s regulations (if any) and the fines for administrative violations (excluding the fines payable by individuals as prescribed by law).

Article 9. Profit distribution

Remaining profits of the microfinance after deduction of business losses in previous year as prescribed in the Law on corporate income and payment of the corporate income tax shall be distributed as follows:

...

...

...

2. Remaining profits after deduction of the amounts prescribed in Clause 1 of this Article shall be distributed according to the following order:

a) Contribute 5% of the remaining profits to the additional reserve fund of charter capital. The balance of this fund shall not exceed the charter capital of the microfinance institution;

b) Contribute 10% of the remaining profits to the financial reserve fund.

3. Remaining profits after deduction of the amounts prescribed in Clause 1 and Clause 2 of this Article shall be distributed as follows:

a) The wholly state-owned microfinance institution shall:

- contribute not more than 25% of the remaining profits to the development investment fund;

- The agency representing the state capital owner in the microfinance institution, pursuant to regulations on evaluation and rating of wholly state-owned credit institutions, shall review the financial plan and assigned evaluation and rating criteria, and perform the evaluation and rating of the microfinance institution in the same manner as a wholly state-owned credit institution. Based on the evaluation and rating results, the microfinance institution shall distribute the remaining profits in accordance with regulations on profit distribution applicable to wholly state-owned credit institutions.

b) Other microfinance institutions: They shall themselves decide the distribution of remaining profits in conformity with their Charters and relevant laws.

Article 10. Reporting

...

...

...

2. Chairperson of the Board of Members or General Director (or Director) of the microfinance institution shall be responsible for the accuracy and faithfulness of its financial statements.

3. Deadlines for submission of financial statements:

a) Interim financial statements must be submitted by the 30^th of the first month of the subsequent quarter;

b) Unaudited annual financial statements must be submitted within 90 days from the end of the fiscal year;

c) Reports on audit of annual financial statements: The microfinance institution shall submit the audited annual financial statements and written opinions given by an independent audit organization upon the completion of audit process.

4. Report recipients:

a) The wholly state-owned microfinance institution shall send its financial statements to SBV’s branch in province or central-affiliated city where it is headquartered, SBV (via Banking Supervision Authority), and the Ministry of Finance;

b) Other microfinance institutions shall send their financial statements to SBV’s branches in provinces or central-affiliated cities where the microfinance institution is headquartered, and to SBV (via Banking Supervision Authority).

Article 11. Responsibility of regulatory bodies and microfinance institutions

...

...

...

2.[3] SBV shall take charge of supervising the compliance with financial policies by microfinance institutions.

a) SBV shall send biannual and annual reports on financial status of microfinance institutions and their violations against financial policies detected during inspections (if any) to the Ministry of Finance. SBV shall send biannual and annual reports to the Ministry of Finance by August 15 and April 15 of the following year respectively.

b) Data closing duration:

- A biannual report shall include data from January 01 to June 30 inclusively of the reporting period (except data reflected at a given time).

- An annual report shall include data from January 01 to December 31 inclusively of the reporting year (except data reflected at a given time).

c) Financial statements shall be submitted in one of the following methods:

- Directly in the form of paper financial statements;

- By post in the form of paper financial statements;

- By email or through specialized reporting software system;

...

...

...

3. Microfinance institutions shall:

a) comply with financial policies prescribed in the Law on credit institutions, the Decree No. 93/2017/ND-CP, guidelines herein and relevant legislative documents on financial management;

b) submit reports as prescribed and assume responsibility before the law for the adequacy, timeliness and accuracy of reporting figures in accordance with regulations in the Decree No. 93/2017/ND-CP and guidelines herein.

Chapter III

IMPLEMENTATION[4]

Article 12. Effect

1. This Circular comes into force from March 29, 2018.

2. This Circular supersedes the Circular No. 06/2013/TT-BTC dated January 09, 2013 by the Ministry of Finance providing guidelines for financial policies for microfinance institutions.

3. Difficulties that arise during the implementation of this Circular should be reported to the Ministry of Finance for consideration./.

...

...

...

CERTIFIED BY

PP. THE MINISTER
DEPUTY MINISTER




Huynh Quang Hai

[1] This document is consolidated from the following 02 Circulars:

-  The Circular No. 18/2018/TT-BTC dated February 12, 2018 of the Ministry of Finance providing guidance on financial policies for microfinance institutions, which comes into force from March 29, 2018.

-  The Circular No. 84/2020/TT-BTC dated October 01, 2020 of the Ministry of Finance providing amendments to regulations on periodic reporting under the authority of the Minister of Finance in the fields of finance and banking, coming into force from November 15, 2020 (hereinafter referred to as “Circular No. 84/2020/TT-BTC”).

This document supersedes none of 02 Circulars mentioned above.

...

...

...

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

The Government’s Decree No. 09/2019/ND-CP dated January 24, 2019 prescribing reporting regime for state administrative agencies;

 And at the request of the Director of the Department of Banking and Financial Institutions;”

[3] This Clause is amended according to Article 5 of the Circular No. 84/2020/TT-BTC, coming into force from November 15, 2020.

[4] Article 18 of the Circular No. 84/2020/TT-BTC stipulates as follows:  

“Article 18. Implementation

1. This Circular comes into force from November 15, 2020.

2. Difficulties that arise during the implementation of this Circular should be promptly reported to the Ministry of Finance for consideration./.”