18 August 2008
The Government provided for the organisation and operation of Micro-Finance Institutions ("MFIs") in Vietnam by issuing Decree No.28/2005/ND-CP ("Decree 28") in 2005 (later amended, supplemented and repealed in part by Decree No.165/2007/ND-CP ("Decree 165") of 2007).
The Governor of the State Bank of Vietnam (SBV) has more recently promulgated Circular No.02/2008/TT-NHNN ("Circular 02") dated 2 April 2008 guiding the implementation of a number of provisions relating to the organisation and operation of MFIs as provided for in Decree 28. The following summarises the key contents of Circular 02.
(a) Microfinance refers to the provision of "small and simple" financial services to low-income individuals and households.
(b) MFIs are financial institutions whose main functions consist of mobilising capital, loans, deposits and providing small and simple finance and banking services (including, among others, micro-credit and payment services) to low-income individuals and households.
(c) Micro-credit is the provision of small loans secured or unsecured ("microloan") to low-income individuals and households for investment in activities generating revenue and improving their life conditions. The total amount of a microloan may not exceed VND 30 million. This limit may be adjusted by the Governor of the SBV from time to time.
Eligibility to establish MFIs
(a) Only two groups of entities ("Authorised Entities") are entitled to establish MFIs:
(i) Politico-social organisations, social organisations, socio-professional organisations of Vietnam, charitable funds and social funds; and
(ii) Vietnamese non-government organizations.
(b) Other Vietnamese or foreign individuals and organisations can contribute capital to such Authorised Entities in order to establish MFIs.
Establishment and operation of MFIs
(a) An MFI is established in the form of a limited liability company ("LLC") in compliance with the Law on Enterprises and Decree 28.
(i) An MFI in the form of a one-member LLC may be founded by one Vietnamese politico-social organisation established and operating lawfully in Vietnam;
(ii) An MFI in the form of an LLC with two or more members may be founded by a capital contribution from two or more Authorized Entities or one Authorized Entity and other Vietnamese or foreign individuals and organisations. An MFI may not have more than 5 members, except as otherwise authorised by the Governor of the SBV.
(b) The SBV is the licensing authority of MFIs.
(c) An MFI must start its activities within the 12-month period from the date of issuance of its establishment licence. Otherwise, the licence will automatically terminate.
(d) The term of operation of an MFI is a maximum 50 years, renewable.
(e) An MFI is required to have legal capital of at least VND 5 billion.
(f) The shareholding of foreign individuals and organisations in an MFI must be under 50% of the charter capital of the MFI, except for special cases determined by the Prime Minister.
The shareholding of Authorized Entities must be at least 25% of the charter capital of an MFI and must be higher than the shareholding of all other shareholders in the MFI.
Assignment of shares is subject to prior approval of the SBV.
(g) The management structure of an MFI in the form of an LLC with two or more members will be:
(i) The members' meeting is the highest making decision body of the MFI;
(ii) A Board of Management (not to be less than 3 members);
(iii) A Control Board (not to be less than 3 members);
(iv) A General Director who must reside permanently in Vietnam during the time in this position;
(v) One or more Deputy General Directors who must reside permanently in Vietnam during the time in this position;
(vi) A Chief Accountant who must reside permanently in Vietnam during the time in this position.
(h) The management structure of an MFI in the form of a one-member LLC will be:
(i) The owner of the MFI may appoint one or several authorised representatives in charge of undertaking its rights and obligations as stipulated by law;
(ii) An MFI in the form of a one-member LLC may adopt the management structure of an MFI in the form of an LLC with two or more members.
(i) The legal representative of an MFI may be the Chairman of the Board of Management or the General Director as stipulated in the Charter of the MFI. The legal representative must reside permanently in Vietnam; in the case of his/her absence from Vietnam for more than 15 days, subject to the provisions of the Charter of the MFI, he/she must give in writing a power of attorney to another person to perform the rights and obligations of the legal representative.
(j) Circular 02 provides for further criteria and conditions to become a chairman or member of the Board of Management and of the Control Board, the General Director, rights and obligations of funding members, of Members' Meetings, of the Board of Management, of the Control Board and in respect of the General Director.