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Microfinance Organization

 Law of Georgia On Microfinance Organization

 Article 1. The Goal of the Law

 

The goal of this Law is to ensure legal regulation of the operations of microfinance organizations in Georgia and to establish a sound environment for their development.

 

Article 2. Definitions

 

1.      The terms used in this Law shall have the following meaning:

 

1.      Micro leasing – a leasing with its value defined within the micro credit limits;

 

2.      Registration – a voluntary registration with the National Bank of Georgia of a legal entity founded under the applicable Georgian legislation; (24.09.2009 N 1682)

 

3.      Removed (24.09.2009 N 1682)

 

4.      Significant share – 10% or more than 10% of the declared or replenished capital of a microfinance organization, owned by a person through either direct or indirect participation. (20.12.2011. N5528)

 

2.      Other terms used in this Law shall have the meanings as determined by the Georgian legislative acts.

 

 Article 3. Microfinance Organization

 

1.      A microfinance organization is a legal entity founded in the form of limited liability or joint stock company, which is registered at its request by the National Bank of Georgia and is engaged in the operations stipulated for by this Law under the supervision of the National Bank of Georgia. (24.09.2009 N 1682)

 

2.      A microfinance organization shall found a supervisory board, to which the rules regarding the supervisory board of joint stock company as set forth in the Law of Georgia on Entrepreneurs shall apply.

 

3.      Only a microfinance organization is authorized to include in its trade name the term Microfinance Organization or its abbreviation MFO in addition to the mark permitted by the Law of Georgia on Entrepreneurs.

 

4.      If in result of examination, the National Bank of Georgia establishes that a microfinance organization is in breach of the standards set forth by the Georgian legislation, it is authorized to give notice to, impose a fine  upon the microfinance organization or make a decision on cancellation of registration thereof as per procedures set forth by the National Bank of Georgia (24.09.2009 N 1682)

 

 Article 4. Microfinance operations

 

1.      A microfinance organization may only run the following operations:

 

a)      Issuing micro credits, including consumer, collateral, mortgage, unsecured, group and other loan (credit) types;

 

b)      Investing into the state and public securities;

 

c)      Money transferring;

 

d)      Insurance agent operations;

 

e)      Providing micro crediting consultancy services;

 

f)       Having loans (credits) from resident and non-resident legal entities and physical persons;

 

g)      Ownership of charter capital shares of legal entities with their total sum not in excess of 15% of that microfinance organization’s charter capital;

 

h)     Other financial services and operations defined by the Georgian legislation, including micro leasing, factoring, currency exchange, emission of promissory notes, bonds, selling, redemption and other related operations.

 

2.      A microfinance organization may run the abovementioned business only upon registration thereof as a microfinance organization by the National Bank of Georgia subject to the rules and procedures determined by the National Bank of Georgia. (24.09.2009 N 1682).

 

3.      A microfinance organization is restricted to accept deposits both from legal entities and physical persons.

 

 Article 5. Concept and size of micro credit

 

1.      A micro credit is money issued to a borrower or a group of borrowers with a term, rules of repayment, cost and purpose defined in the loan agreement.

 

2.      A maximum total sum of micro credit issued by a microfinance organization per borrower shall not exceed 50 000 (fifty thousand) GEL.

 

 Article 6. Charter capital of microfinance organization

 

A cash contribution to the microfinance organization’s charter capital shall be at least 250 000 (two hundred fifty thousand) GEL. Any cash or non-cash contribution over the abovementioned amount of the charter capital shall be made as per applicable Georgian legislation.

 

 Article 7. Eligibility Criteria

 

1.      A director (member of board of directors) of microfinance organization may not be at the same time a partner (shareholder), a member of supervisory board or/and board of directors of any commercial bank, non-bank depository institution – a credit union or other microfinance organization.

 

2.      A person shall not be a director of microfinance organization, if he/she:

 

a)      Took part in the operation which incurred significant damages to a commercial bank,  non-bank depository institution – a credit union or other microfinance organization, or infringed on the rights of depositories or other creditors of a  commercial bank,  non-bank depository institution – a credit union or other microfinance organization, or caused insolvency or bankruptcy of a commercial bank,  non-bank depository institution – a credit union or other microfinance organization;

 

b)      In the past, was an administrator of a commercial bank, credit union or other microfinance organization and the commercial bank, credit union or microfinance organization became insolvent through his/her actions;

 

c)      Failed to meet any financial liability against any commercial bank, credit union or other microfinance organization;

 

d)      Was convicted of any serious or high crime, terrorism funding or/and legalization of illegal incomes or any other economic crime; (20.12.2011. N5528)

 

e)      Has no adequate educational background or/and experience. (20.12.2011. N5528)

 

3.      A director of microfinance organization shall not take part in making decisions on the matters he/she has personal interest in.

 

4.      A person shall not be a holder of significant share of microfinance organization if he/she was previously convicted of any serious or high crime, terrorism funding or/and legalization of illegal incomes or any other economic crime. (20.12.2011. N5528)

 

 Article 8. Audit, accounting and reporting

 

1.      A microfinance organization is obliged to:

 

a)      Keep transparent financial and tax accounting and follow the publicity principle;

 

b)      Develop and implement the internal control system and procedures;

 

c)      Invite an external auditor annually to audit financial statements in compliance with Georgian legislation;

 

d)      Keep accounting and financial reporting in compliance with International Accounting Standards and Georgian legislation;

 

e)      Submit financial statements to the National Bank of Georgia. A form and term of financial reporting is determined by a normative act of the National Bank of Georgia; (24.09.2009 N 1682)

 

f)       Be responsible for the truthfulness and completeness of financial reporting;

 

g)      Publish annually in the press its financial statements of economic year and external audit opinion.

 

2.      Where a microfinance organization fails to submit the abovementioned financial reporting to the National Bank of Georgia twice consecutively in the form and periodicity determined by the National Bank of Georgia, the latter may cancel the microfinance organization’s registration. (24.09.2009 N 1682)

 

3.      A microfinance organization shall keep the following documents for 6 years:

 

a)      Account books, inventory descriptions, balance sheets, as well as explanations thereto and other organizational documents;

 

b)     Account documents supporting the records in the account books.

 

 Article 9. Terms and conditions of issuing loans

 

1.      For issuing a micro loan, a written loan agreement shall be made by and between a microfinance organization and a borrower in compliance with this Law and Civil Code of Georgia.

 

2.      The loan stipulated for in this Article 9 may be multiple or individual, secured or blank. The terms and conditions for issuing micro loans shall be determined by a microfinance organization.

 

2.      An interest rate, commission fees and service fees shall be determined by a microfinance organization.

 

3.      A microfinance organization may control a purpose of credit use by a borrower and a borrower shall allow the microfinance organization to control the purpose of loan use. If the borrower fails to meet the liability for the purpose of loan use, the microfinance organization may reject fulfilling the loan agreement for the part of loan, which is not issued yet and demand repaying the issued part of loan ahead of schedule.

 

 

 Article 10. Confidentiality of Information

 

1.      A microfinance organization shall follow the confidentiality of information provision.

 

2.      Any information about a borrower available at a microfinance organization may be given to the borrower, his/her/its representatives, the National Bank of Georgia as well as to the Georgian Financial Monitoring Agency in the cases stipulated for by applicable Georgian legislation. Such information may be given to other persons solely at the respective court decision or prior written agreement with the borrower. (24.09.2009 N 1682 to be enacted from December 1, 2009).

 

3.      Judicial and investigatory bodies as well as tax authorities shall not disclose information to other authorities including mass media and shall not use such information publicly unless a relevant court decision is made.

 

 

 Article 11. Miscellaneous provisions (11.07.2007 N5254)

 

1.      Where a limited liability or joint stock company is founded by a microfinance organization registered as a non-entrepreneur legal entity prior to enactment of this Law, the bodies authorized under the charters of those microfinance organizations may determine at their discretion a size of charter capital of that limited liability or joint stock company in compliance with Article 6 of this Law (determine a par value of shares for a joint stock company).

 

2.      When a non-cash contribution is made to the charter capital, the microfinance organizations registered as non-entrepreneur legal entities prior to enactment of this Law, shall make for the audit examination of respective assets prior to November 30, 2007

 

 

3.      The bodies authorized under the charters of those microfinance organizations registered as non-entrepreneur legal entities prior to enactment of this Law shall be entitled to dispose the shares of the companies founded by those microfinance organizations and determine the procedures of such a disposal.

 

4.      Till December 31, 2007, the requirements of Article 33, part 2 of the Civil Code of Georgia shall not apply to the microfinance organizations registered as non-entrepreneur legal entities prior to enactment of this Law.

 

 

 

Article 12. Final provision

 

This Law shall be put into effect upon publishing thereof.

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