Belarus President Decree On Microfinance Up For Public Hearings

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Jan 2013
Minsk, Belarus, January, 28 2013 - A draft presidential decree on microfinance has been worked out in Belarus. The text of the document has been published by the website of the National Bank of the Republic of Belarus and is available for public hearings.

NBRB experts believe that the development of the microfinance market is a vital condition for the prosperity of small businesses and self-employed businessmen in Belarus. However, for now non-banking microfinance in the country is in its infancy. Commercial microfinance organizations issue the bulk of loans. Meanwhile, such organizations grow rapidly in other Single Economic Space countries.

Up till now Belarus has had no legal act to regulate the operation of microfinance organizations. The draft decree is designed to address it. “It is time to pass a legal act in Belarus to legislate the terms of microfinance, rights and obligations of microfinance market participants, and the authority of the government agency that will oversee the area of microfinance. The draft decree is aimed at laying down the legal foundation for creating a system of the state regulation of microfinance activities and overseeing it. It is also aimed at the development and better transparency of non-banking microfinance in the Republic of Belarus,” said the NBRB representatives.

In line with the draft decree the National Bank will have to keep a register of legal persons that perform microfinance. Their omission or exclusion from the register will be equal to the ban to provide such services. A similar approach is used in Russia and is planned for assimilation in Kazakhstan.

There are plans to institute the minimal size of the authorized fund required for a business entity to perform microfinance activities. It has been set at the equivalent of €100,000 for now. “While the segment of the financial market is underdeveloped, a higher threshold of the minimal authorized fund would seriously threaten the emergence of new commercial microfinance organizations in Belarus and the continued operation of the legal persons that provide microfinance services at present,” the NBRB believes.

Apart from that, there are plans to set the maximum size of microloans at 1,500 base amounts (about $18,000). It is advisable to keep the present level of the existing maximum size of microloans available from banks (15,000 base amounts), the NBRB is confident.

The draft decree provides for creating a legal mechanism to counteract the emergence and operation of pyramid investment schemes under the guise of microfinance organizations. In particular, the draft decree provides for a prohibition for legal persons and self-employed businessmen to get microloans from resident natural persons except for microloans from natural persons, who are founders, partners in these juridical persons, members of the cooperative society. If the operation of a pyramid investment scheme is disguised as the operation of a consumers cooperative society set up to provide financial mutual aid, the National Bank of the Republic of Belarus retains the right to issue binding instructions to prohibit the society from taking extra money from its founders, partners, and retains the right to exclude such legal persons from the register.

The source stated that lenders often use daily interest rate (for instance, 0.9% per day) while issuing microloans for a short period (up to one month). The daily interest rate can mislead consumers into thinking that the interest rate is low. The draft decree provides for lenders to use annual interest rates (in the suggested example the annual interest rate is 328.53%). The measure will allow consumers to adequately access their ability to repay such loans and to compare microlending terms with those of consumer loans offered by banks. Apart from that, microfinance organizations will have to provide data, which make up part of the credit record, for all the signed microlending contracts to the National Bank.

In order to encourage the development of microfinance organizations there are plans to exempt natural persons from income tax on the revenues, which are generated as interest rate and are received by the natural person (the lender) as part of microlending contracts from consumers cooperative societies set up to provide financial mutual aid.

 

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