Micro-financing companies

20 September 2005 (Invest Romania)

The regime of micro-lending and specialised companies in performing such activities was expressly regulated by Law no. 240/2005 on the micro-financing companies, published in the Official Gazette no. 663/July 26, 2005 (”Law no. 240/2005”).

Set up as joint stock companies, the main object of activity of micro-financing companies consists of granting micro credits from their own funds, borrowed or raised from financial institutions, donor organizations or public resources, subject to relevant legal framework. In order to clearly separate the micro-financing activities from specific operations carried out by banking companies and credit institutions, it has been expressly regulated the interdiction for micro-financing companies to raise deposits or other repayable funds from the public, within the meaning of Law no. 58/1998 on banking activity, as well as to grant mortgage loans.

The new enactment set out certain capital requirements in respect of micro-financing companies, concerning a minimum threshold, respectively the RON equivalent of Euro 200,000, as well as the necessity to fully pay in the share capital, in cash, upon subscription. The issued shares may be only nominative shares.

Surveillance of micro-financing companies by the National Bank of Romania (“NBR”) is rendered both on incorporation, as the setting up of a micro-financing company should be notified to NBR within 30 days as from company’s registration with the Trade Registry and during the activity of the micro-financing company through the annual reporting obligations in respect of micro credits portfolio structure and NBR notification on any change brought to initially lodged documents.

Types of operations performed. Generically designated as micro-lending, the main activity of micro-financing companies comprise granting of loans in RON to natural or legal persons, in equivalent up to Euro 25,000, with a 60 months repayment period for projects, activities or business development, sustaining of community or economic development projects, of local communities’ initiatives and social programmes.

The operations falling under the specific scope of micro-financing companies mainly comprise the following: (i) lending or raising repayable or non-repayable funds from resident or non-resident entities, (ii) approving as guarantees beneficiaries’ deposits, provided that the amounts set up as guarantee to be deposited in a credit institution – Romanian legal person or Romanian branches of foreign credit institutions authorised by NBR, (iii) concluding legal documents on real estates and movable assets obtained further to enforcement of guarantees set up, (iv) administration of public funds granted as funds for micro-loans by the governmental agencies, subject to applicable legal provisions.

Principles of micro-lending. The micro-lending activity may be carried out exclusively through accounts opened with credit institutions – Romanian legal persons, as well as Romanian branches of foreign credit institutions authorised by NBR to carry out their activity in Romania.

The basic principles of micro-lending refer to: (i) grounding the initiation or development of projects for which micro-financing is requested, (ii) ensuring the transparency of micro-lending activity and the fair and non-discriminatory treatment of beneficiaries, (iii) forbidding the conditioning of micro-lending by beneficiary’s acceptance of services not related to the micro-loan.

The micro-loan agreements shall also have to contain a minimum set of clauses aimed at protecting beneficiaries’ interests, comprising mainly the interest, penalties, commissions, fees and tariffs applicable, the cost of related services rendered by the micro-financing company, as well as all the other costs resting with the beneficiary, the loan repayment modality and guarantees set up, scope and the way to use the loan, confidentiality clause, anticipated repayment of the loan and conditions thereof, etc.

Law no. 240/2005 provides different terms wherein the entities carrying out micro-lending activities on its entry into force shall have to take the necessary measures in order to comply with the new legal requirements. Thus, the capital requirements should be met within one year after the entry into force of Law no. 240/2005, the legal form, name and financial audit of the micro-financing company should be ensured within 6 months, while all the other provisions become applicable upon the entry into force of the new enactment.



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