Download Financial Intermediary Societies Act of 1999

Regmi Research (Private) Ltd.
Nepal Miscellaneous Series
Vol. 11/2003
Kathmandu: November 14, 2003
Regmi Ville,
Lazimpat, Kathmandu
Telephone: 4-11927
(For Private Study and Research Only)
FINANCIAL INTERMEDIARY SOCIETIES ACT, 1999
History
March 31, 1999
...
First Promulgated. Nepal
Rajapatra, Vol. 48, No. 79 (a)
(E), Chaitra 17, 2055
August 7, 2002
...
First Amendment. Nepal
Rajapatra, Vol. 52, No. 37
(E), Shrawan 22, 2059
Consolidated Text
Preamble: Whereas it is expedient to provide for Societies
working as financial intermediaries in micro-enterprises on an
institutional basis to low-income people living in microenterprises and thus improve their economic condition,
now therefore, the Parliament has enacted this law in the 27th
year of the reign of His Majesty King Birendra Bir Bikram Shah
Dev.
Chapter 1
Preliminary
1.
2.
Short Title and Commencement
(1)
This law may be called the Financial Intermediary
Societies Act, 1999.
(2)
It shall come into force on such date as may be
prescribed by His Majesty's Government by notification
in the Nepal Rajapatra.
Definitions
Unless otherwise meant with reference to the subject or
context, in this Act,
(a)
Financial intermediation means the collection of microsavings and supply of micro-credit under this Act.
(b)
Society means a Society registered under the 1977
Registration of Associations Act and license to work as
a financial intermediary under this Act.
(c)
License means a license issued under Section 5 to work
as a financial intermediary.
(d)
Bank means the Nepal Rastra Bank established under the
1955 Nepal Rastra Bank Act.
(e)
Micro-enterprise means an income-oriented enterprise
operated with less than 10 persons.
(f)
Low-income person means a person with an income lower
than the income prescribed by the Nepal Rastra Bank
from time to time.
(g)
Group means a group of low-income persons which has
been formed by fulfilling the prescribed formalities.
(h)
Collective guarantee means a guarantee bond issued to a
Society by the members of a group collectively pledging
to repay micro-credit obtained by any member of the
group if he failed to do so.
(h1) Micro-savings mean the savings to be collected by the
Society in the manner prescribed by the Bank from time
to time from low-income persons or groups who are
members of the Society.
(i)
Micro-Credit means the credit to be supplied by the
Society within the limit prescribed by the Bank from
time to time for the operation of micro-enterprises.
(j)
Borrower means a group or any member of a group who has
obtained micro-credit from a Society.
(k)
Security means any movable or immovable property
pledged as collateral, mortgage, or otherwise according
to current law while obtaining micro-credit.
(l)
Employees mean persons appointed by a Society to work
for it with or without remuneration; the term includes
office-bearers of the Society.
(m)
Prescribed or as prescribed means prescribed or in the
manner prescribed in the rules or by-rules framed under
this Act.
Chapter 2
Licensing Arrangements
3
3.
Prohibition to Work as Financial Intermediary Without
Obtaining License
After the commencement of this Act, no one shall work or
instigate others to work as a financial intermediary without
obtaining a license under this Act.
4.
Application to be Filed for License
In case any Society which has been registered under the 1977
Registration of Associations Act with the objective of
working as a financial intermediary desires to work as a
financial intermediary under this act, it must submit an
application to the Bank in the prescribed form explicitly
mentioning the following particulars:
5.
(a)
Certificate of registration and Constitution of the
Society.
(b)
Names, addresses, and occupations of office-bearers of
the Society.
(c)
Total number of members of the Society.
(d)
Movable and immovable assets of the Society.
(e)
Geographical area where the Society wishes to work as a
financial intermediary.
(f)
Other matters as prescribed.
Issuance of License
(1)
On receipt of an application under Section 4, the Bank
shall conduct necessary enquiries into it, and, if it
so deems necessary in the course of such enquiries, it
may demand additional information or particulars from
the applicant-Society.
(2)
In case the Bank so deems appropriate in the course of
conducting enquiries under Sub-Section (1), it shall
collect the prescribed fee and issue to the applicant
in the prescribed form a license to work as a financial
intermediary.
(3)
Licenses to be issued or while notifying about the
rejection (of the application) under Sub-Section (2)
shall be issued not more than 75 days from the date of
receipt of the application, or of the additional
information or particulars demanded under Sub-Section
(1).
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(4)
6.
7.
(Deleted on August 7, 2002).
Power to Prescribe Conditions
(1)
While issuing a license under Section 5, the Bank may
prescribe the conditions to be fulfilled by the
concerned Society while working as a financial
intermediary.
(2)
It shall be the duty of the concerned Society to fulfil
the conditions prescribed under Sub-Section (1).
Renewal
(1)
A Society must have its license renewed by the Bank
every two years in the prescribed manner.
(2)
Any license which is not renewed within the time limit
mentioned in Sub-Section (1) shall be ipso facto
cancelled.
(3)
Other arrangements concerning renewal of license shall
be as prescribed.
Chapter 3
Functions, Duties, and Powers of Societies
8.
Functions, Duties, and Powers of Societies
The functions, duties, and powers of a Society, in addition
to those mentioned elsewhere in this Act, shall be as
follows:
(a)
To encourage low-income persons to form groups.
(a1) To collect micro-savings from groups or group-members.
(b)
To supply micro-credit to any group or member thereof
for operating micro-enterprises, with or without any
movable or immovable property as collateral or
guarantee.
(c)
To obtain loans or grants from the HMG or Bank or any
local or foreign organization or association, and use
them for the supply of micro-credit or for making the
process of supplying such credit effective.
Provided that it shall be mandatory for a Society to
secure the approval of HMG through the Bank before
obtaining loans, grants or any other type of assistance
5
from any foreign organization, association, etc.
9.
(d)
To evaluate schemes for which micro-credit have been
requested, and determine whether or not they are
feasible, before supplying micro-credit.
(e)
To organize publicity and extension programs about
micro-enterprises programs of the type which help to
improve the economic condition of low-income persons.
(f)
To organize workshops on micro-enterprises, extend help
and provide training in the formulation of schemes,
make available technical know-how, and mobilize
technical assistance according to need.
(g)
To provide necessary services to a group in respect to
the micro-savings and mobilization of micro-credit.
(h)
To take necessary actions for the timely realization of
micro-credit.
(i)
To conduct investigations from time to time to
determine whether or not micro-credit has been properly
utilized, and, if it is not found to have been properly
utilized, to issue necessary directives or taking
necessary action.
(j)
To perform all such functions as are prescribed in
connection with the supply of collection of microsavings and micro-credit.
(k)
To work as an agent of commercial banks and financial
institutions.
Power to Demand Information, Data, or Documents
The Bank may demand any information, data, or document
relating to micro-credit from any Society, micro-savings and
it shall be the duty of the concerned Society to furnish
such information, data, or documents.
10.
Agreements to be Signed
(1)
While supplying micro-credit, a Society must execute a
written agreement with the borrower by prescribing
conditions deemed essential for the protection and
proper utilization of the credit.
(2)
While executing an agreement under Sub-Section (1), the
Society may prescribe any time limit for repayment of
its micro-credit, or a condition to the effect that it
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may have the borrower repay the principal and interest
if he violates the conditions prescribed by it, or to
recover the same from the collateral pledged or
collective guarantee furnished by the borrower.
Provided that a Society shall not accept the security
furnished by any person not connected with the
concerned group while obtaining a security from the
borrower.
11.
Power of Societies in the Event of Breach of Conditions
(1)
In case any borrower fails to abide by the agreement
signed or terms stipulated with a Society, or to repay
the micro-credit of a Society within the time limit
stipulated in the bond, or in case a Society finds
through investigations that the borrower has misused or
misappropriated the amount of the micro-credit, the
Society may, notwithstanding anything contained in
current law, auction any property pledged to it, or any
security deposited with it, according to current law,
and thus recover the principal and interest.
(2)
In case any borrower relinquishes in any manner title
to the property pledged to a Society as collateral, or
the value of such collateral declines due to any
reason, the Society may, notwithstanding anything
contained in current law, ask him to furnish additional
collateral which is sufficient to cover the credit
within the period prescribed by it. In case the
borrower fails to furnish additional collateral within
the time limit prescribed by the Society, the Society
may recover its principal and interest by auctioning
the collateral pledged to it.
(3)
In case the principal and interest cannot be fully
recovered through the auction sale of the collateral
pledged to the Society under Sub-Section (1) or (2),
the Society may recover the balance by auctioning the
other assets of the concerned member in case any member
of a group has obtained the micro-credit on an
individual basis, and of all the members of the group
in case the micro-credit has been obtained on a
collective basis.
(4)
The amount of principal and interest and expenses
incurred in auction shall be deducted from the amount
raised through the auction of the assets under this
Section, and the balance shall be refunded to the
concerned person.
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(5)
12.
In case no one offers a bid in an auction as prescribed
held by a Society under this Section, the concerned
Society may itself take over the ownership of such
assets.
Registration or Transfer
(1)
In case the bid offered by anyone is approved in the
course of auctioning the assets pledged as collateral
under Section 11, or in case a Society itself takes
over the ownership of such assets on the ground that no
one offered a bid in an auction, the Society shall
write to the appropriate Land Tax Office for
registration or transfer in its records according to
current law of the concerned assets in the name of the
person whose bid has been approved, or in the name of
the Society.
(2)
In case the appropriate Land Tax Office receives a
written request from any Society for registration or
transfer of assets under Sub-Section (1), it must do so
accordingly.
13.
(Repealed on August 7, 2002)
14.
Power to Determine Interest Rates
15.
(1)
A Society shall itself determine the interest rates to
be paid and charged by it on micro-savings and microcredit subject to the policy directives of the Rastra
Bank. It must furnish information about the same to the
Bank within seven days.
(2)
Notwithstanding anything contained in Sub-Section (1),
the Bank may, if it so deems necessary, direct the
Society to increase or reduce the interest rates fixed
by it, and it shall be the duty of the Society to
comply with such directives.
Power to Collect Service Charges
A Society may collect a service charge from any individual
or group in consideration of any service, facility,
technical know-how, or training provided by it to him/it in
connection with micro-savings and micro-credit.
16.
Records to be Maintained
A Society must maintain records of its work as a financial
intermediary on a current basis.
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Chapter 4
Functions, Duties, and Powers of the Bank
17.
18.
Power to Conduct Inspection or Investigation
(1)
The Bank may inspect or investigate the office or the
functions and activities of a Society, or make
arrangements for doing so, according to need.
(2)
It shall be the duty of the concerned Society and
employees to supply the documents or particulars
demanded by the inspector or investigator in the course
of conducting inspection or investigation under SubSection (1).
(3)
Other arrangements concerning inspection or
investigation shall be as prescribed.
Power to Issue Directives
(1)
(2)
In case it is found in the course of inspection or
investigation under Section 17 that a Society has taken
any of the following actions, the Bank may direct the
Society to introduce reforms or make any special
arrangement in respect to any of its functions and
activities by prescribing a time limit for that
purpose:
(a) In case it has not taken any action which it is
required to take under this Act.
(b)
In case it has taken any action which adversely
affects the savers and borrowers.
(c)
In case it is not found to have properly
maintained its ledgers, accounts, or documents.
(d)
In case it has not complied with any condition
prescribed or directive issued by the Bank.
(e)
In case it has misappropriated its funds, used in
activities opposed the objectives of this Act the
funds received for the purpose.
(f)
In case it has not supplied particulars, data, or
documents demanded under this Act.
The Bank may issue directives from time to time to a
Society in respect to functions which it has to perform
under this Act or the rules framed hereunder. It shall
be the duty of the concerned Society to comply with
such directives.
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19.
Power to Cancel License
(1)
(2)
(3)
20.
In case any Society violates the directives issued
under Section 18, the Bank may issue a warning to it to
correct its mistakes, or impose a bank on any of its
functions. In case any society violates such directives
for three times, or takes any of the following actions,
the Bank may suspend or cancel its license.
(a)
In case the Society stops working as a financial
intermediary.
(b)
In case the Society misappropriates its funds, or
does not use such funds for purposes for which
they have been received.
(c)
In case the Society does not comply with the
directives issued by the Bank to introduce reforms
or make any special arrangement in respect to any
of its functions and activities by prescribing a
time limit for that purpose.
(d)
In case the Society fails to renew itself under
the 1977 Registration of Association Act and
Section 7 of this Act.
The Bank may, if it so deems necessary before issuing
an order of cancellation of license under Sub-Section
(1), have necessary enquiries or investigations
conducted in that connection.
Before cancelling a license under Sub-Section (1), the
Bank shall provide the concerned Society with an
opportunity to submit its explanations.
Power to Impose a Ban (on a Society) to Work as a Financial
Intermediary
In case it is not deemed appropriate to allow any Society to
continue working as a financial intermediary on the ground
that it has taken any of the actions mentioned in Section
18, the Bank may provide it with an opportunity to introduce
necessary reforms and impose a ban on it to work as a
financial intermediary for a specified period of time.
21.
Permission to Relinquish Functions of a Financial
Intermediary
In case any Society applies to the Bank for permission to
relinquish its functions of a financial intermediary, and in
case the Society is found to have met in full all its
10
liabilities, the Bank may grant it permission to relinquish
its functions of a financial intermediary.
Provided that in case any Society has not been able to meet
its liabilities in full, the Bank shall impose a ban on it
to carry out functions of a financial intermediary and write
to HMG to have the liabilities of the Society met from its
assets under the 1977 Registration of Associations Act.
21A. To be Realized From Personal Assets of Office-Bearers
In case any office-bearer of a Society performs or
instigates the performance of the functions of a financial
intermediary or misappropriates the funds of the Society
with selfish or malafide motives in a manner opposed to the
objectives of the Act, the Bank shall realize or make
arrangements for realizing the funds so misappropriated from
his personal assets or from any movable and immovable
property within the Kingdom of Nepal which is under his name
and ownership.
22.
(Repealed on August 7, 2002)
23.
(Repealed on August 7, 2002)
Chapter 5
Fund, Accounts, and Audit of Societies
24.
Fund of the Society
(1)
A Society's Micro-Credit Fund, which shall comprise the
following amounts:
(a)
Grants or loans received from the HMG or Bank or
local or foreign organizations or associations.
(a1) Amounts received through the collection of microsavings.
(a2) Amounts received from commercial banks or
financial institutions.
(b)
A prescribed amount from the fees collected from
the members of the Society.
(c)
Service charges collected in consideration of the
services provided by the Society.
(d)
Interest, fees, etc. received from micro-credit
transactions.
(e)
Amounts received from other sources.
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(2)
All expenses to be incurred in the name of the Society
shall be borne from the fund mentioned in Sub-Section
(1).
Provided that amounts collected through micro-savings
or received for micro-credit shall not be disbursed for
other purposes.
25.
26.
(3)
Funds of the Society shall be deposited in an account
opened in any commercial bank or financial institution,
and such (bank) account shall be operated in the
prescribed manner.
(4)
In case the Society is not currently in a position to
supply micro-credit, it may, with the approval of the
Bank, make investments in term deposits for a period
not exceeding six months.
Risk-Bearing Fund
(1)
A Society shall establish a separate risk-bearing fund,
in addition to the fund mentioned in Section 24, for
the purpose of bearing any possible loss in the course
of supplying micro-credit. The prescribed (percentage)
of the total outstanding credit invested until the day
of the expiry of each financial year must be credited
to that fund.
(2)
The amounts credited to the fund mentioned in SubSection (1) may be invested by the Society in the
securities of His Majesty's Government or the Bank.
(3)
The amounts credited to the fund mentioned in SubSection (1) shall be used only for waiving microcredit. In case it becomes necessary to waive any
micro-credit, the Society must obtain the approval of
the Bank.
Accounts and Audit of Societies
(1)
A Society must maintain separately the accounts and
records of its functions as a financial intermediary.
It must prepare a balance sheet of each financial year
and have it audited by a recognized auditor appointed
by its general meeting within six months after the
expiry of the concerned financial year.
(2)
While appointing an auditor under Sub-Section (1), the
same individual or firm shall not be appointed for more
than three consecutive terms.
12
27.
(3)
The remuneration of the auditor shall be as prescribed
by the general meeting of the Society.
(4)
The Bank may, if it so wishes, inspect or make
arrangements for inspecting the accounts and records of
a Society at any time.
(Repealed on August 7, 2002)
Chapter 6
Penalties
28.
29.
Penalties
(1)
In case any person works as a financial intermediary
without obtaining a license under this act, he shall be
punished with a fine not exceeding Rs 20,000, or with
imprisonment for a term not exceeding six months, or
with both. In case any Society does so, the officebearer discharging the functions of that Society shall
be subjected to such punishment.
(2)
In case any Society does not comply with this Act or
the rules framed hereunder, or with any order or
directive issued by the Bank, or fails to supply or
submit particulars or documents demanded from it under
this Act, or submits false information intentionally,
and in case any loss or damage results therefrom, the
amount involved in the loss or damage shall be
recovered from the concerned employee, who shall also
be punished with a fine not exceeding Rs 10,000, or
with imprisonment for a term not exceeding six months,
or with both.
(3)
In case any employee of a Society misappropriates its
cash or supplies, or uses them for his personal
purposes, the amount involved shall be realized from
him, in addition to punishing him with a fine equal to
that amount, or with imprisonment for a term not
exceeding five years, or with both.
(4)
In case any
harasses or
Bank or the
against him
employee of a Society cheats or illegally
causes any hardship to any borrower, the
concerned party may initiate legal action
according to current law.
Power to Take Action According to Current Law
In case any Society takes any action which is punishable
under current law, this Act shall not be deemed to have
13
prejudiced the power to take action against it accordingly.
Chapter 7
Miscellaneous
30.
Exemption From Registration Fee or Revenue Stamp Fee
No registration fee or revenue stamp fee shall be charged on
the registration of any property in the name of a Society
which it has obtained from a borrower as a collateral, or on
the sale or purchase of any immovable property by a Society.
31.
Income Tax Exemption
His Majesty's Government may, by notification in the Nepal
Rajapatra, grant full or partial income tax exemption on the
income earned by a Society.
32.
Annual Reports to be Submitted
A Society must submit to the Bank an preliminary annual
report of its functions in the capacity of a financial
intermediary along with a statement of its profit and loss
within three months after the expiry of each financial year.
33.
Bank to be Consulted
It shall be mandatory to consult the Bank before dissolving
a Society under the 1977 Registration of Associations Act.
33A. Right to Amalgamate or be Amalgamated
(1)
Notwithstanding anything contained in the 1977
Registration of Associations Act, in case two-thirds of
the total number of members present at a general
meeting of a Society which is performing the functions
of a financial intermediary under this Act support a
resolution to amalgamate the Society with any other
Society or to amalgamate any other Society with the
Society, the resolution shall be deemed to have been
approved by the general meeting.
Provided that no resolution may be adopted for
amalgamating or being amalgamated with any Society
which is not performing the functions of a financial
intermediary under this Act.
(2)
The resolution approved under Sub-Section (1) shall be
submitted to the office which had registered the
Society which is to be amalgamated and the Bank, and
shall come into force only after receiving separate
14
approval from both the office and the Bank. On receipt
of such approval, the legal existence of the concerned
society shall be deemed to have been ipso facto
terminated.
(3)
34.
The assets of the Society that is amalgamated under
Sub-Section (1) shall devolve on the Society with which
it has been amalgamated, and the latter must bear the
liabilities of the former.
Immunity for Action Taken With Bonafide Motives
The members or employees of a Society shall not be held
individually or collectively responsible for any function
discharged by them with bonafide motives subject to this Act
or the rules framed hereunder.
35.
Applicability of Current Law
Notwithstanding anything contained in current law, action in
respect to matters provided for in this Act or the rules
framed hereunder shall be taken accordingly, and in respect
to other matters, action shall be taken according to current
law.
36.
Power to Frame Rules
The Bank may frame rules in order to implement the
objectives of this Act. Such rules shall come into force
only after they are approved by His Majesty's Government.
37.
Power to Frame By-Rules
A Society may frame by-rules according to need in order to
manage its functions, subject to this act or the rules
framed hereunder. Such by-rules shall come into force only
after they are approved by the Bank.
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