Non-Deposit Taking Lending Financial Institutions (NDFIs) are any legal entity that regularly and principally performs financial services in the form of non-deposit taking lending financial services or related financial services.
Unlike other financial institutions such as Banks and Micro finance institutions, they do not engage in collection of deposits from customers but engage in credit services only, mortgage finance services, credit guarantees, refinancing services, factoring services, debt collection services and other financial services that the Central Bank may qualify as posing systemic risk to the financial sector stability.
In the Republic of Rwanda, there are several rules and regulations governing the financial sector.
The relevant legislation guiding Non-Deposit Taking Lending Financial Institutions is the Regulation No 2100 /2018 – 00011[614] of 12/12/2018.
Licensing
The Central Bank of Rwanda is mandated with providing Licenses to any persons intending to carry out non-deposit taking financial services shall the license from the Central Bank.
Application file for a license shall be made in writing to the Central Bank in a prescribed form as found on Appendix 1 of the relevant Regulation and shall be accompanied by the following documents:
i) Certified copy of its memorandum and articles of association together with a certified copy of its certificate of incorporation or registration as the case may be;
ii) Non-refundable application fee of fifty thousand Rwandan francs (FRW 50,000);
iii) Dully filled information sheet as provided for in Appendix 2 of the relevant Regulation;
iv) Dully filled personal declaration form as provided for in Appendix 3 of the Regulation;
v) Feasibility report including a business plan and financial projections for the first three (3) years and intended areas of specialization, for new applicants;
vi) Statement that the invested funds are not coming from illegal activities as per appendix 4 of this Regulation;
vii) Any other information that the Central Bank deems necessary to assess the applicant.
The Central Bank of Rwanda may grant a perpetual license to the applicant upon assessing the application file for license and taking into account all the requirements relating to character and fitness of the applicant’s shareholders and management who shall conform to the standards defined by the Central Bank and adequacy of the applicant’s capital structure in relation to the nature and scale of the proposed business.
The license shall not be transferable, assignable or encumbered in any way.
The applicant has to pay to the Central Bank the license fee of one hundred thousand Rwandan Francs (FRW 100,000) immediately after the notice of issue of the license by the Central Bank.
After the initial license fee is paid, an annual supervision fee of five hundred thousand Rwandan francs (FRW 500, 000) is also paid to the Regulator on or before the 31st day of January each year until the license is revoked. The non-payment of supervision fee shall lead to the revocation of the license.
Capital requirements
An applicant has to have a minimum paid-up capital of fifty thousand million Rwandan francs (FRW 50,000,000).This may include paid-up shares, part of technical provisions, undivided profits and other incomes.
In some instances, the Central Bank may require a NDFI to have more than the minimum paid up capital, depending on the size, nature and the complexity of the business performed.
The NDFI has to obtain prior consent of the Central Bank before causing an addition to or reduction of its minimum paid up capital without obtaining prior consent of the Central Bank.
A NDFI may obtain a license to undertake one, partial or all non-deposit taking financial services if applied for. In this case, the Central Bank may require a NDFI to increase the paid up capital depending on the size, nature and complexity of the business.
The Activities of a NDFI
A NDFI may obtain a license to undertake one, partial or all non-deposit taking financial services if applied for. In this case, the Central Bank may require a NDFI to increase the paid up capital depending on the size, nature and complexity of the business.
Foreign entities
In instances where a foreign entity engaged in non-deposit taking financial services seeks to expand its services to the Republic of Rwanda, it must first undergo a registration process as stipulated in the Companies Law, 2018. A foreign company seeking to establish a place of business within Rwanda has to apply for registration within ten working days of establishing a place of business.
To apply for the registration of a foreign company, a duly completed application for registration in the prescribed form, signed by the representative of the foreign company is delivered to the Registrar General.
In the next Article, I will discuss how NDFIs can ensure their protection in the event the entities they disburse the Loans/Credits default in making payments.