• BC-1 BC-1 Best Practices for Microfinance Institutions

    • BC-1.1 BC-1.1 General Rules

      • BC-1.1.1

        Licensees must comply with the best practices throughout the lifetime of their relationship with a customer. Chapter BC-1 sets out the minimum standards for microfinance institutions to follow when providing micro-credit and other services on which fees and/or interest (profit margin in case of Shari'a compliant micro-finance) are payable by customers in the Kingdom of Bahrain.

        January 2014

      • BC-1.1.2

        This Chapter applies where any licensee provides to a borrower any type of financial product creating a creditor relationship (including Shari'a compliant credit facilities of all types).

        January 2014

      • BC-1.1.3

        Licensees must put in place appropriate measures across all their business operations and distribution channels to ensure compliance with the requirements of this Chapter, where relevant. Licensees must maintain adequate records to demonstrate compliance with this Chapter.

        January 2014

      • BC-1.1.4

        The CBB may, from time to time, ask the compliance officer to report on the licensee's record of adherence to the requirements of Module BC.

        January 2014

      • BC-1.1.5

        Licensees should implement the requirements of Module BC and ensure that their staff is fully familiar with these.

        January 2014

    • BC-1.2 BC-1.2 Overarching Principles

      • BC-1.2.1

        The six overarching principal commitments are:

        (a) Licensees must act fairly and reasonably in all dealings with customers;
        (b) Licensees must make sure that all advertising and promotional material relating to microfinance facilities, credit and charging is clear and not misleading in any way;
        (c) Licensees must give clear information and provide clear documentation about products and services they offer, including the application procedures, terms & conditions, interest/profit rates and breakdown of charges that apply;
        (d) Licensees must provide their customers with regular statements;
        (e) Licensees must inform their customers about any changes to the terms and conditions of the contract prior to the change taking place. It is the duty of the customer to inform the licensee of changes in contact address immediately; and
        (f) Licensees must deal sympathetically with cases of genuine financial difficulty and treat all customer personal information as private and confidential.
        January 2014

    • BC-1.3 BC-1.3 Identification of Customer Requirements

      • BC-1.3.1

        For each new (or potentially new) customer, licensees should:

        (a) Give transparent and factual information on the key features and benefits of the credit facility the customer is interested in;
        (b) Advise customers on the various delivery channels of products (e.g. through the internet, over the phone, in different branches, etc.) and tell customers how they can find out more about such products; and
        (c) Prior to granting the credit facility, the licensee will inform the customer of applicable details and the criteria for provision of a credit facility.
        January 2014

    • BC-1.4 BC-1.4 Disclosure of Charges

      • BC-1.4.1

        In order to improve customer awareness and enhance transparency of licensee's charging structures, licensees must display in a prominent position, in Arabic and in English, by notice in their offices (both head office and branches), a list of all current charges.

        January 2014

      • BC-1.4.2

        Licensees must also ensure that each customer is in receipt of their current list of charges and must display these on their websites. The list must specify standard charges that will be applied by the licensee to individual services and transactions.

        January 2014

      • Credit Agreements

        • BC-1.4.3

          A licensee must make available, at their premises, information leaflets containing information in respect of all credit agreements including the Annual Percentage Rate (APR) as defined in Paragraph BC-1.4.10.

          January 2014

        • BC-1.4.4

          For the purpose of this Section, the following definitions apply:

          (a) Conspicuous notice – Means a written statement in both Arabic and English languages which is easily visible and legible and displayed in all licensees' premises open to the public (head offices and branches), and via means such as websites, newspapers and other press notices;
          (b) Nominal annual rate – Means the interest/profit rate charged to the customer, calculated by dividing the amount of the total interest/profit by the amount of the funds provided to the customer and excluding any other charges, the results of which is divided by the number of years or part thereof, of the term of the credit agreement;
          (c) Outstanding credit amount – Means the amount outstanding under a credit agreement representing the amount of funds provided to the customer and any other charges that are included as part of the principal amount to be repaid by the customer over the duration of the agreement less any repayment made related to the principal amount at a specified date; and
          (d) Principal – Means the amount of credit received plus any other charges, the total of which is subject to interest/profit.
          January 2014

      • General Rules

        • BC-1.4.5

          Where a customer has a credit agreement with a licensee, licensees must:

          (a) Duly inform their customers in accordance with this Module about the nature and the characteristics (including relevant risks) of the credit agreements and services offered by them, and about the terms and conditions governing such agreements;
          (b) Periodically inform, in writing, their customers on the evolution and the terms of any credit agreement signed, throughout the duration of the contract (refer to Paragraph BC-1.4.17);
          (c) Respond in due time, to customers' requests for the provision of information and clarifications regarding the application of contractual terms (refer to Paragraphs BC-1.4.21 and BC-1.4.22);
          (d) Appoint a customer complaints officer and publicise his/her contact details (refer to Chapter BC-2 on Customer Complaints Procedures);
          (e) Ensure the proper training of employees involved in interfacing and providing specific information to customers;
          (f) Disclose information required in this Module the credit agreement in both Arabic & English languages;
          (g) Show clearly the APR on the credit agreement application and 'key terms disclosure' document; and
          (h) Disclose all information in a clear and readable form (refer to Paragraph BC-1.4.6).
          January 2014

        • BC-1.4.6

          Marketing of customer credit agreements, advertising and sales promoting credit agreements, irrespective of the media used (SMS, Internet, printed material, telephone solicitation) must be clear and understandable, must be true and not misleading and meet the basic customer information requirements as defined in this Module. All advertisements for credit facilities are subject to CBB prior approval as per Paragraph BC-1.8.1. Licensees are also asked to take special care to ensure that the content of any advertising material does not mislead or deceive the public in any way.

          January 2014

        • BC-1.4.7

          The use of "small print" to make potentially important information less visible is not compatible with good business conduct, and should be avoided.

          January 2014

      • Minimum Disclosure Requirements

        • BC-1.4.8

          Licensees must make:

          (a) Public disclosure regarding credit agreements; and
          (b) Disclosures to customers, whether these be during the course of the initial negotiation of the credit agreement or during the term of the facility being offered.
          January 2014

      • Public Disclosure Requirements for all Credit Agreements

        • BC-1.4.9

          The following public disclosures must be made by conspicuous notice for all types of credit agreements:

          (a) Any obligation on the part of the customer to open a deposit account with a retail bank as a condition of granting the credit agreement;
          (b) Administration fees;
          (c) Pre-payment charges;
          (d) Late payment fees;
          (e) Insurance; and
          (f) Any other charges not included above.
          January 2014

      • Additional Public Disclosure for Credit Facilities

        • BC-1.4.10

          In addition to the requirements under Paragraph BC-1.4.9, licensees must publicly disclose by conspicuous notice for credit facilities:

          (a) The current Annual Percentage Rate (APR) as calculated using the APR methodology in Paragraph BC-1.4.23. The APR displayed must be calculated based on the following scenarios. Amount borrowed is BD3,000 for a 1-year term;
          (b) The Annual Percentage Rate (APR), must be broken down as follows:
          (i) The annual nominal interest/profit rate payable;
          (ii) Administration/handling fees;
          (iii) In the case of finance lease contracts/ijara or deferred purchase contracts, any fees for purchasing the asset; and
          (iv) Any other mandatory charges (contingent costs are excluded); and
          (c) The terms and conditions for early repayment, partial or full, of the credit agreement, or for any change in the terms and covenants of the credit agreement, as well as any relevant charges (where permitted) and the way in which these are calculated
          January 2014

        • BC-1.4.11

          The APR is a standard measure that allows customers to compare total charges for instalment financing facilities on a like-for-like basis. The APR allows the customer to compare the total charge for credit over differing periods (e.g. – two versus three years) or offered by different retail banks with differing payment profiles and taking into account the payment of any other fees payable as a condition of the contract, such as administration fees or insurance premiums.

          January 2014

        • BC-1.4.12

          Any advertising through any media means of credit facilities, offered by the licensees must specify only the APR (including all fees and charges) and no other rates, i.e. nominal, base, flat or rates by any other names.

          January 2014

      • Disclosure to Customers: Initial Disclosure Requirements of Key Terms

        • BC-1.4.13

          Licensees must make clear to potential customers, prior to entering into a credit agreement, all relevant key terms of the agreement in the credit application and 'key terms disclosure' document, in order for them to clearly understand the characteristics of the services and products on offer.

          January 2014

        • BC-1.4.14

          The above 'key terms disclosure' document must be summarised in plain English and Arabic. This document must be signed and dated by the customer(s) in duplicate as having been read and understood, prior to signing a credit agreement. One copy should be retained by the customer and the other must be retained by the licensee in their customer file.

          January 2014

        • BC-1.4.15

          In addition to the initial disclosure of key terms noted in Paragraphs BC-1.4.13 and BC-1.4.14, the "key terms disclosure" document must, amongst other things, make clear:

          (a) The detailed breakdown of the payments:
          (i) The principal amount being borrowed and the maturity of the credit agreement;
          (ii) The net amount provided to the customer after deducting or applying any upfront or other charges;
          (iii) The total interest/profit payments and principal repayment for the term of the credit agreement; and
          (iv) The total administration/handling fees and all details of any other fees and charges spread over the term of the credit agreement;
          (b) The APR and the nominal annual rate as defined in Paragraphs BC-1.4.10 and BC-1.4.4(b) respectively;
          (c) Whether the rate of interest/profit is fixed or can be varied, and under what circumstances;
          (d) The basis on which interest/profit is charged (e.g. actual reducing balance) and applied to the account (e.g. monthly or quarterly compounding) and whether principal repayments are taken into account in the calculation, together with an illustration of the calculation method;
          (e) The detailed costs associated with "top-ups" of credit agreements or other alternative arrangements for extending additional credit or early repayments, whether partial or full, of amounts due including the treatment of remaining interest/profit and the payment of premium for insurance;
          (f) Any late payment charges; and
          (g) Any other charges related to the credit agreement not included above, all details of which must be provided to the customer.
          January 2014

        • BC-1.4.16

          Licensees are free to design the layout and wording to be used in their 'key terms disclosure' document, as they see fit, providing they contain the information specified in Paragraph BC-1.4.15. The CBB will monitor compliance with the spirit as well as the letter of the requirements in this Chapter.

          January 2014

      • Disclosure to Customers: During the Term of the Credit Agreement

        • BC-1.4.17

          Licensees must give information on the payment schedule of the credit agreement, including interest/profit and other charges. Information must be given, free of charge, at least every three months.

          January 2014

      • Variation Disclosures Requirements

        • BC-1.4.18

          Licensees must disclose to the customer in advance, either collectively or individually, all relevant changes or variations to a credit agreement. The circumstances in which a customer must be provided with variation disclosures are:

          (a) If both the licensee and customer agree to change the credit agreement; in this case, the customer must be provided in writing with full particulars of the change, at least seven calendar days before it takes effect; and
          (b) If the credit agreement gives the licensee power to vary fees or charges, the amount or timing of payments, the interest/profit rate or the way interest/profit is calculated, and the licensee decides to exercise that power, the customer must be provided with full particulars of the change, including an updated schedule of the total interest/profit payments and principal repayment for the remaining term of the credit agreement, at least thirty calendar days prior to the date the change takes effect. Such notice is to enable the customer to decide whether to accept the new terms or terminate the agreement by settling the outstanding credit amount, in accordance with relevant provisions therein, which must have been stated in a clear and understandable manner.
          January 2014

        • BC-1.4.19

          Any increase of the interest/profit rate or the amount of any fee or charge payable under a credit agreement, must be disclosed publicly, by conspicuous notice, at least thirty calendar days prior to the date the change takes effect by:

          (a) Displaying the information prominently at the licensee's place of business; and
          (b) Posting the information on the licensee's website.
          January 2014

        • BC-1.4.20

          Any deferral of interest/profit or principal announced by the licensee must also take account of the APR methodology as shown in Paragraphs BC-1.4.23 to BC-1.4.25, and the new APR must be given to the customer or made public in advertisements.

          January 2014

      • Request Disclosure

        • BC-1.4.21

          The licensee must provide a reply to any request for disclosure within fifteen business days of receiving the request.

          January 2014

        • BC-1.4.22

          Disclosures requested by the customer may include but are not limited to any or all of the following information about a credit agreement:

          (a) The effect of part prepayment on the customer's obligations;
          (b) Full particulars of any changes to the agreement since it was made;
          (c) The amount of any fee payable on part prepayment and how the fee will be calculated;
          (d) The amount required for full prepayment on a specified date and how the amount will be calculated;
          (e) The outstanding credit amount, including any outstanding interest/profit charge (calculated at the date the disclosure statement is prepared);
          (f) The amount of payments made or to be made or the method of calculating the amount of those payments;
          (g) The number of payments made or to be made (if ascertainable);
          (h) How often payments are to be made;
          (i) The total amount of payments to be made under the agreement, if ascertainable; and
          (j) A copy of any disclosure statement that was or should have been provided before the request was made.
          January 2014

        • BC-1.4.23

          The APR must be calculated using the following methodology:

          January 2014

        • BC-1.4.24

          The meaning of letters and symbols used in the above formula are:

          K is the number identifying a particular advance of credit;
          K' is the number identifying a particular instalment;
          Ak is the amount of advance K;
          A'k' is the amount of instalment K;
          Σ represents the sum of all the terms indicated;
          m is the number of advances of credit;
          m' is the total number of instalments;
          tk is the interval, expressed in years between the relevant date and the date of advance K;
          tk' is the interval expressed in years between the relevant date and the date of instalment K';
          i is the APR, expressed as a decimal.
          January 2014

        • BC-1.4.25

          For the purpose of this Chapter, the 'relevant date' is the earliest identifiable date on which the borrower is able to acquire anything which is the subject of the agreement (e.g. delivery of goods), or otherwise the 'relevant date' is the date on which the credit agreement is made.

          January 2014

    • BC-1.5 BC-1.5 Repayment Assessment

      • BC-1.5.1

        Before a licensee provides a credit facility, it must assess whether the customer will be able to repay, given its knowledge of the customer's current circumstances.

        January 2014

    • BC-1.6 BC-1.6 Financial Difficulties

      • BC-1.6.1

        Licensees should deal sympathetically with cases of genuine financial difficulty and treat all customer personal information as private and confidential.

        January 2014

      • BC-1.6.2

        Licensees should always endeavour to discuss financial difficulties with their customers before taking any legal measures.

        January 2014

      • BC-1.6.3

        Where possible, licensees should consider alternative arrangements to enable customers to overcome their repayment difficulties.

        January 2014

      • BC-1.6.4

        Licensees should provide customers with a minimal level of counseling on debt problems.

        January 2014

    • BC-1.7 BC-1.7 Disclosure of Information about Individual Accounts

      • BC-1.7.1

        In accordance with Article 117 of the CBB Law, licensees must not publish or release information to third parties concerning the accounts or activities of their individual customers, unless:

        (a) Such information is requested by an authorised official from the CBB or by an order from the Courts;
        (b) The release of such information is approved by the customer concerned; or
        (c) It is in compliance with the provision of the law or any international agreements to which the Kingdom is a signatory.
        January 2014

    • BC-1.8 BC-1.8 Advertisements for Microfinance Products and Services

      • BC-1.8.1

        Licensees must seek the CBB's prior written approval before placing advertisements in newspapers, public places, website or through the use of any other media.

        January 2014

      • BC-1.8.2

        In implementing Rule BC-1.8.1, the CBB will provide the licensee with a written decision within five business days of the receipt of request for approval.

        January 2014