Law on NBCI

The Law of the Republic of Azerbaijan on NBCI

The Law of the Republic of Azerbaijan on Non-Bank Credit Institutions

This Law shall define the rules on establishment, management and regulation of non-bank credit institutions with an aim to better meet demand of legal entities and individuals in the Republic of Azerbaijan for financial resources and create suitable conditions for access to financial services.

Chapter 1. General Provisions

Article 1. Basic Definitions
1.0. Definitions used herein shall have the following meanings:
1.0.1. Non-Bank Credit Institution (hereinafter referred to as NBCI) – a specialized credit organization that issues loans and carries out other operations in accordance with this Law based on special permission (license);
1.0.2. Group of joint borrowers – people, who mutually guarantee repayment of loans taken by each group member on a contractual basis;
1.0.3. pledged deposit – lump-sum funds or funds gradually paid to NBCIs as one of the guarantee forms for repayment of loans by a borrower or a group of borrowers during the effective period of the loan agreement;
1.0.4. Manager – a single head or members of the executive body of the NBCI, the head of an accounting department (chief accountant, finance manager etc.), other staff members who have the authority over pledged deposit, internal auditor, heads of branches and accounting services of NBCIs entitled to accept pledged deposit;
1.0.5. Related persons – founders, managers, heads of structural units of NBCIs, their close relatives (spouses, parents, adopters, children, including adoptees), as well as persons with the right to act on their behalf.

Article 2. Legal basis for operations of NBCIs and the scope of this Law
2.1. Operations of the NBCI shall be governed with the Constitution of the Republic of Azerbaijan, this Law, the Civil Code of the Republic of Azerbaijan, the Law of the Republic of Azerbaijan on the Central Bank of the Republic of Azerbaijan (hereinafter referred to as the Central Bank), other legal and regulatory acts of the Republic of Azerbaijan and international treatiesç which the Republic of Azerbaijan is a party to.
2.2. This law shall not apply to credit unions and pawnshops.

Article 3. Independence of NBCIs
3.1. The NBCI shall perform its operations independently within the authority defined herein.
3.2. The NBCI is not dependent on Government and municipalities, except for the cases stipulated in the legislation and these bodies may not interfere with its current activities.
3.3. The NBCI shall not be responsible for liabilities of the State and the State shall not be responsible for liabilities of the NBCI.
3.4. Interest rates on loans extended by the NBCI, as well as the amount of commissions  and fees charged for the services provided in accordance with this Law shall be defined based on the agreement signed between the NBCI and a borrower (user).

Article 4. Unions and associations of NBCIs
4.1. NBCIs may establish unions and associations aiming to coordinate activities, as well as jointly represent and protect their common interests.
4.2. NBCIs shall not use unions and associations in order to sign agreements and perform agreed operations to restrict competition and establish monopoly in the market or define interest rates and commissions. Unions and associations shall comply with the anti-monopoly legislation while performing their activities.

Chapter 2. Establishment and management of NBCIs

Article 5. Organizational-legal form and types of NBCIs
5.1. NBCIs may be established by legal entities and individuals of the Republic of Azerbaijan and (or) foreign countries, as well as by international organizations in the organizational-legal form provided for legal entities in the Civil Code of the Republic of Azerbaijan. Non-commercial NBCIs may be established only in the form of a foundation by international organizations in accordance with agreements signed by the Republic of Azerbaijan, as well as non-governmental organizations funded from state budgets of foreign countries. Non-commercial NBCIs may not establish or participate in commercial organizations.
5.2. NBCIs are divided into two groups – those entitled and not entitled to accept pledged deposits.
5.3. NBCIs operating in the territory of foreign countries may establish only branches in the Republic of Azerbaijan without the right to accept pledged deposit. Such branches shall be licensed, regulated and supervised pursuant to the rules applied to NBCIs not entitled to take pledged deposits defined herein.

Article 6. Name of the NBCI
6.1. The NBCI shall have the words ‘non-bank credit institution’ in its name. The NBCI shall not be called in documents, commercials or announcements differently than the name indicated in its Charter.
6.2. The NBCI shall not use names of active and state registered banks, credit unions and other non-bank credit institutions.

Article 7. Paid-in (share) capital of NBCIs
7.1. The minimum paid-in (share) capital of the NBCI, as well as property rights of founders of the NBCI established as a non-commercial legal entity shall be paid in cash. The paid-in (share) capital (property rights) shall be formed in the national currency of the Republic of Azerbaijan.
7.2. Minimum amount of paid-in (share) capital of NBCIs and minimum requirements for initial property formed by them shall be defined by the Central Bank.

Article 8. Requirements for the organizational structure and managers of NBCIs
8.1. At least the following positions shall be provided for in the organizational structure of the NBCI regardless of its organizational-legal form:
8.1.1. manager (director, head of executive board);
8.1.2. head of the accounting department (chief accountant, financial manager);
8.1.3. credit officer;
8.1.4. internal auditor.
8.2. Managers of the NBCI shall have higher education with at least one year of work experience. Head of the accounting department shall have higher economic education with at least one year of work experience in relevant specialty or a specialized secondary education with at least 5 years of work experience in the relevant position.
8.3. People legally prohibited from holding relevant positions and those charged on intended crimes shall not hold the position of managers of NBCIs.

Article 9. Branches and representative offices of NBCIs
9.1. The NBCI may establish branches and representative offices.
9.2. Branches of NBCIs with the right to accept pledged deposit shall be established only with the permission given by the Central Bank.
9.3. Branches of NBCIs without the right to accept pledged deposit and representative offices of both types of NBCIs may be established by a prior written notification of the Central Bank. In that case the NBCI shall notify the Central Bank in writing within 5 business days upon taking the decision on opening a branch or a representative office. The information shall include the name of the executive body which took such a decision, the decision date and number, the name, the address and managers (their specialties and work experience) of the branch or the representative office.
9.4. The Statute of branches and representative offices shall be approved by the NBCI.
9.5. The NBCI shall bear full responsibility for operations and liabilities of its branch and representative office.

Chapter 3. Issuance of licenses and permissions

Article 10. License
10.1. The NBCI shall obtain a special permission (license) (hereinafter referred to as license) from the Central Bank to extend loans.
10.2. The license issued to the NBCI shall contain a special permission required for acceptance of pledged deposits. The NBCI shall be prohibited to accept pledged deposits without such permission.
10.3. The license issued to the NBCI shall be perpetual.
10.4. The license shall take effect from the day of its issuance by the Central Bank. It shall only be used by the recipient NBCI.

Article 11. Application for a license
11.1. The NBCI shall submit the following documents to the Central Bank to obtain a license:
11.1.1. application signed by the founder/s or the authorized person/s;
11.1.2. notarized copies of the certificate on state registration and the Charter;
11.1.3. bank document certifying payment of minimum paid-in (share) capital (formation of initial property);
11.1.4. information on the organizational structure;
11.1.5. information on professional eligibility and non-conviction of managers on intended crimes;
11.1.6. information on financial sources and major indicators of the credit policy (coverage, subjects of financing, terms, interest rates of loans etc.);
11.1.7. permission given by a foreign supervisory body to establish a branch of an NBCI of a foreign country in the territory of the Republic of Azerbaijan (if required by the legislation of the given country);
11.1.8. bank document confirming payment of state duty required for obtaining the license;
11.2. Information stipulated in Article 11.herein shall be signed by person/s applied for the license. The format and content of the application, as well as attached documents shall meet the requirements of regulatory acts of the Central Bank.
11.3. The Central Bank shall review the application for license within 30 days. In case there are shortcomings in the submitted documents, the Central Bank shall send a written notification to the applicant within no more than 15 days upon receipt of the application and ask to eliminate them. After the shortcomings are eliminated, the Central Bank shall review the documents within 15 days and take a relevant decision.

Article 12. Grounds for refusal to issue a license
12.1. The license shall be rejected when:
12.1.1. submitted documents do not comply with the legislation or information provided hereby is wrong;
12.1.2. the bank document, certifying payment of minimum paid-in (share) capital required by the Central Bank or formation of property rights is not submitted;
12.1.3. managers do not meet professional eligibility criteria and/or they had been charged on committing intended crimes.
12.2. If the Central Bank rejects to issue a license, the applicant shall be informed in writing on reasons for refusal.
12.3. The decision of the Central Bank on refusal may be taken to court in accordance with the procedures stipulated by the legislation.

Article 13. Application for permission to open a branch of an NBCI
13.1. The NBCI entitled to accept pledged deposit shall submit the following documents to the Central Bank to open a branch:
13.1.1. application signed by the manager of the NBCI;
13.1.2. decision taken by the authorized executive body of the NBCI on opening of a branch;
13.1.3. the Charter of the branch;
13.1.4. decision on appointment of branch managers made by the NBCI’s authorized executive body, as well as information on their professional eligibility and non-conviction on intended crimes (to be signed by the manager of the NBCI).
13.2. The Central Bank shall review the application on opening of a branch within 20 days. In case there are shortcomings related with the submitted documents, the Central Bank shall inform the applicant in writing no later than 5 working days and ask to eliminate them. Once the shortcomings are eliminated, the Central Bank shall review the documents within 10 business days and take a relevant decision.
13.3. If the submitted documents and information are in compliance with the legislation, the Central Bank shall take a decision on granting permission for opening of a branch, otherwise it shall inform the NBCI in writing on reasons for refusal.

Article 14. Register of licenses and permissions
14.1. The Central Bank shall develop a unified registry of NBCIs, their branches and representative offices, accessible for the public. Information on NBCIs’ names, addresses, branches and representative offices, registration numbers and dates of issued or terminated licenses and permissions, data about managers, liquidated NBCIs, their branches and representative offices shall be entered into the registry within 3 working days upon receipt of such information.
14.2. The NBCI shall notify the Central Bank in writing on changes in the registered information, as well as constituent documents (charter, by-law) within 5 calendar days. In case a new manager is appointed to the NBCI, the written notification shall include information indicating conformity of that person with the requirements stipulated in Articles 8.2 and 8.3 herein.

Chapter 4. Requirements for operations of NBCIs

Article 15. Operations of NBCIs
15.1. NBCIs can extend secured and unsecured loans based on the license received from the Central Bank. Loans issued by NBCIs may be secured with real estate and movable property, pledged deposit, guarantee, warranty and other means provided for in the legislation. Pledged deposit may be accepted only if it is stipulated in the permission given to the NBCI by the Central Bank.
15.2. The NBCI that received license for provision of loans may also be involved in the following activities:
15.2.1. buy and sell debt liabilities (factoring, forfeiting);
15.2.2. leasing;
15.2.3. registration of bills of exchange;
15.2.4. issuing guarantees;
15.2.5. provision of insurance agent service;
15.2.6. provision of financial, technical and management consulting services to borrowers  and a group of joint borrowers.
15.3. In case a license is required for the operations stipulated in Article 15.2 herein, the NBCI may perform this operation only upon obtaining a relevant license from a relevant authority.
15.4. The NBCI shall be prohibited to accept deposits from legal entities and individuals.

Article 16. Sources for financing operations of NBCIs
16.1. Activities of NBCIs may be financed through the following sources:
16.1.1. paid-in (share) capital (property rights) and earned revenues;
16.1.2. attracted loans;
16.1.3. contributions, grants and other forms of funds donated by legal entities and individuals;
16.1.4. funds received from other sources, not prohibited by the legislation.
16.2. Funds donated by international organizations, governments of foreign states and other donors, as well as revenues gained from them shall not be taken out by the NBCI beyond the territory of the Republic of Azerbaijan.

Article17. Loan agreement
17.1. The NBCI shall ensure transparency in issuance of loans and inform borrowers on loan related cost and expenditures.
17.2. An agreement signed between the NBCI and the borrower shall at least include the following, unless otherwise provided for in the legislation:
17.2.1. name and legal address of parties;
17.2.2. purpose of the loan;
17.2.3. amount of the loan;
17.2.4. maturity date of the loan;
17.2.5. repayment method of the loan;
17.2.6. form of security (in case of secured loan);
17.2.7. amount of the interest rate, including the annual interest rate on the loan (annual interest rate shall be indicated regardless of maturity period of the loan);
17.2.8. if the loan (principle and interest rate) is scheduled to be repaid on equal monthly installments, then the average real interest rate to be paid during the term of loan;
17.2.9. responsibility of parties.
17.3. The loan agreement is developed in a written form at least in 2 copies and one of the copies is provided to borrower and others are added to the filing of documents by the NBCI.
17.4. The loan agreement signed with the group of joint borrowers shall include information (name, legal address and etc.) on all members of the group with a separate copy shall be prepared and submitted to each member.
17.5. The borrower can file a legal claim against the NBCI for damage sustained as a result of non- indication of terms in a loan agreement, stipulated in Article 17.2 herein.

Article 18. Pledged deposit
18.1. The loan agreement may provide for provision of pledged deposit as loan securitization. Amount of pledged deposit shall not exceed the outstanding principal and accrued interests and the term shall not be more than the loan term.
18.2. Pledged deposit shall be paid to the NBCI in a cash and non-cash form and the NBCI shall within 2 business days put the pledged deposit at a special account (accounts) created for these types of deposits at the serving bank/s.
18.3. The NBCI shall maintain individual accounting of received pledged deposits. The accounting data shall allow full identification of the borrower (the group of joint borrowers) and the loan secured with pledged deposit.
18.4. In case of full repayment of the loan or in other cases provided for in the loan agreement, pledged deposit shall be returned by the NBCI to the borrower (the group of joint borrowers) within 2 business days upon the date applied by the borrower.
18.5. The NBCI shall pay interest rates accrued on pledged deposit if stipulated in the loan agreement.
18.6. In case the borrower (the group of joint borrowers) fails to repay debt (principle, interests, fines) then the NBCI can deduct that debt from the pledged deposit without any argumentation (without accept) if provided for in the loan agreement.
18.7. The NBCI shall not issue loans or provide other financial services using the funds in pledged deposit accounts. Funds in pledged deposit accounts may be only used when:
18.7.1. buying government securities and securities of central banks (on condition of complying with the requirements of Article 18.4 herein);
18.7.2. exercising the rights stipulated in Article 18.6 herein.

Article 19. Prudential norms and requirements related to operations of NBCIs
19.1. The Central Bank may establish the following prudential norms and requirements to ensure financial stability of the NBCI which has the right to accept pledged deposits:
19.1.1. maximum amount of the loan issued to a single borrower and a group of joint borrowers;
19.1.2. maximum amount of the loan issued to and requirements for transactions with related parties;
19.1.3. the ratio of accepted pledged deposits to capital of the NBCI;
19.1.4. requirements for loan loss reserves generated through expenses depending on classification and evaluation of assets and off-balance sheet liabilities.
19.2. The Central Bank may apply all or some of the norms for regulation of operations of the NBCI as necessary.
19.3. The NBCI, not entitled to accept pledged deposits or functions as a non-commercial legal entity shall maintain its paid-in (share) capital (property) no less than the minimum amount set by the Central Bank over the course of its operations.
19.4. New prudential norms and requirements, changes made by the Central Bank shall come into force not earlier than one month, while the minimum amount of paid-in (share) capital (property) shall take effect not earlier than one year upon notification of NBCIs. New prudential norms and requirements shall not have a retroactive effect.

Article 20. Accounting and financial reporting at NBCIs
20.1. The NBCI shall maintain financial accounting and develop financial statements in  accordance with the Law of the Republic of Azerbaijan on Accounting and other legislative acts.
20.2. Borrowers, as well as other stakeholders shall have the right to get acquainted with financial statements of the NBCI.
20.3. The NBCI shall submit to the Central Bank an annual financial report audited by an independent auditor within 5 months upon the end of the financial year and publish this report in mass media.

Article 21. Requirements for transparency of operations of NBCIs
21.1. The NBCI and its branches shall put up information on terms of provision of services, including issuance of loans and its license in a clearly visible place at its administrative building and provide an opportunity for any person willing to get acquainted with it.
21.2. The NBCI shall not give way to an intended false advertisement about its activities and shall comply with the requirements of the legislation on commercials.
21.3. The NBCI shall place information on change of its name and address in the mass media within 7 calendar days.

Article 22. Delivery of information to the Centralized Credit Registry
22.1. The NBCI shall submit information on each borrower to the Centralized Credit Registry (CCR) of the Central Bank in accordance with the working schedule defined by normative acts of the Central Bank, including the description, terms and rules of submission of relevant information.
22.2. The NBCI may receive information on its borrowers and persons applied for loans from the CCR in accordance with the working schedule of the registry, including rules and terms for provision of information.
22.3. Any borrower of the NBCI may receive information on him/her from the CCR in accordance with the working schedule of the registry.
22.4. Information received by the NBCI from the CCR shall be subject to protection of bank secrecy set by the legislation. Persons, who violate the protection of bank secrecy, shall be kept responsible pursuant to the legislation of the Republic of Azerbaijan.

Article 23. Confidentiality
The NBCI shall protect confidentiality of information on operations with its customers, including accepted pledged deposits in accordance with the Law of the Republic of Azerbaijan on Commercial Secrecy and not disclose that information illegally. This information shall be kept at the NBCI at least 5 years upon termination of mutual relations with a customer.

Chapter 5. Supervision of operations of NBCIs

Article 24. Supervision of operations of NBCIs
24.1. Operations of the NBCI shall be supervised by the management body defined in its Charter.
24.2. The NBCI shall submit prudential reports on its operations to the Central Bank no later than 10 days upon the end of each reporting quarter in the form and content set by the Central Bank.
24.3. If analysis of reports reveals violations of the requirements of this Law and regulatory acts of the Central Bank or facts, which may cause such violations, then the Central Bank shall send a written notice to the NBCI asking to eliminate those violations. The written notice shall include measures for elimination of violations (shortcomings) made by the NBCI or facts which may cause such violations, as well as period for their implementation.
24.4. The NBCI shall inform the Central Bank in a written form on the implementation of outlined measures within the period defined in the written notice. In case measures are not taken fully or fail to meet the requirements within the timeframe set by the Central Bank, then the Central Bank shall send a second written notice and warn about the possibility to revoke the license if relevant measures are not taken within the defined timeframe.
24.5. If necessary to verify the reported data, the Central Bank may examine operations of the NBCI onsite sending a written notice 10 days in advance. In this case inspectors of the Central Bank shall be entitled to enter the NBCI by presenting their examination cards, examine its statements, books, documents and other accounting records, as well as require explanation on them.

Article 25. Revocation of the license and the permission
25.1. The license issued to the NBCI or permissions given to its branches may be revoked by the Central Bank based on one or more than one of the following reasons:
25.1.1. the NBCI submits a relevant application;
25.1.2. information submitted by the NBCI for getting a license or permission is identified to be false;
25.1.3. the NBCI or its branch does not start operations within twelve months upon the effective date of the license or permission;
25.1.4. instructions of the Central Bank for elimination of violations are not fulfilled;
25.1.5. reports required by the Central Bank are not submitted for 2 consecutive reporting dates or submitted reports are distorted;
25.1.6. implementation of activities which are not stipulated by this Law or prohibited by the license;
25.1.7. The NBCI is liquidated or declared bankrupt in accordance with the legislation;
25.2. A decision on revocation of the license shall be sent to the NBCI immediately and to a relevant tax authority no later than 5 days after the decision takes effect, as well as published in mass media. Notification on revocation of permission given to a branch of the NBCI shall be sent to the NBCI within 3 business days after the decision of the Central Bank comes into effect.
25.3. The decision on revocation of the license shall come into effect on the date it is published in mass media, unless otherwise stipulated in the decision.
25.4. The NBCI shall suspend its operations on the effective date of the decision on revocation of the license and be liquidated in accordance with the Civil Code of the Republic of Azerbaijan.
25.5. The NBCI, in accordance with legislation may file claim to a court against the decision of the Central Bank on revocation of the license. Filing of claim shall not suspend implementation of the relevant decision of the Central Bank.

Chapter 6. Transitional provisions

Article 26. Transitional provisions
26.1. Requirements of the Article 17 herein shall apply to loan agreements signed by active NBCIs after this Law becomes effective.
26.2. NBCIs willing to obtain the right to accept pledged deposits may apply for new licenses in accordance with the requirements of this Law.

Ilham Aliyev
President of the Republic of Azerbaijan
Baku city, December 25, 2009