FAQs - Microcredit companies

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What kind of monitoring are microcredit companies subject to?

The Bank of Italy has limited supervisory power over microcredit companies, as set out by Article 113 of the TUB: it can request information and documents, carry out inspections, prohibit new transactions, restrict operations and, under certain circumstances, order a company’s removal from the list of microcredit companies. It cannot perform sound and prudent management checks similar to those carried out on banks and other financial intermediaries, relating, for example, to the allocation of capital resources for loans granted or to the adequacy of risk management systems.

Microcredit companies are classified as 'entities subject to special regulation' as they are not subject to prudential regulation.

Is there a form I should use to submit my application?

The licensing application must be completed as shown in Annex 3 to the Bank of Italy Measure of 3 June 2015.

What documents should I attach to my application?

The information and documents to be submitted with your licensing application are set out in the Bank of Italy Measure of 3 June 2015:

        1. a certificate issued by the Italian Business Register or a self-declaration under Article 46 of Presidential Decree 445/2000, attesting to the company’s registration in the Business Register or the registration of amendments to its articles of association;
        2. copies of the memorandum and articles of association, declared to be in force by the company’s legal representative;
        3. for newly established companies:
          • proof of payment of the share capital, by means of an account statement issued by the bank where the payment was made no earlier than five days before the application is submitted;
          • proof of the existence of the capital itself, provided by the company's supervisory body, if any, or in its absence by the management body;
          • in the event of contributions in kind, the appraisal report or valuation of these contributions in accordance with the accounting rules applicable to the company;
        4. for existing companies seeking to provide microcredit:
          • an appraisal report, made by an entity entered in the Italian Register of Independent Statutory Auditors, no older than three months before the date on which the licensing application is submitted, showing the existence and amount of the subscribed and paid-up share capital; the appraisal must be carried out by registered statutory auditors appointed by the company;
          • a resolution by the company's board of directors outlining the details of the existing loans and specifying which of these fall under the microcredit categories set out in Ministerial Decree 176/2014;
        5. a list of shareholders directly or indirectly (i.e. through subsidiaries, trust companies or third parties) with a substantial holding in the share capital, indicating their respective holdings in absolute and percentage terms; for indirect holdings, companies must report the entities through which such interests are held;
        6. a copy of the minutes of the board meeting or of the resolution of the sole director, certifying the requirements of the holders of substantial interests in the share capital;
        7. a list of the names and personal details of the sole director or of the members of the board of directors – and of the supervisory body, if any – as well as of any managing directors, general managers and individuals holding equivalent offices;
        8. a copy of the minutes of the meeting of the competent body or of a self-declaration stating that the members of the management body meet the fit and proper requirements;
        9. a business plan, as set out in Annex 5 to the Bank of Italy Measure of 3 June 2015;
        10. for already established companies, the latest approved financial statements and the updated accounts signed by the board of directors and the supervisory body, if any;
        11. a copy of the identity document of the person signing the licensing application.

What requirements should shareholders of microcredit companies meet?

Anyone who holds an interest, directly or through subsidiaries, trust companies or nominees, in the capital of a microcredit company exceeding 10 per cent of the total capital in the form of shares with voting rights must meet the fit and proper (F&P) requirements laid down in Article 7 of Ministerial Decree 176/2014. The definition of ‘control’ laid out in Article 23 of the TUB shall apply.

If the shareholder is a legal person, the F&P assessment will cover its directors, general manager, and any officers holding equivalent positions. When a financial intermediary supervised by the Bank of Italy holds a share in the capital of a microcredit company, the competent bodies of that company may refer to the requirements already verified by the intermediary as part of their own independent assessment.

The board of directors of the microcredit company is responsible for verifying these requirements by conducting an appropriate investigation. The outcome of this investigation is reflected in the minutes of the board meeting or in a specific resolution of the sole director, as the case may be.

What requirements must the members of the management body of microcredit companies meet?

Anyone performing administrative, management and control functions in microcredit companies must meet the fit and proper requirements laid down in Article 8 of Ministerial Decree 176/2014.

Corporate officers who are part of a collegial body must submit any documents proving that they meet the requirements to their collegial body. In the case of single-member bodies, corporate officers must provide a detailed self-declaration confirming that they meet the requirements.

What should the business plan of a microcredit company look like?

Business plans drawn up in accordance with the template in Annex 5 to the Bank of Italy Measure of 3 June 2015 must include details on the following:

1) business strategies, prospective business lines and growth forecasts; 2) the specifics of the loans that the company aims to provide in terms of financial conditions, target customers, and purposes of financing; 3) the ancillary support and monitoring services to be provided, specifying their content, how the company intends to provide them, and any previous experience in the provision of such services; in the case provided for in Article 3(2) of the Measure, business plans must include information on any specialist service providers to be used, how their work is monitored, and whether or not they are accredited by public or private bodies;  4) any ancillary services other than those mentioned in point 3) that the company intends to carry out; 5) the company's organizational structures (organizational chart, function chart and internal control functions), with a special focus on how the effectiveness and independence of internal control is ensured; 6) the loan disbursement process, with particular reference to the procedures for assessing beneficiaries and financed projects and to the monitoring of loans granted, specifying the entities involved and how they report to corporate bodies; 7) any other entities referred to in Article 3(2) of Ministerial Decree 176/2014 used for the promotion and placement of financing agreements.    

What is an ancillary service in business microcredit?

It is any of the following non-financial services, provided both before and after the disbursement of microcredit:

  1. support in defining development strategies for funded projects and in evaluating solutions to improve their performance;
  2. training in corporate administration, specifically in accounting, financial and personnel management;
  3. training in the use of state-of-the-art technologies to improve business productivity;
  4. support in determining prices and sales strategies by conducting market research;
  5. support in solving legal, tax and administrative problems and providing information about related services available on the market;
  6. support in defining the process of integration into the labour market for natural persons who receive loans to pay for education and training, including at university and postgraduate level;
  7. support in identifying and diagnosing any issues with the implementation of funded projects.

Microcredit companies must provide at least two of these ancillary support and monitoring services to borrowers, during the loan application assessment and the repayment period, either directly or through specialist service providers.

What is a microcredit ancillary service for social and financial inclusion purposes?

It is any ancillary service aimed at helping borrowers with the management of their household budget. Specifically, microcredit companies must provide borrowers with useful information to improve the management of income and expenditure flows. These services must be provided over the entire duration of the loan repayment plan.

They can be provided, whether during the loan application assessment or during the repayment period, either directly by the microcredit company or by specialist service providers.

What is the scope of the Bank of Italy’s preliminary assessment?

The assessment carried out by the Bank of Italy during the administrative licensing procedure aims to verify that the establishment of a company complies with the requirements set forth by the applicable provisions with respect to its registration on the list and the type of business pursued. This assessment is in line with the purposes of the Bank’s supervisory activities, which mainly focus on compliance with industry regulations.

What reporting obligations do microcredit companies have vis-à-vis the Bank of Italy?

Microcredit companies must report the following to the Bank of Italy:

  • the annual accounts within 30 days of their approval, including their annexes and the minutes of the approval meeting;
  • any changes in their operational and organizational arrangements, compared with the business plan submitted during the registration phase;
  • half-yearly reports on their operating results, financial position and cash flows, and on the loans granted, in compliance with the procedures and deadlines set by the Bank of Italy;
  • an annual report on the ancillary support and monitoring services provided, including through third parties;
  • a quarterly report on the interest rates applied to microcredit transactions for the purposes of surveying the average overall effective rates (AOERs) under Law 108/1996, in accordance with the Bank of Italy’s regulations.

What is the definition of microfinance?

'Microfinance' is defined as a form of financing with the specifications described in Article 111(5-bis) of the TUB and in Ministerial Decree 176/2014, including when granted by banks or other financial intermediaries.

When can the Bank of Italy remove a microcredit company from the list established under Article 111 of the TUB?

The Bank of Italy may order that a microcredit company be removed from the list for the following reasons: a) if it no longer meets the requirements for registration; b) in the event of serious violations of the law and of the provisions under the relevant legislative decree; c) when the company has been inactive for at least one year.

Furthermore, the Bank of Italy can prohibit companies from engaging in new operations or order the curtailment of their activities for violations of legislative or administrative provisions governing their business.