Central Bank of Lebanon Regulates Operations Of Moneylenders

As is worldwide recognized, a Moneylender (the “Moneylender(s)”) is a person or a group, providing loans usually at higher interest rates and to whom borrowers resort to as an alternative method of banks and financial institutions financing.

In Lebanon, and in light of the misinterpretation of Moneylenders’ activities and regulations, the Central Bank of Lebanon (“BDL”) issued on 21 January 2016 basic circular number 2 (the “Circular” or the “Decision”) for purposes of regulating the operations of such entities in Lebanon.

Conditions to Operate

Moneylenders shall have a minimum capital of LBP 2 billion which shall be fully paid up in cash at the BDL.

Moneylenders may proceed with their activities as soon as they obtain a notification from the BDL issued in the Official Gazette.

Moneylenders are required to appoint a principal auditor selected from well-known firms.

Conditions Imposed on Credit Facilities and Collaterals

The Moneylenders’ activities shall be limited to credit financing. All credit facilities extended by a Moneylender are subject to the following:

  • Facilities extended to any borrower (or a group of related borrowers) are capped at the lower of 5% of the Moneylenders’ total equity or LBP 150 million.
  • The borrower’s aggregate monthly installments on account of a facility shall not exceed 35% of the combined income of the borrower and his spouse (if any).
  • The total amount of all facilities that may be extended by Moneylenders depends on the legal form the latter takes. For instance, the total amount of loans extended by Moneylenders incorporated as a joint stock company shall not exceed four times its total equity.
  • Moneylenders should not charge file opening fees to its clients.

Moneylenders are required to comply with the BDL and the Banking Control Commission rules relating to the transparency in doing business, calculation of interest rates, anti-money laundry and the combating of terrorism financing.

A collateral equal to at least 60% of the amount of the facility extended must be granted to the benefit of the Moneylenders to secure the corresponding facility. Furthermore, Moneylenders are prohibited from obtaining, whether for their own benefit or that of a third party affiliated to it, directly or indirectly, an irrevocable power of attorney or any other power of attorney granting it the authority to dispose of the collateral.

Source of Funding Restrictions

Moneylenders are prohibited from (i) borrowing directly or indirectly from banks or financial institutions, and (ii) using for its activities its owners’, shareholders’ or partners’ personal accounts.

Reporting Requirements

Moneylenders should submit to the BDL and the Banking Control Commission the following documents and information:

  • Quarterly financial statements no later than 10 days as of the end of the relevant quarter.
  • Annual statement of profits and losses no later than six months as of the end of the relevant financial year.

Statement of all facilities granted to its borrowers (with no minimum threshold) shall be declared to the Central Office of Credit Risk.

Any amendment(s) to the bylaws, address, branches, transfer of shares or parts, etc. shall be reported to BDL.

Implementation of the Decision (Phase-In)

The implementation and adherence to the Decision shall be subject to the Banking Control Commission’s supervision. Moneylenders shall be granted a one year grace period ending in January 2017 to meet the capital requirements. As for the remaining provisions of the Circular, the grace period is for six months.

In any case of non-compliance with the Circular, the BDL reserves the right to either withdraw the initial notification granted to the Moneylender to pursue its operations, or cross the latter off the list of Moneylenders.