DECREE ON OTHER GENERAL REQUIREMENTS FOR BUSINESS OPERATIONS OF A MICROCREDIT ORGANIZATION

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1 Based on Article 21 of the Law on Microcredit Organizations ("Official Gazette of the Federation of BiH" No. 59/06), Article 4, of the Law on Banking Agency of the Federation of BiH ("Official Gazette of the Federation of BiH" No. 9/96, 27/98, 20/00, 45/00, 58/02, 13/03, 19/03, 47/06 and 59/06) and Article 18 of the Statute of the Banking Agency of the Federation of BiH ("Official Gazette of the Federation of BiH" No. 42/04), on its session held on March 14, 2007, the Management board of the Banking Agency of the Federation of BiH, d e c l a r e d DECREE ON OTHER GENERAL REQUIREMENTS FOR BUSINESS OPERATIONS OF A MICROCREDIT ORGANIZATION I GENERAL PROVISIONS Article 1 This Decree stipulates in detail general requirements for business operations of a microcredit organization (hereinafter: MCO) that are not prescribed or stipulated by the Law or other decrees of the Banking Agency of the Federation of BiH (hereinafter: FBA). II NOTIFICATION Article 2 Besides the MCO' reporting obligations stipulated by the Law and other decrees of the FBA, the MCO is obliged to: - notify the FBA on the date of MCO' business operations start-up, 5 days before the operations start-up, - submit the decision on the incorporation into the Register of issuers with the Securities Commission of the Federation of BiH and the excerpt from the Securities Register in the Federation of BiH, within the period of 15 days after the day of the incorporation, if the MCO is organized as a joint stock company. III BUSINESS OPERATIONS WITH RELATED PERSONS Article 3 Provisions of this Decree prescribe minimum standards for business operations of MCO with persons related with the MCO in accordance with Article 4 of the Law on Microcredit Organizations ("Official Gazette of the Federation of BiH", No: 59/06, hereinafter: the Law). Article 4 In terms of Article 4 of the Law, mutually related or common investments means the relationship between two or more persons that collectively have, directly or indirectly, more than 25% of ownership in the capital of any legal entity, with or without the voting rights, other than the given MCO, and if they are acting in concert with each other, with the objective to influence the policy and decision making process in a given legal entity.

2 2 In terms of Article 4 of the Law, significant ownership interest means the relationship of one legal entity or natural person that alone or in concert with one or more other legal entities or natural persons have: a) direct or indirect, of at least 10 % of ownership in a capital of another legal entity, or b) the ability in fact to exercise a significant influence over the management or policies of that legal entity, on the basis of an agreement or in any other way. Article 5 MCO organized as a microcredit foundation (hereinafter: MCF) or a microcredit company (hereinafter: MCC) referred to in Article 42 of the Law, can not extend microcredits to related persons. Article 6 MCO can carry out business transactions with a person related with the MCO only in accordance with the Law, this Decree and special policies of the MCO for business operations with persons deemed as persons related with the MCO (hereinafter: policies) that are adopted by the Supervisory/Management board of the MCO upon the proposal of the MCO' management/director. The Supervisory/Management board of the MCO also monitors the application of these policies. A transaction with a third party shall be deemed as a transaction with a related person to the extent that proceeds of the transaction are transferred to, or used for the benefit of, a related person. MCO determines and keeps the record (register) of related persons. Supervisory/Management board of the MCO is responsible for MCO' operating in accordance with the Law and provisions of this Decree. Article 7 Policies referred to in Article 6 of this Decree should as a minimum include the following requirements: 1. the MCO can perform business transactions with a person related with the MCO only with the approval of the Supervisory/Management board; 2. a person related with the MCO, that is at the same time a member of the Supervisory/Management board, can not exercise voting rights during decision making on business transactions between the MCO and a related person, or any other person that this person is related to, according to provisions of Article 4 of the Law, 3. the information regarding transactions related to sale or purchase of assets (funds) and other transactions, should include relevant information and evidence supporting the value of assets in question (those funds), their sales price, eligibility and the intention of the investor, etc. Supervisory/Management board must make a written determination that any transaction between the MCO and a related person of that MCO is fair to, and in the best interest of the MCO; 4. the MCO should form and maintain accurate and regular records, documentation and files on approvals of the Supervisory/Management board referred to in this Article;

3 3 5. each member of the Supervisory/Management board, audit committee, management/director, executive directors of the MCO should, until January 31 of the current year, at the latest, certify in writing that he or she is familiar with policies referred to in this Decree and that he or she will behave in accordance with these policies, during the duration of the mandate; 6. the approval of the Supervisory board of MCC that can extend microcredits to related persons (MCO that has no restrictions referred to in Article 5 of this Decree) must be based on all relevant information, details and conditions of transactions that are subject to approval, especially for issues related to credit amount, interest rates, fees, financial reports of the borrower showing its loan repayment capability, collateral issues etc. Article 8 During performing operations with related persons of the MCO, the MCO can not offer any favorable terms to that person in comparison with terms offered to other persons. Article 9 MCO is obliged to submit to FBA quarterly reports on all transactions with persons related with the MCO carried out in the reporting quarter, within 30 days at the latest following the last day of the reporting quarter. Article 10 Credit agreements signed between the MCO, registered in accordance with the Law on Microcredit Organizations ( Official Gazette of the Federation of BiH, No: 24/00) and persons related with that MCO, which are not in compliance, up to the date when this Decree comes into effect, with requirements and criteria prescribed by this Decree, remain effective without the possibility of extension. IV OPERATING WITH DONATED FUNDS Article 11 MCF is obliged to keep record on donated funds and treat them as donated capital, and inform the FBA on its balance. MCF that has the donated capital is obliged to operate with donated capital as a conscious host in accordance with the agreement on donation, the Law, FBA decrees and MCO' acts. Article 12 In cases if the agreement on donated funds did not stipulate otherwise, the MCF can not: - invest donated capital in its fixed assets, - use donated capital for the coverage of losses from MCF' business operations. Article 13 Members of the Management board and the Director of MCF that has donated capital, as well as members of the Supervisory board, Director and executive directors of MCC in which this MCF has majority of ownership shares, should possess experience and competencies in accordance with a Decree on Requirements and the Procedure for Issuing the Operating Permit and Approvals for Acquiring the Ownership Shares by Investing and Transferring the

4 4 Microcredit Foundation' Assets (hereinafter: Decree) and can not be mutually related by marriage or consanguinity up to third level. Article 14 For MCF with donated capital, and which operate with loss, or which has significant irregularities and weaknesses in operations, the FBA can issue a written order: - to eliminate determined irregularities within specific deadlines, - to prepare the program for overcoming the loss in operations with a focus on protecting the donated capital, - on temporary suspension of members of bodies and/or employees in the MCF, - for reduction of sectoral concentration of microcredits with the aim to improve a better risk diversification, - for deprive of donated capital and transfer to one or more MCFs. The transfer of donated capital to another MCO is carried out by the donor and in consultations with the FBA, and in cases if the donor is not in a condition to transfer the donated capital, the FBA shall carry out the transfer. In cases of deprive and transfer of donated capital from the MCO, a portion of excess of income over expenses realized by operating with donated capital is being determined, then deprived and transferred together with the donated capital to another MCO/MCOs. V OTHER RESTRICTIONS AND OTHER REQUIREMENTS FOR BUSINESS OPERATIONS Article 15 The amount of total capital of MCO (assets minus liabilities minus donated capital) must be at least 10% of assets according to audited report. MCO can not invest in fixed assets more than 10% of its total assets deducted for the amount of donated funds. Profit from MCC' operations that belongs to MCF, is used for the purposes of further microcredit activities according to the plan that is being adopted by the MCF' Management board. Plan for the usage of funds referred to in Paragraph 3 of this Article is submitted to the FBA within 30 days following the day of reaching the decision on determination and distribution of profit in the MCC. FBA can order the amendments of the plan for the usage of funds referred to in Paragraph 2 of this Article if it estimates that disposal of those funds is illegal, inappropriate and irrational. Article 16 MCF is obliged to ensure that: - return on assets adjusted for the inflation, market price of capital and donations should be positive, - operating efficiency can not exceed 45%, - portfolio at risk over 30 days should be less than 5%, - write-off should be less than 3%.

5 5 Provisions referred to in Paragraph 1 of this Article also apply on MCC in which the MCF has majority of ownership shares (over 51% of the total ownership). Manner for calculating the adjusted return on assets and the operating efficiency shall be prescribed by the FBA Director in a separate instruction. Article 17 MCF can sell a portion of contributions or a portion of shares in MCC referred to in Article 42 of the Law, only if: - the Management board of MCO adopts the program of sale with the explanation on the purpose of funds obtained through the sale, - the MCF' ownership share in the capital of the MCC referred to in Article 42 of the Law is not below 51%, - the independent auditor carries out the evaluation of the MCC' value before the sale, and - it advertises the sale and conditions of the sale in at least one daily newspapers published in the Federation of BiH, bearing in mind that the deadline for applying must be more than 30 days following the day of publishing the advertisement. Article 18 Ownership share of MCF in the capital of MCC referred to in Article 42 of the Law, can be less than 51% only in cases of recapitalization of the MCC in question carried out by other legal entities of natural persons. Recapitalization reffered to in preceeding paragraph must be carried out only in monetary funds and in the amount of at least 1/3 of the existing capital in that MCC. Article 19 Provisions of Art. 5 and 6 of a Decree are applicable on legal entities and natural persons that acquire significant ownership interest over 10% in the MCC or if they are increasing the significant ownership interest over 33.3%, 50% or 67.7%. Article 20 This Decree shall come into effect on the eight day after its being published in the "Official Gazette of the Federation of BiH". No /07 Sarajevo, March 14, 2007 PRESIDENT OF THE MANAGEMENT BOARD Eldar Arnautovic, M.A. (Econ.)