Decree No. 34-2017 Financial Inclusion and Debt Consolidation Law

PURPOSE AND SCOPE.- The purpose of this Law is to promote sources of formal financing that promote financial inclusion with dignity, through programs designed in accordance with the characteristics and priorities of the population, to address financial requirements of natural and legal persons that form part of the national Micro, Small and Medium Enterprise (MIPYME) sector, as well as the financing of housing, education and other basic needs of the Honduran worker, including the consolidation and re-education of their debts, tending to improve the patrimonial situation of the worker and that of their families.

DEFINITIONS.- For the purposes of this Law, the following concepts are defined: Public Welfare Institutes or simply Institutes: The Honduran Institute of Social Security (IHSS), The Teaching Staff Welfare Institute (INPREMA), The National Institute of Pensions and Retirements of Employees and Officials of the Executive Branch (INJUPEMP), the Military Welfare Institute (IPM), Social Welfare Institute of Employees of the National Autonomous University of Honduras (INPREUNAL). MIPYME: Micro, Small and Medium Enterprise as granted according to the patrimony and number of employees established by national legislation. Revolving Credit Lines: Financial product specially designed for natural and legal persons, whose credit limits, terms and grace periods of the product depend on the debt repayment capacity generated for the debtor by the net cash flows and productive cycles of their business activity, with dynamic and variable payment installments calculated initially and recalculated periodically in accordance with contract, considering the new credits or payments of the debtor in each period, the variable interest rate to be applied, as well as charges for insurance, guarantees and other corresponding costs. Investment Resources: The patrimony and reserves that have accumulated as a result of employer contributions and individual contributions, plus their respective interests and whose investment is subject to special regulation. Historical RAP Contribution Savings Sub-account: Individual record in the name of each worker affiliated to the Private Contributions Regime, reflecting the current balance resulting from individual contributions and employer contributions made prior to the entry into force of the Framework Law of the Social Protection System, plus the interests and surpluses that have been or are accumulated in their favor on said values, as well as capital and interests resulting from voluntary contributions made to said sub-account after the aforementioned date of entry into force. Real Return Rate: The interest rate obtained by investments made, net of the inflationary effects produced by the percentage variation of the Consumer Price Index, for the corresponding period. Actuarial Technical Rate: Real Return Rate on the basis of which actuarial valuations of a Public Welfare Institute are conducted, within the framework of technical notes endorsed by the National Banking and Insurance Commission (CNBS). CHAPTER II CLASSIFICATION OF PROGRAMS

CLASSIFICATION.- The programs of financial services that originate within the scope of application of this Law shall be selected according to their purpose and guarantee and beneficiaries, must be administered independently from one another with respect to other groups, in accordance with the following classification:

• 1)

  Personal Loan Program, through personal credits with fiduciary and/or chattel guarantee, or Revolving Credit Lines, with installments automatically deductible from the payroll, for the financing of workers actively contributing to one or more welfare regimes of the public institutes of the country, intended for educational financing, health, housing improvements and other basic needs, including the consolidation and re-education of their debts, tending to improve the patrimonial situation of the worker and that of their families;

• 2)

  Housing Finance Program, through mortgage credits and/or financial leases with purchase option, automatically deductible by payroll, for housing financing with emphasis on the social sector, for workers who are actively contributing to one or more welfare regimes of the public institutes of the country or who are affiliated at the time of formalization of financing through a special coverage plan for independent workers; and,

• 3)

  Productive Loan Program, through Revolving Credit Lines, with fiduciary, chattel or mortgage guarantee, to finance natural or legal persons belonging to MIPYME, with emphasis on productive sectors strategic for the country's development, including among others the agricultural sector, manufacturing and other services. Within this program are included special trusts for the refinancing and consolidation of debts of educational centers contributing to the Teaching Staff Welfare Institute (INPREMA) as well as their corresponding affiliates, in which case the regulation approved by the corresponding Technical Committee must define the financing conditions prior to review by the assembly of contributors and affiliates of said Institute, who must define the conditions for the respective consolidation and refinancing. CHAPTER III ADMINISTRATION, COLLECTION MECHANISM AND GUARANTEES

ADMINISTRATION AND SPECIALIZED MANAGEMENT.- The administration of the programs and their respective funds that derive from the application of this Law must be conducted in a separate and independent manner through specialized Financial Institutions, by means of investment trust and/or administration contracts, by one or more banking institutions legally authorized, within the framework of what is established in the Commercial Code and this Law, as well as the respective contract and regulation that govern the operations of each of these. This provision does not apply to the Productive Loan Program, when financed entirely with assets of a Financial Institution, in which case the program is financed and administered by the corresponding entity, without being obligatory the constitution of a special trust for portfolio administration. All credits granted through the programs contained in this Law, as well as those granted by the institutes under RAP, within the framework of their own laws, must be duly registered and updated by the corresponding borrower to the credit information center.

COLLECTION MECHANISM.- For the Financing Programs referred to in numerals 1) and 2) of Article 3 of this Law, the employer must deduct from the worker's salary and remit periodically, according to contract, simultaneously with contributions to the corresponding Public Welfare Institute and through the applicable collection system, the obligations arising from the financing contracts referred to in this Chapter, so that said amounts are transferred according to the respective Trusts, within a maximum period of ten (10) days from their collection. In the event that due to negligence or cause attributable to the employer, the corresponding monthly installment of the worker is not deducted and remitted, the employer must pay from their own account the costs incurred due to the delay, by means of the payment of an administrative sanction equivalent to one percent (1%) of the debt balance, for each month in which the applicable deduction was not made and remitted, without responsibility or charge of any kind to the worker, and the term and respective payment dates must also be extended based on the months in which the same were not made. For its part, the management of collections made for the Productive Loan Program referred to in numeral 3) of said Article must be conducted by the Financial Institution that administers the portfolio, using due diligence and exercising direct collection actions against the borrower, in accordance with the regulatory provisions defined and the corresponding contractual clauses. CHAPTER IV GUARANTEES AND SUBSIDIES

INDIVIDUAL GUARANTEES.- To guarantee the different financing programs, they must be agreed contractually between the parties. The guarantees individually required for each financing program, and the following must be applicable in their order and as applicable to each case:

• 1)

  Personal Loan Program:

  • a)

    Irrevocable authorization of the borrower to deduct the amount of the agreed installment from the payroll of their monthly salary or pension;

  • b)

    Assignment of up to eighty percent (80%) of the severance benefit or Historical Contributions Savings Sub-account to RAP;

  • c)

    Endorsement of insured amounts and guarantee funds derived from insurance coverages and guarantee funds, necessary for risk management;

  • d)

    Accumulated amounts, in concept of other labor benefits or benefits that are contractually ceded; and, e) Endorsements and others that may be required by the Fiduciary to cover the risk.

• 2)

  Housing Finance Program:

  • a)

    Irrevocable authorization of the borrower to deduct the amount of the agreed installment from the payroll of their monthly salary or pension;

  • b)

    Assignment of up to eighty percent (80%) of the severance benefit or Historical Contributions Savings Sub-account to RAP;

  • c)

    Endorsement of insured amounts and guarantee funds derived from insurance coverages and guarantee funds, necessary for risk management;

  • d)

    Accumulated amounts, in concept of other labor benefits or benefits that are contractually ceded; and, e) Mortgages and others that may be required by the Fiduciary to cover the risk.

• 3)

  Productive Loan Program:

  • a)

    The titles or documents that support the credit in a mortgage, chattel or fiduciary form, as required by the Financial Institution;

  • b)

    Endorsement of insured amounts and guarantee funds derived from insurance coverages and guarantee funds, necessary for risk management; and, c) Others that may be required by the Lender to cover the risk. The prohibitions established in Article 38 of Decree No. 107-2013 dated June 10, 2013 of the Private Contributions Regime Law shall not apply in the case of loans to natural persons that derive from the implementation of trusts to finance the Personal Loan Programs and Housing Finance Programs referred to in this Law.

GUARANTEE FUNDS AND SUBSIDY PLANS.- The State of Honduras, in the context of what is established in the Framework Law of the Social Protection System, in its Article 8 numeral 6) and in its Article 10, must annually allocate the necessary budget allocations to create and/or strengthen guarantee funds and focused subsidy programs that promote financial inclusion in the context of this Law, being able to establish the respective technical reserves within Societies Administering Reciprocal Guarantee Funds or in special trusts, in order to partially cover first or second losses generated in the portfolio of the programs. The National Commission on Housing and Human Settlements (CONVIVIENDA) is authorized to proceed with the execution of supplementary trust contracts with the Fiduciary Banks contracted for Portfolio Administration, through Housing Finance Programs that derive from the implementation of this Law, tending to achieve a transparent, diligent and timely distribution of applicable subsidies. CHAPTER V INSTITUTIONAL INVESTORS

INSTITUTIONAL TRUST CREATORS.- The Public Welfare Institutes or the Private Contributions Regime (RAP) are authorized to:

• 1)

  Establish Trusts, as principal trust creators and invest up to twenty-five percent (20%) of their Investment Resources, in one (1) or more portfolio administration trusts, through the Personal Loan Program, in the form and purpose established in Article 3, numeral 1) of this Law;

• 2)

  Establish Trusts, as principal trust creators and invest up to twenty-five percent (20%) of their Investment Resources, in one (1) or more portfolio administration trusts, through the Housing Finance Program, in the form and purpose established in Article 3, numeral 2) of this Law; and,

• 3)

  Establish Trusts, as principal trust creators and invest up to ten percent (10%) of their Investment Resources, in one (1) or more trusts of administration and/or investment of fiduciary portfolio to be invested in the Productive Loan Program, in the form and purpose established in Article 3 numeral 3), provided that there exists a Guarantee Fund with sufficient patrimony and sustainable premium that promotes a profitability higher than the actuarial technical rate required. The trust contracts must be constituted on plain paper and must be exempt from all types of payment of tax levies, registration rights and fees. The trusts through which the financing programs described in Article 3) of this Law are materialized, in which the Welfare Institutes and the Private Contributions Regime (RAP) act as trust creators, enjoy special privilege as provided in Article 48 of the Framework Law of the Social Protection System, including the corresponding priority in payroll deduction with respect to other credits or refinancing that are granted or subsequent or that are deducted through the collection system operated by the Honduran Institute of Social Security (IHSS). The amounts corresponding to obligations incurred for financial services granted directly or indirectly by the Trusts created under this Law have priority over the obligations of affiliates assumed with other creditors, with the exception of the contributions to the Welfare Institutes and RAP themselves, which workers and employers make, as well as those necessary to enforce child support obligations in accordance with what is established in the Family Code. The Institutions, Societies and Organizations that, within the framework of a Special Law or their own bylaws, wish to be Trust Creators of one or several of the Trusts described in this Law may do so through the signature of an Agreement between parties with the Principal Trust Creators, prior to analysis and due diligence by the fiduciary entity. In any case, the profitability generated for all Institutional Investors of the Trusts corresponding to the programs described in Article 3) of this Law is exempt from rates, levies or taxes, fiscal or municipal, of any kind. The Authorization granted as trust creators to the public welfare institutes and the Private Contributions Regime (RAP) in the context of this Article must be understood as optional, complementary and without prejudice to the authority granted to them by their own law to grant credits directly to their affiliates. CHAPTER VI GENERAL PROVISIONS

RESERVES.- The Personal Loan Program and the Housing Finance Program must not generate the obligation to increase reserves for the Fiduciary Bank that administers them. In this case, provisions for risks inherent to financing programs must be subject to what is provided by the actuarial technical note that supports risk management, within the trust itself, in the Welfare Institute and/or through coverages of Guarantee Funds, as applicable. The evaluation of the credit portfolio of the Productive Loan Program and its reserves must be conducted considering the proper nature of Revolving Credit Line, within the framework of the Standard for Evaluation and Classification of Credit Portfolio issued by the National Banking and Insurance Commission (CNBS), according to the financed sector and the categorization of the debtor. The information required from borrowers and their endorsers for the documentation of files in the Productive Loan Program must be defined in accordance with special regulations issued by the National Banking and Insurance Commission (CNBS), considering the proper nature, difficulties and particularities of the MIPYME sector and without the ability to apply documentation requirements greater than those established for other commercial credits for the same purpose or debtor category.

FINANCING CONDITIONS AND FIDUCIARY COMMISSIONS.- The respective contracts and regulations of the Trusts must define the financing conditions to be applicable in each case. Due to the proper nature and particular requirements of the Welfare Institutes and the Private Contributions Regime (RAP), the investments that these make as trust creators in the different programs must promote adequate conditions of safety, profitability and liquidity in the integral management of their portfolio. In this sense, the interest rates of loans for the different programs must be variable and established in pursuit of the Real Return Rate obtained by said trust creators, net of administrative and operational expenses associated, including guarantees and reserves, cannot be less than six percent (6%) in the Real Interest Rate, in the case of Trusts for Personal Loan Programs and Productive Loan Program, nor of four point five percent (4.5%) in the case of Trusts for Housing Finance; without in any of the cases the agreed financing rate being able to be less than eighty percent (80%) of the average active rate observed in the Financial System and published by the official entity responsible, for the corresponding purpose or sector. The term of financing of credits granted through Trusts for Personal Loans and Consolidation cannot exceed eighty-four (84) months. In the case of Social Housing Trusts, the financing term cannot exceed thirty (30) years if the installment includes some coverage of deferred life annuity, nor twenty-five (25) years if it does not include it. The payment installments of credits granted through the Productive Loan Program must be calculated with a term equal to or less than ten (10) years. The Commissions for fiduciaries, for each administered trust, must establish fixed and variable payment mechanisms that promote the concurrence of interests between the trust creator and the fiduciary. In any case, total commissions for fiduciary administration have a limit of up to two point seventy-five (2.75%) percentage points in the case of administration of Housing Finance Trusts, and up to two point twenty-five percent (2.25%) for Personal Loan Trusts or Productive Loan Trusts. The costs associated with specific operations of Revolving Credit Lines must be covered by the Trust, in which case the fiduciary commission limit for such portfolio must not be higher than seven point five percentage points (7.5%). The percentages previously defined may be analyzed and their change recommended, in accordance with Regulation and actuarial studies by the corresponding assemblies in cases of significant variations to the country's inflation indices. The other conditions and financing requirements for each of the purposes indicated, which are necessary for the proper functioning of the different programs, must be established in the trust regulation and/or respective contracts, as applicable.

PAYMENT CAPACITY AND TRANSPARENCY IN DEBT CONSOLIDATION.- Workers who wish financing under the conditions established in this Law must demonstrate adequate payment capacity of the resulting installment, already considering the new state of indebtedness and their new resulting installment. The Fiduciary of each Program must conduct its due diligence tending to verify the payment capacity or, failing that, to achieve a consolidation and re-education of the debt of the potential borrower, before the granting of a new loan. For these purposes, financial institutions, cooperatives, commercial houses or other non-bank lenders that are creditors of loans to a worker, which this worker intends to consolidate in the context of this Law, are obligated to provide the documentation required by the borrower regarding the capital balance, interests and others that legally proceed and that would be owed as of the date on which the disbursement for the respective consolidation is projected, according to the format established and approved for these purposes in the respective regulation. Likewise, affiliates who receive a loan for the consolidation of their debts within the framework of this Decree must be reported to the Credit Information Center or Private Credit Bureau, so that the status of their special situation is known and to avoid over-indebtedness of the affiliate beyond their payment capacity. It is prohibited for any natural or legal person to grant new credits or refinancing, as well as the collection of new loan installments through payroll deduction by the employer, when this results in the affectation of the worker's gross salary in percentages greater than sixty percent (60%), as established in the first paragraph of this Article.

SPECIAL USE OF THE HISTORICAL CONTRIBUTIONS SAVINGS SUB-ACCOUNT OF RAP.- Workers who use the Housing Finance Program referred to in Article 3, Numeral 2) of this Law may use the Historical Contributions Savings Sub-account of the Private Contributions Regime (RAP), up to an amount not exceeding six (6) minimum wages nor eighty percent (80%) of said sub-account, in order to amortize their debt and reduce the corresponding installment. Affiliates who use the financial programs contemplated in numeral 1) and 2) of Article 3 of this Law must be active affiliates of the Housing and Financial Inclusion Fund of the Private Contributions Regime (RAP), through individual contributions required of them.

SPECIALIZED LEGAL FRAMEWORK.- The financing operations that are implemented as a result of the application of this Law and that are funded with resources from the Trusts constituted by the Public Welfare Institutes and/or the Private Contributions Regime (RAP), as well as the rights and obligations of the parties, are subject to what is provided in the Commercial Code and this Law. What is not foreseen and not regulated in the Trust contracts in accordance with the Commercial Code must be regulated by the National Banking and Insurance Commission (CNBS), or the National Commission on Housing and Human Settlements (CONVIVIENDA), according to the scope of their competencies and attributions. All terms and deadlines established in this Law for the preparation of proposals, opinions, opinions, regulations, resolutions and other acts aimed at the correct application and execution of this Law, which do not have an express term, must be executed by the responsible authorities, bodies or institutions within a period of thirty (30) days, from the date of request.

NON-SEIZABILITY.- The assignment, pledging, compensation or seizure of all accounts, sub-accounts and reserves established by the Public Welfare Institutes and the Private Contributions Regime (RAP) is prohibited, as well as the benefits and services granted based on these, except in the cases of special provisions referred to in Article 6 of this Law, the special laws of the Public Welfare Institutes and the Private Contributions Regime (RAP), the Labor Code and the Code of Children and Adolescents, up to the percentages established by the obligations set in each of the referred laws, as applicable. CHAPTER VII TRANSITORY PROVISIONS

SPECIAL CASES OF INDEBTEDNESS IN NATURAL PERSONS.- During the first three (3) years of validity of this Decree and as provided by the Regulation of the Trusts of the respective Personal Loan Program, the Trusts are authorized to establish a special plan to address cases of extreme indebtedness, through which financing and refinancing can be granted, above the limits established in Articles 6 and 11 of this Law, provided that the measure is of a general nature and has as its purpose achieving the acceptable levels of indebtedness established in said articles.

SPECIAL CASES OF INDEBTEDNESS IN EDUCATIONAL CENTERS.- During the same three (3) years of validity of the present Decree, and in accordance with what the regulations of the Trusts of the respective Productive Loan Programs establish, the special trusts referred to in the second paragraph of numeral 3) of Article 3 of the present Law, are authorized to establish a special plan to address cases of extreme indebtedness of educational centers, provided that in these cases no charges or interest of any kind may be charged, including default interest that exceeds the required actuarial technical rate, in order to promote the principle of sufficiency and sustainability.

SUBMISSION OF PROPOSALS.- As of the effective date of the present Law, banking institutions that wish to be fiduciaries of Funds intended for Housing Finance or Financial Consolidation may submit in writing their trust model proposal to the Provisional Institutes and to the Private Contributions Regime (RAP), including at least the Technical Note that supports it and the drafts of the respective regulation and contract. As of the effective date of the present Decree, institutions interested in establishing Trusts under the provisions established in the present Law are authorized to execute trust contracts with the entity or entities that, in accordance with the opinion of the different corresponding Investment Committees, maximize the objective of the Settlor Institutions, in order to safeguard adequate standards of profitability, security, and liquidity in their portfolio, in the context of the objective of the present Decree.

REPEALING PROVISION.- Decree No. 34-2013 dated February twenty-seventh of the year 2013, which contains the Law of the Optional Program for the Consolidation of Debts of the Honduran Worker, published in the Official Journal "La Gaceta", No. 33,091 dated April 5, 2013, is hereby repealed.

EFFECTIVE DATE.- The present Decree shall enter into force thirty (30) days after its publication in the Official Journal La Gaceta. Given in the city of Tegucigalpa, municipality of the Central District, in the Session Hall of the National Congress, on the thirty-first day of the month of May of the year two thousand seventeen. MAURICIO OLIVA HERRERA PRESIDENT ROMÁN VILLEDA AGUILAR SECRETARY JOSÉ TOMÁS ZAMBRANO MOLINA SECRETARY To the Executive Power For Such Purpose: Let It Be Executed Tegucigalpa, M.D.C., August 17, 2017 JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICE OF FINANCE WILFREDO CERRATO Secretariat of Infrastructure and Public Services AGREEMENT No. 0305 August 15, 2017 THE SECRETARY OF STATE IN THE OFFICES OF INFRASTRUCTURE AND PUBLIC SERVICES (INSEP) AND COORDINATOR OF THE SECTORAL CABINET OF PRODUCTIVE INFRASTRUCTURE, BY LAW WHEREAS: That through Legislative Decree No. 58-2011, published in the Official Journal La Gaceta on July 13, 2011, the Special Law for the Simplification of Public Infrastructure Investment Procedures was approved, which aims to simplify and expedite the execution procedures of public infrastructure projects, for the purpose of generating employment and achieving greater economic growth through the modernization of national infrastructure, the rules and procedures established in this Law shall be applicable to the executing units of the Centralized and Decentralized Public Administration in charge of public infrastructure projects of any nature. WHEREAS: That Article 22 of the Special Law for the Simplification of Public Infrastructure Investment Procedures establishes that owners of continuous or nearby land to any public infrastructure work, whose properties have been identified by the respective executing unit in charge of the project as suitable to serve as material banks, are obliged to facilitate and permit the extraction of all the material that is necessary for the opening, construction, maintenance of the project, without