Law on the Guarantee Funds System

For purposes of Study, Financial Management, Design, Construction, Operation and Maintenance, to approve the inclusion of the Río Choluteca Project within the benefits granted by the Special Regulatory Law of Public Renewable Energy Projects, contained in Decree No. 279-2010, dated January 19, 2011, by virtue of being a matter of pressing urgency and national necessity of the highest priority.

This Decree shall enter into force as of the day of its publication in the Official Gazette La Gaceta. Given in the city of Tegucigalpa, municipality of the Central District, in the Session Hall of the National Congress, on the ninth day of the month of August of the year two thousand eleven. ALBA NORA GÚNERA OSORIO PRESIDENT RIGOBERTO CHANG CASTILLO SECRETARY GLADIS AURORA LÓPEZ CALDERÓN SECRETARY To the Executive Branch. Therefore: Let it be executed. Tegucigalpa, M.D.C., August 11, 2011. PORFIRIO LOBO SOSA PRESIDENT OF THE REPUBLIC The Secretary of State in the Offices of Natural Resources and Environment. RIGOBERTO CUÉLLAR CRUZ Legislative Branch DECREE No. 205-2011 THE NATIONAL CONGRESS: WHEREAS: It is a function of the State to ensure the balanced development of all sectors of production and to create conditions of equal opportunities for economic improvement, a function that is undertaken in this imperative category, even though we are immersed in the context of globalization. WHEREAS: The Strategy for Poverty Reduction is based on five (5) major guidelines:

• a)

  prioritize actions aimed at poverty reduction;

• b)

  prioritize actions in favor of the most marginalized groups and areas of the country;

• c)

  strengthen the participation of civil society and decentralization;

• d)

  strengthen governance and participatory democracy; and,

• e)

  reduce environmental vulnerability and its impact on poverty. WHEREAS: Micro, small and medium-sized enterprises constitute an important sector as sources generating new employment opportunities, as a significant factor for increased production; a model for the realization of the human person; a source of stability, security and education for the most vulnerable sectors of the country; and a means to promote social cohesion in urban and rural communities. WHEREAS: In accordance with the results of research studies carried out, there is a limited supply of financial services that prevents micro, small and medium-sized enterprises from accessing financing. WHEREAS: It is of national interest to guarantee the micro, small and medium-sized enterprise sector access to financing, a facility of universal character, the financing for the entrepreneur to integrate them into the Financial System of the Country, making them creditworthy subjects, under conditions appropriate to the capacities and development requirements regulated by the said sector, which are incorporated in the Policy for Support to the Competitiveness of MSMEs, and it is necessary to overcome the limitations this sector faces in accessing credit. THEREFORE: IT DECREES: The following: LAW OF THE SYSTEM OF RECIPROCAL GUARANTEE FUNDS FOR THE PROMOTION OF MSMES, SOCIAL HOUSING AND TECHNICAL-PROFESSIONAL EDUCATION TITLE I GENERAL PROVISIONS

GENERAL AND SPECIFIC OBJECTIVES. The general purpose of this Law is to regulate the System of Reciprocal Guarantee Funds and its operations. The specific objectives of the system are, through the granting of financial, commercial and technical guarantees, to natural and legal persons who meet the requirements established in this Law, the following:

• 1)

  To facilitate access to financing for Micro, Small and Medium Enterprises (MSMEs) and to enhance and improve their participation in the processes of production of goods and services, as well as to promote their contracting and acquisitions, public and private;

• 2)

  To enable access to financing for social housing, especially with regard to assisted progressive self-construction, to natural persons of low income who do not have the resources or guarantees required by the traditional system for financing a home under normal conditions; and,

• 3)

  To enable access to educational financing programs for students belonging to population strata of scarce economic resources, properly selected for their academic achievements and other values, who do not have sufficient guarantees to qualify for an educational loan.

STRUCTURE OF THE SYSTEM. The System of Reciprocal Guarantee Funds shall be composed of:

• 1)

  MANAGING COMPANIES OF RECIPROCAL GUARANTEE FUNDS (SA-FGR OR SIMPLY MANAGING COMPANIES): These are joint-stock companies whose exclusive corporate purpose is the administration of one or more Reciprocal Guarantee Funds, without prejudice to the right of participation of the various forms of property and enterprise recognized by the Constitution of the Republic as Protective Partners;

• 2)

  RECIPROCAL GUARANTEE FUNDS (FGR OR SIMPLY FUND): These are funds constitutionally established with corresponding technical reserves to cover the losses that may arise from the granting of the guarantees issued;

• 3)

  REINSURING COMPANIES OF RECIPROCAL GUARANTEE FUNDS (SR-FGR): These are Legal entities authorized to cover variations in claims for losses paid by the SA-FGR with resources from the Funds they administer. Each of the Funds administered by the Managing Companies shall be independent from each other, and with respect to the same SA-FGR that administers them, with regard to assets and management. In this sense, the Managing Companies shall be obligated to maintain separate accounting records for each of the Funds they administer, as well as for the SA-FGR itself, in accordance with the regulations that the supervisory body may issue for such purposes.

DEFINITIONS. For purposes of this Law, the following shall be understood as:

• 1)

  ENDORSEMENT: An act by means of which, through the subscription of a security, one person answers for another for the obligations contained in a security;

• 2)

  ASSETS: The personal and real property that are offered as additional backing to the Managing Company of the Reciprocal Guarantee Fund for the acquisition or expansion of guarantees provided by it, in order to expand its financing options through Public or Private Credit Institutions;

• 3)

  COMMISSION OR SUPERVISORY BODY: The National Commission of Banks and Insurance;

• 4)

  BOND: A contract through which an SA-FGR in its capacity as Guarantor and backed by the FGR it administers, binds itself to comply with the beneficiary of the contract or creditor for the obligations incurred by the guarantor or debtor, in case of non-compliance;

• 5)

  COMMERCIAL GUARANTEES: The endorsements and financial bonds granted to beneficiary partners so that they may guarantee their payment obligations arising from a commercial transaction before a third party;

• 6)

  EDUCATIONAL GUARANTEES: Those granted to natural persons to support the beneficiary partners in the financing of educational loans;

• 7)

  FINANCIAL GUARANTEES: The endorsements and financial bonds granted to beneficiary partners so that they may guarantee their payment obligations assumed before Public or Private Credit Institutions and thus be able to apply for financing for the purposes provided in this Law;

• 8)

  GUARANTEES FOR SOCIAL HOUSING: Those granted to natural persons registered as beneficiary partners, whose family income is within the parameters established in the laws according to the ranges derived from international agreements in force for Honduras;

• 9)

  TECHNICAL GUARANTEES: The endorsements and bonds granted to beneficiary partners in order to support them in bidding processes with the public or private sector, for maintenance of Offer, Compliance and Quality;

• 10)

  MSME: Micro, Small and Medium Enterprise shall be understood as established in Article 3 of the Law for the Promotion or Development of the Competitiveness of Micro, Small and Medium Enterprises;

• 11)

  BENEFICIARY PARTNERS: Natural or legal persons who participate in the capital stock of a Managing Company of Reciprocal Guarantee Funds and who for such reason may access the services provided by it in accordance with the specific objectives of this Law and its regulations; and,

• 12)

  PROTECTIVE PARTNERS: Natural or legal persons, public or private, who participate in the capital stock of a Managing Company of Reciprocal Guarantee Funds, who provide to such Company technical and financial support, without being able to be beneficiaries directly or indirectly of the services provided by such SA-FGR.

LEGAL REGIME. The System of Reciprocal Guarantee Funds shall be governed by the provisions of this Law and, to the extent applicable, by the Law of the Financial System and the Law of the National Commission of Banks and Insurance. What is not provided for in the laws, regulations and normative provisions mentioned shall be subject to the provisions of the Commercial Code and, in the absence thereof, by the other laws in force in the Republic.

AUTHORIZATION, SUPERVISION AND CONTROL. It is the responsibility of the Commission, in accordance with the powers conferred upon it by Law, to authorize, supervise, monitor and control the SA-FGR, as well as to ensure the proper functioning of the System of Reciprocal Guarantee Funds. TITLE II OF THE MANAGING COMPANIES OF RECIPROCAL GUARANTEE FUNDS CHAPTER I INCORPORATION AND DESIGNATION

INCORPORATION. The Managing Companies of Reciprocal Guarantee Funds shall be incorporated as joint-stock companies of variable capital, in accordance with the provisions of the Law of the Financial System and the regulations issued by the Commission. The designation of the Managing Companies of Reciprocal Guarantee Funds shall be formed freely and shall be distinct from that of any other existing company, and shall be immediately followed by the initials SA-FGR, without being able to include any reference that would induce one to believe that they act on behalf of the State or in relation to it or with any of its dependencies. Managing Companies of Reciprocal Guarantee Funds shall not be registered in the commercial registry or any other public registry unless after the Commission has authorized their establishment. CHAPTER II OF THE PARTNERS AND CAPITAL STOCK

PARTNERS. The beneficiary and protective partners of the Managing Companies of Reciprocal Guarantee Funds may be natural or legal persons, national or foreign.

MINIMUM NUMBER OF PARTNERS. The Managing Companies of Reciprocal Guarantee Funds shall be incorporated with at least three (3) protective partners and fifty (50) beneficiary partners. The participation of each beneficiary partner may not exceed five percent (5%) of the capital stock.

MINIMUM CAPITAL. The capital stock of the Managing Companies of Reciprocal Guarantee Funds shall be variable and may not be less than Ten Million Lempiras (L.10,000,000.00), composed of nominative shares, whose value shall be determined by the bylaws of the SA-FGR. For the purpose of maintaining the real value of the assets, the Commission shall review and may update, every two (2) years, the amount of the minimum capital referred to in this Article, taking as reference the year-on-year variation in the consumer price index, economic growth and other variables it considers applicable.

SHARES. Shares shall be of different classes for beneficiary partners and protective partners, granting the same rights depending on each class.

OPERATIONAL REQUIREMENTS. The Managing Companies of Reciprocal Guarantee Funds, prior to the commencement of their operations, shall demonstrate to the Commission that they comply with the following:

• 1)

  Strategic plan that includes its annual operational plan and its corresponding budget, as well as the projection of its net operating cash flows for the following (3) years;

• 2)

  Physical facilities where the company will operate;

• 3)

  Policies and Procedures for its proper functioning;

• 4)

  Technological and Information Systems for the registration, monitoring and control of the guarantees issued;

• 5)

  Technological and Information System for accounting registration and monitoring of the participations of the protective partners, with respect to the assets of the administered funds;

• 6)

  Definition of the organizational structure of the company;

• 7)

  Technical notes that support the calculation of premiums for each of the guarantees granted, as well as the commission to be charged for each of the administered guarantee funds; and,

• 8)

  Any other aspect required by the Commission.

VOTING RIGHTS. The total votes of the protective partners may not exceed fifty percent (50%) of the total.

TRANSFER OF SHARES. The transfer of shares shall be approved by the Board of Directors, which shall verify that the acquirers meet the legal requirements and those established in the bylaws and that the transferor has fulfilled the guaranteed commitments. For the transfer of shares that represent a percentage that reaches or exceeds ten percent (10%) of the capital stock or that implies a change of control, the procedure established in the Law of the Financial System is required.

CONTRIBUTION OF CAPITAL. The nominal value of the shares of protective members shall be paid in cash at the time of subscription, and they shall represent the minimum required capital. At the moment a company is established, the capital contributions made by protective members shall be allocated ten percent (10%) to the capital stock of the SA-FGR and ninety percent (90%) to the FGR that said member chooses; in such case the latter may not be withdrawn until the total liquidation of the Fund. The shareholding participation of each protective member in the SA-FGR shall be directly proportional to said member's contribution to the FGR. In that sense, when variations occur in the resources that make up the FGR, the shareholding participation shall be adjusted accordingly. The methodology and periodicity for making said adjustment shall be established by the Commission. The nominal value of the shares of beneficial members may be constituted within a period greater than two (2) years, until completing the total number of members established in Article 8 of this Law. Once the number of beneficial members is completed, any new member shall make their contribution in cash at the time of subscription.

RIGHT TO REIMBURSEMENT OF SHARES TO BENEFICIAL MEMBERS. The beneficial member may request reimbursement of the shares that belong to them, provided that they have fully paid all obligations by means of which the Mutual Guarantee Fund Administration Company granted bonds or guarantees in their favor, and it does not imply a reduction in the minimum required capital nor the minimum number of members. The reimbursement amount shall be the lesser value between the book value of the contributed shares and the nominal value. Reserves and surplus belong to the company and no member who withdraws from it shall have rights over them, nor may request their reimbursement.

SHARES LINKED TO A VIGENT GUARANTEE. The Mutual Guarantee Fund Administration Companies shall have priority in relation to other creditors over the shares of the beneficial member linked to a Guarantee known by said Company, provided that the Guarantee remains vigent. Said preference shall not affect the rights that the creditor may exercise over other shares not linked to vigent Guarantees.

EXCLUSION OF A BENEFICIAL MEMBER AND ITS EFFECTS. The non-compliance with the guaranteed obligation whose definite loss is charged to one of the funds administered by the SA-FGR in accordance with the regulations issued for such purpose shall cause the exclusion of a beneficial member by the Ordinary General Assembly of Members. Having also the following effects:

• 1)

  The exclusion of a member from the company shall deprive them of the status of member and the right to shares, once their obligations to whose Guarantees were linked are fully paid;

• 2)

  The reimbursement amount of the shares of the excluded member shall be used to cover the payment made by the company in function of the Guarantee;

• 3)

  If the reimbursement amount exceeded the amount paid by the company, the excess shall be allocated, if applicable, to the constitution of a reserve to cover other Guarantees granted in favor of the same member that remain vigent;

• 4)

  In any case, both the reimbursement amount of the shares and the responsibility of the excluded member for non-compliance in relation to the debts contracted by the company prior to the date of reimbursement shall be governed, to the extent applicable, by what is established in the present Law; and,

• 5)

  The exclusion of a beneficial member shall be notified to the Commission.

DISTRIBUTION OF PROFITS. For the distribution of profits, the Mutual Guarantee Fund Administration Companies shall be subject to the provisions of the Financial System Law. The Mutual Guarantee Fund Administration Companies may not distribute profits while annual losses are recorded in any of the administered funds or while their accumulated results remain negative.

LEGAL RESERVE. The Mutual Guarantee Fund Administration Companies shall set aside annually, as a minimum, five percent (5%) of the net profits obtained in each fiscal year, until constituting a reserve of twenty-five percent (20%) of the minimum required capital stock. The legal reserve fund may only be used to cover losses as established by the present Law and shall be reconstituted in the same manner when it decreases.

APPLICATION OF LOSSES AND REDUCTION OF CAPITAL. In the event that the SA-FGR presents losses in the same fiscal year, the General Assembly of Members shall take the corresponding agreement, following the procedure established in the Commercial Code and the following order of precedence:

• 1)

  With accumulated profits from other fiscal years;

• 2)

  If these profits are insufficient, capital reserves shall be applied, first the legal reserve and then voluntary reserves;

• 3)

  If the above applications are insufficient to cover the balance of losses, they shall be absorbed from the paid-in capital stock of the company; and,

• 4)

  In the event that the capital stock is reduced to a level lower than that established in this Law, the members shall have a maximum period of ninety (90) business days to cover the minimum required. CHAPTER III OF THE GENERAL ASSEMBLY OF MEMBERS

OF THE GENERAL ASSEMBLY OF MEMBERS. Matters relating to the General Assembly of Members shall be governed by the provisions of the Commercial Code, with the exception of the following:

• 1)

  Members representing ten percent (10%) of the total may convene the General Assembly of Members;

• 2)

  No member may have representation of Beneficial Members and Protective Members simultaneously; and,

• 3)

  The modification of the Bylaws shall be in accordance with the procedure established by the Financial System Law. CHAPTER IV OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS. The administration of the SA-FGR shall be in charge of a Board of Directors, hereinafter called Directors, and its legal representation shall be in charge of its President, who may delegate it in accordance with the Bylaws. The members of the Board of Directors shall be appointed by the general assembly of members, in a number not less than six (6), with equal participation of beneficial and protective members, and shall hold office for the period established in the Bylaws. The election, appointment, or replacement of members of the Board of Directors shall be communicated to the Commission the next business day following their appointment. Board of Directors decisions shall be made by simple majority and in case of a tie, the President shall have the deciding vote. The manner of convocation, place of meeting, functioning, and periodicity of its sessions shall be established in the Bylaws. In the case of legal entities whose law or bylaws do not allow them to participate as members in an SA-FGR, but who are participants through their contributions in one or more FGR, they shall participate in Board of Directors sessions with voice but without vote.

COMPETENCE OF THE BOARD OF DIRECTORS. The Board of Directors shall have the following functions:

• 1)

  Decide on the admission of new beneficial members in accordance with what is established in the company's bylaws;

• 2)

  Submit to the General Assembly the increase or decrease of capital stock up to the legal minimum while complying with minimum solvency requirements;

• 3)

  Appoint and remove the General Manager and Internal Auditor, who must have recognized suitability, honorability, responsibility and accredit, at least three (3) years of experience in positions of management, administration, or supervision of financing institutions or other Mutual Guarantee Fund Administration Companies;

• 4)

  Ensure the liquidity and solvency of the Institution;

• 5)

  Ensure that policies, systems, and processes necessary for the correct administration, evaluation, and control of risks inherent to the business are implemented and instructed to be maintained in proper functioning and execution;

• 6)

  Comply with and ensure compliance at all times with the provisions of laws, regulations, policies, and applicable internal procedures;

• 7)

  Be properly informed about the progress of the institution and know the monthly and annual financial statements of the institution, which shall be responsible for periodic reports of the administration, those of internal auditors, and annually, for the report of external auditors;

• 8)

  Ensure that the provisions issued by the Commission in the exercise of its functions are complied with, as well as the information requirements that emanate from competent information bodies;

• 9)

  Establish the guidelines under which the functioning of the Board of Directors shall be regulated and perform the necessary acts to achieve the corporate objective;

• 10)

  Set the amount of guarantees to be granted within the parameters established in the company's bylaws;

• 11)

  At the proposal of General Management and based on applicable regulations, establish the commissions that the SA-FGR will charge to each FGR it administers;

• 12)

  At the proposal of General Management, establish the total, maximum, and minimum premiums that will be charged for the services provided to beneficial members;

• 13)

  Determine the investments to be made with the assets of the company and of the Mutual Guarantee Funds administered, within the framework of the guidelines set by the present Law and other regulations issued by the Commission;

• 14)

  Approve the policy for granting or denying guarantees to beneficial members and monitor its execution under technical criteria of administrative efficiency and legality;

• 15)

  Submit to the approval of the Ordinary General Assembly of Members the financial studies of the Mutual Guarantee Funds administered and of the SA-FGR, proposing in the latter case the application of the results of the fiscal year in accordance with the present Law;

• 16)

  Authorize the legal representative of the company to grant general and special powers, whether administrative, commercial, or judicial;

• 17)

  Authorize the payment or application of the debts of Beneficial Members, maintaining the minimum solvency requirements;

• 18)

  Authorize the transfer of corporate interests;

• 19)

  Approve the functioning policies of the management committees required in the corporate governance standards issued by the Commission;

• 20)

  At the proposal of the General Manager, appoint the senior executives of the company who must have recognized suitability, honorability, responsibility and accredit, at least three (3) years of experience in positions of management, administration, or supervision of financing institutions or other Mutual Guarantee Fund Administration Companies;

• 21)

  Execute actions derived from the exclusion of members who fail to comply with obligations guaranteed by the company; and,

• 22)

  Other provisions applicable to the SA-FGR in accordance with what is established in the Commercial Code, as well as other functions established in the bylaws of said Companies.

REQUIREMENTS TO BE DIRECTORS. All members of the Board of Directors of the Mutual Guarantee Fund Administration Companies must be persons of recognized suitability, honorability, and responsibility, and shall accredit at least three (3) years of experience in financial, administrative, and management matters. In compliance with sound corporate governance management, the Board of Directors must have an independent director, in accordance with the regulations issued by the Commission.

IMPEDIMENTS AND CONFLICTS OF INTEREST. Matters relating to impediments and conflicts of interest shall be governed by the provisions of the Financial System Law. CHAPTER V OF OPERATIONS AND SERVICES

OPERATIONS AND SERVICES: The Mutual Guarantee Fund Administration Companies may provide the following services and perform the following operations:

• 1)

  Grant, backed by the Mutual Guarantee Funds they administer, bonds and guarantees in favor of their beneficial members, giving preference in the issuance of guarantees to those lines of credit promoted by protective members or direct contributors to the funds;

• 2)

  Provide training, technical and financial advice, as well as related services to beneficial members;

• 3)

  Make investments in accordance with what is stipulated in the present Law and the regulations issued for such purpose by the Commission;

• 4)

  Constitute deposits in financial institutions supervised by the Commission;

• 5)

  Contract rebonds for the bonds and guarantees granted to beneficial members;

• 6)

  Accept all types of guarantees from beneficial members in accordance with the current legal framework; and,

• 7)

  Enter into agreements with financial institutions to facilitate access to credit for their beneficial members. Any other operation not contemplated in the above items and that refers to operations that the Company may perform in accordance with its nature shall require authorization from the Commission.

VALIDITY OF GUARANTEES. For purposes of the State Contracting Law and its Regulation, the guarantees granted by the Mutual Guarantee Fund Administration Companies, backed by the corresponding FGR, shall be considered valid.

CONTINGENT ASSETS. Matters relating to contingent assets shall be governed according to what is established by the Financial System Law, the provisions of the Commission, and other applicable legal provisions.

PROHIBITIONS ON MUTUAL GUARANTEE FUND MANAGEMENT COMPANIES. Mutual Guarantee Fund Management Companies shall not:

• 1)

  Grant direct credits;

• 2)

  Invest more than ten percent (10%) of their capital in organization expenses and initial installation of the company. Such expenses shall be amortized over a period not less than five (5) years;

• 3)

  Invest more than forty percent (40%) of their capital and capital reserves in furniture, equipment, and real estate. This percentage may be modified by the Commission;

• 4)

  Grant endorsements, bonds, and other guarantees, charged to the Mutual Guarantee Funds administered, to natural and/or legal persons who are not beneficiary partners;

• 5)

  Grant guarantees supported by the company's own assets;

• 6)

  Grant indeterminate guarantees, charged to the Mutual Guarantee Funds administered, in neither amounts nor terms;

• 7)

  Grant, charged to the Mutual Guarantee Funds administered, guarantees and endorsements exceeding the limits established for such purpose by the Commission;

• 8)

  Capture resources from the public; and,

• 9)

  Grant, with own resources of the SA-FGR or Mutual Guarantee Funds administered, credits or other forms of financing to public or private entities, directly or indirectly, that are not contemplated as permitted investments within the prudential regulations issued by the Commission for such purpose.

SYSTEM FOR THE CONTROL OF GUARANTEES GRANTED. SA-FGRs shall have a technological and information system for the registration of guarantees granted, with mention of the amounts, characteristics, and term of the guaranteed debt and the amount of its coverage, for each of the funds, as well as the dates of granting and maturity thereof. CHAPTER VI OF OTHER OBLIGATIONS

OTHER OBLIGATIONS. Mutual Guarantee Fund Management Companies shall comply with the standards issued by the Commission regarding internal and external auditing, accounting, and presentation and publication of financial statements. TITLE III OF MUTUAL GUARANTEE FUND REINSURANCE COMPANIES

REINSURANCE SERVICES. Mutual Guarantee Fund Management Companies shall reinsure the portfolios of endorsements and bonds granted on account of the Mutual Guarantee Funds they administer, with Mutual Guarantee Fund Reinsurance Companies, national or supranational, legally constituted and eligible for the Commission.

CREATION AND OBJECTIVES. Mutual Guarantee Funds are created, which shall have as their purpose to support the operations carried out by Mutual Guarantee Fund Management Companies and to promote the development of productive activities of MSMEs, social housing, and technical-professional education. Said Funds shall be constituted with resources from entities of the State of Honduras, awards or other institutions of the public or private sector, national or foreign, and they shall be administered exclusively for the purposes provided in this Law. The SA-FGRs that are constituted shall accompany their application with the documentation required by this Law, as well as the development and management of the Mutual Guarantee Funds that they intend to administer.

RESOURCES. The patrimonial resources of the different Mutual Guarantee Funds shall be comprised of:

• 1)

  The initial contribution of protecting partners and other public or private entities, national or foreign;

• 2)

  Additional contributions, voluntary contributions, and donations from national or foreign entities directly related to the objectives of the Mutual Guarantee Funds administered;

• 3)

  The technical reserves required by this Law; and,

• 4)

  The surpluses resulting from the operations of the Mutual Guarantee Funds administered.

POWERS AND OBLIGATIONS OF SA-FGRs WITH RESPECT TO THE FUNDS THEY ADMINISTER. The powers and obligations of SA-FGRs are:

• 1)

  Prepare and approve the internal regulations for the administration of the Mutual Guarantee Funds administered, which must be in accordance with the guidelines established by the Commission. The SA-FGR may delegate the preparation of the Regulations to one or more Technical Committees constituted in accordance with the provisions of the Bylaws;

• 2)

  Ensure that the guarantees granted are not directed to refinance credit operations classified adversely by financial intermediaries;

• 3)

  Prepare and approve the annual operating and investment budget of the Mutual Guarantee Funds administered;

• 4)

  Administer the financial resources of the Mutual Guarantee Funds administered, with absolute transparency, responsibility, and efficiency;

• 5)

  Prepare and approve the financial statements of the Mutual Guarantee Funds administered;

• 6)

  Contract annually the external auditor to audit the operations of the Mutual Guarantee Funds administered;

• 7)

  Monitor the evolution of the Mutual Guarantee Funds administered, as well as the operations for reinsurance services contracted; and,

• 8)

  Comply with the other guidelines established in this Law and the standards issued by the Commission.

TECHNICAL SUFFICIENCY OF PREMIUMS. To guarantee the perpetuity and solvency of the FGRs they administer, SA-FGRs shall estimate the premiums to be charged to beneficiary partners in favor of the respective FGRs, taking into consideration the risk components, administrative expenses, and fund growth requirements based on live risk. The resulting premiums shall strictly comply with the following criteria:

• 1)

  Respect the principles of equity and sufficiency based on the rules of actuarial technique;

• 2)

  Be the product of the use of statistical information that meets requirements of homogeneity and representativeness; and,

• 3)

  Be adequately complemented by the technical and financial support of a reinsurance scheme. SA-FGRs shall establish differentiated premiums for each type of product they offer, for the different funds they administer, and for risk characteristics, which shall comply with the aforementioned rules.

SOLVENCY CAPITAL RATIO. Mutual Guarantee Fund Management Companies shall comply with the solvency ratio for each of the funds it administers, which in no case may be less than twelve percent (12%), in accordance with the regulations issued by the Commission for such purpose. The Commission may review and update every two (2) years the solvency ratio of the Mutual Guarantee Funds administered.

PROVISION RESERVES. To strengthen the solvency of the Mutual Guarantee Funds, Mutual Guarantee Fund Management Companies shall establish the necessary provision reserves in accordance with the technical requirements established in the regulations issued by the Commission. TITLE V TRANSITORY PROVISIONS

SUPPORT AND INITIAL CAPITALIZATION FOR THE DEVELOPMENT OF THE SYSTEM. In order to promote the creation and operation of the system, the first Mutual Guarantee Fund Management Company shall be responsible for the administration of the following Funds:

• 1)

  FUND FOR MICRO, SMALL, AND MEDIUM-SIZED ENTERPRISES: Constituted by the transfer made by the Honduran Bank for Production and Housing (BANHPROVI), in the amount of Forty Million Lempiras (L.40,000,000.00);

• 2)

  FUND FOR SOCIAL HOUSING: Constituted by the contribution made by the Regime of Private Contributions (RAP), in the amount of Forty Million Lempiras (L.40,000,000.00); and,

• 3)

  FUND FOR TECHNICAL AND HIGHER EDUCATION: Constituted by the universities that operate legally in the country to promote educational credit. Educational centers oriented to technical and professional training may deduct from the tax established in Article 6 of the Law for the Strengthening of Income, Social Equity, and Rationalization of Public Spending, sanctioned by Decree No. 17-2010 of April 22, 2010, the contributions made to a technical-professional education fund administered by an SA-FGR. The proportion of capital contributions established in Article 14 for protecting partners shall not be applicable to those Institutions that by Law are limited to participating in commercial companies, in which case their contribution shall be credited one hundred percent (100%) to the fund or funds of their choice.

ALTERNATIVE REINSURANCE MECHANISMS: While there are no Mutual Guarantee Fund Reinsurance Companies, the Commission may approve alternative reinsurance mechanisms such as trusts of technical reserves in administration or others that it considers applicable. TITLE VI FINAL PROVISIONS

CONTRIBUTIONS FOR SUPERVISION: The Mutual Guarantee Fund Management Companies and Mutual Guarantee Fund Reinsurance Companies established in this Law shall contribute to the budget of the Commission, in the form and percentage that it establishes.

SANCTIONS. Violations of the provisions of this Law and other applicable regulations shall be sanctioned by the Commission, in accordance with what is established in the Law of the Financial System and in the standards established for such purpose.

PROMOTION. The promotion of this Law shall be the responsibility of the Secretary of State in the Offices of Industry and Commerce through the Undersecretary of Micro, Small, and Medium-Sized Enterprises in coordination with the National Council of MSMEs.

EFFECTIVE DATE. This Law shall enter into force as of its publication in the Official Gazette La Gaceta. Given in the city of Tegucigalpa, municipality of the Central District, in the Session Hall of the National Congress, on the fifteenth day of the month of November of two thousand eleven. JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT RIGOBERTO CHANG CASTILLO SECRETARY GLADIS AURORA LÓPEZ CALDERÓN SECRETARY To the Executive Power. Therefore: Let it be executed. Tegucigalpa, M.D.C., 25 November 2011. PORFIRIO LOBO SOSA PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICE OF INDUSTRY AND COMMERCE. JOSÉ FRANCISCO ZELAYA