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of March 3, 2011 No. 35

About approval of the Development strategy of the non-bank financial market for 2011-2014 and the Action plan on strategy implementation of development of the non-bank financial market for 2011-2014

The parliament adopts this ordinary law.

Art. 1. - Approve:

a) The development strategy of the non-bank financial market for 2011-2014 provided in appendix 1, being integral part of this law;

b) The action plan on strategy implementation of development of the non-bank financial market for 2011-2014 provided in appendix 2, being integral part of this law. 

Art. 2. - National commission on the financial market:

a) provide strategy implementation of development of the non-bank financial market for 2011-2014 and the Action plan on strategy implementation of development of the non-bank financial market for 2011-2014;

b) provide to Parliament information on the course of realization of this Strategy within the annual report on the activities and on functioning of the non-bank financial market.



Appendix 1

The development strategy of the non-bank financial market for 2011-2014

The development strategy of the non-bank financial market for 2011-2014 (further - Strategy) determines the directions of development of the non-bank financial market in the Republic of Moldova for the specified period and the main measures for achievement of the planned purposes. Strategy is developed for the purpose of realization of the tasks determined by the National development strategy on 2008-2011,ú«ñá, the Strategy of investment attraction and promotion of export for 2006-2015 and the Program of activities of the Government "The European integration: Freedom, Democracy, the Welfare" for 2011-2014.

Components of the non-bank financial market are the security market, the insurance market, the sector of microfinancing (including savings and loan associations and the microfinancial organizations), leasing companies, non-state pension funds, bureau of credit histories.


1.1. Market development of securities

1. Promotion of economic reforms in the Republic of Moldova aimed at creation of the infrastructure corresponding to the principles of market economy which basic element is the security market. In market development of securities it is possible to allocate the following stages:

a) 1992-1994 - creation of the industry legislation (temporary) and the infrastructure of the market corresponding to process of mass privatization (privatization investment funds and trust companies) and also creation of state body on regulation of the security market, State commission on the security market;

b) 1995-1996 - implementation of process of mass privatization (exchange of checks of national property for shares of the privatized companies, completion and registration of the second share issue of privatization investment funds and reorganization of these funds in classical funds), and also forming of infrastructure of the security market (creation of institute of independent registrars, nominal owners, appearance of financial intermediaries - broker companies, organization of Stock exchange of Moldova and the beginning of its activities);

c) 1997-1999 - implementation of process of distribution of the privatized property [strengthening of private property and identification of real owners (majority)]; creation of the industry legislative and regulatory base; organization of the National securities depository integrated into trade system of Stock exchange of Moldova; creation of the National commission on securities as independent public regulating authority of the security market and to supervision of it;

d) 2000-2009 - continuation along with implementation of process of distribution and strengthening of property of active implementation of process of redistribution of property; enhancement of the legislative and regulatory base; changes of infrastructure of the security market, including liquidation of the investment funds (exception of such type of activity as investment funds) which did not meet expectations of shareholders on dividend payout and expectations of real production sector on investment attraction.

2. Quantitative development of the primary market (market segment where there are issue of securities and their distribution among the first owners) began with the process of mass privatization of the state companies accompanied with reorganization of the companies in joint-stock companies in 1995-1999. The analysis of development of the primary market shows that in the last 10 years the tendency of growth of amount of issues (the chart 1) is not observed.

 исунок 1 к Закону от 03.03.2011 №35

During the period from 1999 to 2009 1516 issues of securities in amount about 11,0 of one billion lei were registered.

Growth of amount of issue in 2004 and 2007 is explained by implementation of issues by bank institutions and companies of the energy sector that is not characteristic of determination of tendencies of development of the primary security market.

Reducing amount of issue of securities is caused by many factors among which - completion of investment plans by investors, pribretshy share of the state in the course of privatization, concentration of controlling stocks in hands of individuals or affiliated group of persons that leads to decrease of the attractiveness of investments both on primary, and in the secondary market.

3. Uneven development is observed also in the secondary security market (segment of the market on which there are security transactions). During 1999-2009 security transactions in amount of 11,0 of one billion lei were performed. The tendency of growth of amount of transactions was planned only in 2006-2008, having reached the maximum level in 2008 - 2193,5 of one million lei that is caused also by growth of amount of transactions of purchase and sale with blocks of shares of public property (the chart 2).

 исунок 2 к Закону от 03.03.2011 №35

The amount of stock exchange transactions for 1999-2009 made 4,9 of one billion lei, or 44% of all amount of transactions. Thus, the off-exchange sector prevails over the stock exchange market, except for 2003 and 2007 when the share of stock exchange transactions constituted respectively 58% and 66%.

4. The economic crisis negatively influenced also the security market: in 2009 the amount of issue of securities was reduced in comparison with previous year by 21%, and amount of transactions - in time 3,5. At the same time the registered earlier large volumes of issues or security transactions in most cases are result of change of the legislation on the sizes of the authorized capital, and also interest of foreign investors in banking sector. It is obvious that the permanent growth of the security market is impossible.

5. According to experts of the International Monetary Fund and World Bank, the security market reflects privatization processes in the Republic of Moldova, has fragmentary character and differs in the limited level of activity in the primary market, and also insignificant amounts of secondary market transactions.

The structure of the security market was created as a result of mass privatization of state-owned property as a result of which the large number of minority shareholders and limited number of the shareholders holding controlling stocks in joint-stock companies was registered. Shares and shareholders appeared as a result of distribution of property shares from state-owned property, but not as a result of investment of own income in the capital market. Practically the security market has no large operators, such as institutional investors and effective managing directors of investments. The range of the financial instruments used in implementation of transactions in the security market is limited and includes actually only common and preferred shares.

6. Now the security market has infrastructure which includes the Stock Exchange of Moldova (SEM), the National Securities Depository (NSD), 10 independent registrars, 21 brokers/dealers, 2 companies on trust management of investments and 4 companies on securities valuation. Infrastructure of the domestic market in general corresponds to the structural models existing in other security markets: the controlled market is provided to FBM, clearing and calculations for stock exchange transactions are provided to NDTsB, account of owners of securities is kept by independent registrars. FBM is the single stock exchange in Moldova, it consists of 21 members, 10 of which are independent broker companies, and the others 11, commercial banks.

Listing of FBM includes less than 20 joint-stock companies, but about one thousand societies are registered at the exchange for implementation of transactions. The electronic system of implementation of security transactions, now in use only for security transactions, issued in the form of shares acts on FBM. This system needs to be used also for implementation of transactions with other financial instruments (government securities, bonds, derivative securities, etc.).

Transactions by calculations of the money relating to security transactions are performed through the single clearing bank. It is also necessary to solve problem of integration of NDTsB into the Automated system of interbank calculations. Besides, NDTsB shall assume functions of maintaining the register of owners of securities.

7. Thus, the insufficient level of development of the security market is determined by the following factors: lack of public issues and liquid financial instruments, absence of institutional investors, insufficient use of the advanced information technologies, low degree of trust to investment into financial instruments and into development of the corporate relations.

1.2. Insurance market development

8. Private sector development in insurance field began after adoption of law on insurance No. 1508-XII upon June 15 1993, year which established procedure for activities in the market of insurance on the basis of private property.

The sector of insurance is characterized by high growth rates. Insurers expanded network of sales on places through official representations which role consists in informing prospective clients on value and need of insurance.

9. Tendencies of market development of insurance in the Republic of Moldova are determined by number of the indicators characterizing service quality, rendered by local insurance companies, and also financial opportunities of these organizations for accomplishment of the assumed liabilities. In the sector of insurance 24 licensed insurance companies and 45 brokers are effective now. Net assets of the insurance companies constitute more than 800 million lei.

For 1999-2009 the amount of the added insurance premiums increased in time 7,3, and the paid insurance indemnities, in time 6,5 (the chart 3).

 исунок 3 к Закону от 03.03.2011 №35

10. Despite high growth rates of amount of insurance premiums, the market of insurance it is developed poorly in comparison with the available potential and with the level of development in neighboring countries. Insurance penetration level (amount of insurance premiums in relation to gross domestic product) in national economy is characterized by still modest indicators, having reached % 1,36 in 2009 that there is much lower than the level of this indicator in the European countries (about 8%). The major factors which led to such situation are the low level of incomes per capita, underestimation of role of insurance, the lack of confidence of society in this sector, lack of prudential regulation, incomplete ensuring compliance with the legislation. Most the insurance companies are characterized by the insufficient level of capitalization and are operated by persons which do not have necessary professional training in insurance field.

Except for obligatory civil liability insurance of car owners, other segments of insurance are developed poorly. Practically there are no insurance of the household property and voluntary insurance of the civil responsibility, most the companies and organizations of real production sector, and also the budget sphere are not insured.

11. One of problems of development of the sector is the low level of life insurance which share constitutes only 6% of the total amount of insurance premiums whereas in the European countries it constitutes more than 50% and, thus, life insurance is the instrument of financial protection and reliable method of accumulating of means for the population, and also important capital source in the non-bank financial market.

12. The sector of insurance was affected by economic crisis: after nine-year continuous growth in 2009 in this sector decrease in amount of the added awards on % 2,5 in comparison with previous year was registered.

13. Adoption of law on insurance No. 407-XVI upon December 21 2006, year which establishes the regulatory basis of supervision corresponding to European Union directives was essential support in insurance market development, its transformation into one of basic elements of the financial sector. For realization of provisions of the specified law it is necessary to develop and approve the corresponding subordinate legislations.

Within the regulatory reform aiming at reduction of insurance field in compliance with international standards in 2006 the standard rate of the minimum authorized capital was increased to 15, by one million lei for insurers who will be registered after entry into force of this requirement, and for the acting insurers the period of gradual increase in the authorized capital within 5 years was established.

The requirement about increase in level of the authorized capital will promote ensuring financial stability of insurers, especially at the initial stage of their activities.

14. Obligatory element of the developed market of insurance are activities of insurance intermediaries whose role consists in improvement of quality of insurance services and ensuring their availability to consumers. Before entry into force of the Insurance law No. 407-XVI of December 21, 2006 activities of insurance brokers and insurance agents were not subject to licensing and supervision. As a result of introduction of amendments to the legislation licensing of activities of insurance brokers was entered and certain requirements to activities of insurance brokers and insurance agents are established.

15. Most insurance companies have no necessary statistical base and do not apply information systems to risks assessment and charge of insurance premiums, however the current market development of insurance is possible only in the conditions of use of the advanced information technologies for implementation of estimates, necessary in the course of insurance, and maintenance of the relevant statistical base.

The law on obligatory civil liability insurance for the damage caused by vehicles No. 414-XVI of December 22, 2006 regulates creation of the centralized database about car responsibility insurance that is the mandatory requirement for promotion of this class of insurance on the European space. Creation of the single database is important task of development of system of insurance, it will give the chance to provide effective supervision of observance of the current legislation (availability of the insurance policy, implementation of system bonus-malus, exception of false policies, etc.) and will allow to facilitate access for the interested person to information on existence of the policy of compulsory insurance of certain vehicle.

1.3. Development of the sector of microfinancing

16. The market of non-bank financial credit institutes (savings and loan associations and the microfinancial organizations) develops in the Republic of Moldova dynamically. Emergence and development of these organizations is dictated by need of financing in particular of the rural sector. The main objective of non-bank financial credit institutes is simplification of access for villagers to basic financial services, such as implementation of deposits and provision of loans, support of legal activities of members of associations for the purpose of improvement of their economic and social conditions.

Banks and other financial institutions have no branches and representations in the majority of settlements of the rural zone, and it means that services in crediting are unavailable to all categories of the population. The benefit of ssudosberegatelny associations in comparison with other financial institutions consists in approach of services to the user and lower price of the services rendered to the members.

17. In system of savings and loan associations 395 associations are effective now, and the number of their members exceeds 120 thousand that is 42 times more, than in 1998. The portfolio of the loans issued to members of associations constituted one million lei for the end of 2009 of 322,9 (the chart 4).

 исунок 4 к Закону от 03.03.2011 №35

Dynamic development of system of savings and loan associations in 2004-2008 was expressed also in considerable growth rates of number of loanees and investors, but influence of financial crisis led to fall in 2009 the number of loanees lower than the level of 2004 (the chart 5).

 исунок 5 к Закону от 03.03.2011 №35

The total amount of assets in 2009 constituted 366,2 of one million lei that in 3, it is more time, than in 2003 (the chart 6).

 исунок 6 к Закону от 03.03.2011 №35

18. The existing network of savings and loan associations not fully satisfies needs of members of associations for the financial resources depending substantially on external sources that does not allow to gain sufficient income for sustainable development which will allow to create attractive and reliable image of associations. Practically all deposits are short-term. Also about 70% of the loans allowed members of associations are short-term (up to one year). In 2009 the share of effective assets decreased in comparison with inefficient assets, having fallen by percent point 1,5 below the minimum level recommended by World Council of Credit Unions (WOCCU).

The negative impact on activities of savings and loan associations was exerted by economic crisis: in 2009, to year the amount of the issued loans was reduced in comparison with previous year by 36%.

19. Sustainable development of associations causes need of the solution of number of problems among which it is possible to note the following: big dependence on external sources of financing; insufficient professional training level of personnel of associations; the risk of non-return of the credits caused by the fact that all of them are concentrated in the specific sector dependent on climatic conditions and also the fact that about 90% of the credits have no warranties.

20. The microfinancial organizations in the Republic of Moldova are in stage of development and have high potential of growth. They appeared as alternative source of financing as commercial banks granted loans not to all categories of the population as, for example, to rural population and also because the procedure of loan granting is too difficult. The microfinancial organizations oriented the activities to expansion of access for individual entrepreneurs, and also small and medium scale enterprises to financial sources.

Legal position, features of creation and activities of the microfinancial organizations, conditions on protection of legitimate rights and interests of creditors, donors, clients, and also founders, participants and shareholders of the microfinancial organizations are established by the Law on the microfinancial organizations No. 280-XV of July 22, 2004. The microfinancial organizations act on the basis of the principles of ensuring financial stability in the sphere of microfinancing, ensuring transparency in activities for microfinancing and observance of the loyal competition.

21. Now in the Republic of Moldova perform activities of 35 microfinancial organizations. The portfolio of the loans issued by them constituted at the end of 2009 about 1,4, one billion lei, or is 3,1 times more, than in 2005 (the chart 7).

 исунок 7 к Закону от 03.03.2011 №35

The total volume of assets of the microfinancial organizations constituted in 2009 1933, one million lei, and net profit - 77,1 of one million lei that is 3,4 times more, than in 2006.

22. Strengthening of the sector of microfinancing will help financial support of administrative and territorial units, reducing poverty and stimulation of private initiative in the Republic of Moldova through development of trade, agricultural activities, the social sector, workmanship, local transport and other social and economic industries in the rural zone.


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