SBP grants Islamic banking licence to microfinance bank

KARACHI: The central bank has paved the way for microfinance institutions to embark on Islamic banking by first time allowing a microfinance bank to offer Shariah-compliant services, which, analysts said may lead to reduction in exorbitant interest rates on microcredit.
The State Bank of Pakistan (SBP) allowed National Rural Support Programme (NRSP) Microfinance Bank to provide Shariah-compliant banking services on pilot basis.
“NRSP Microfinance Bank Limited has been allowed to start Islamic microfinance operations as a pilot-run project for six months,” said Abid Qamar, chief spokesman at SBP.
“However, the licence will be issued after successful completion of pilot-run and the fulfillment of other conditions.”
Bahawalpur-based NRSP Microfinance Bank Limited, which started operations in March 2011, mainly serves farmers across 61 districts across the country.
Bankers said the licence is a part of the central bank’s strategy to promote financial inclusion and development of the Islamic finance as alternative and compatible system in the country.
“Under Islamic microfinance, customers will have an opportunity to pay low mark-up,” said Nadeem Hussain, chief executive officer at Tameer Microfinance Bank.
“Microfinance loans are expensive for borrowers, who are small entrepreneurs and households. The operational cost of microfinance providers [banks] is relatively higher compared to the conventional lenders, as they generate funds from the commercial banks.”
Microfinance institutions charge 20 to 30 percent of interest rates on loans.
Currently, there are 44 microfinance providers operating in the country. Of that, 10 are microfinance banks, six rural support programmes, 16 specialised microfinance institutions and 12 are run by non-government organisations.
Microfinance banks, accounting for major 56 percent share, were serving 3.32 million customers through 507 branches as of March 2015. Their advances stood at Rs41.20 billion and deposits at Rs42.48 billion.
Bankers said with Islamic microfinance licences, the microfinance institutions will have diverse funding bases.
“There is a huge demand for the Islamic microfinance, especially in the rural areas, on account of its interest-free philosophy,” Hussain said.
Industry’s players foresee more microfinance banks and institutions to enter the Islamic financial market soon. Some are likely to convert their business into Islamic one and some may start Islamic microfinance through separate window operations.