State Bank revises regulations for microfinance banks

KARACHI: The State Bank of Pakistan (SBP) on Thursday revised a range of regulations for microfinance banks such as up-scaling maximum loan sizes upto Rs350,000 for general loans and Rs3,000,000 for housing loans to serve financing needs of the low-income segments.

Under the revised rules, the SBP allowed lending against gold for consumption and enhanced portfolio ceiling for lending against gold by up to 50 percent of gross loan portfolio.

The maximum size for general loans (other than housing loans) would be up to Rs350,000 to a poor person with annual income (net of business expenses) up to Rs1,200,000, the SBP circular said. Housing loans would be up to a maximum of Rs3,000,000 to a single borrower, with annual income (net of business expenses) up to Rs1,500,000.

“Further, while assessing income eligibility on individual borrowers (including salaried person) for housing and general loans, the microfinance banks (MFBs) would ensure that the total instalment of the financing facilities extended by the financial institutions is commensurate with monthly income and repayment capacity of the borrower, such that total monthly amortization payments of financing facilities should not exceed 50 percent of the net disposable income of the prospective borrower,” it said.

According to the revised regulations, the maximum size for microenterprise loans would be up to Rs3,000,000 to a single project or business.

The MFBs are required to extend the microenterprise loans only in the name of micro entrepreneurs to ensure traceability and reduce the incidence of multiple borrowing. However, the aggregate exposure against the microenterprise loans in excess of the ceiling prescribed for general loans should not exceed 40 percent of the MFB’s gross loan portfolio, the SBP circular added.

The central bank made clear that only those MFBs that were fully compliant with minimum capital requirement and capital adequacy ratio would be eligible to undertake microenterprise lending.

The SBP advised MFBs interested to extend microenterprise loans exceeding the ceiling prescribed for general loans to develop related institutional capacity (products, credit risk management and monitoring system, trainings etc) and submit its detailed business plan of microenterprise lending to the SBP for seeking necessary approval for pilot programme.

The central bank also allowed MFBS to extend loans against gold collateral for consumption purposes categorized as domestic needs/emergency loans.

Moreover, the aggregate loan exposure of a MFB against the security of gold shall not exceed 50 percent of its gross loan portfolio.

The above relaxations would expire after one year from the date of issuance of these instructions. Thereafter, MFBs would reduce their aggregate loan exposure against the security of gold to 35 percent within a maximum period of 1 year, it was notified.