April 2, 2021: In order to improve governance and risk management of Non-Banking Microfinance Companies (NBMFCs), the Securities and Exchange Commission of Pakistan (SECP) has proposed amendments to the Non-Banking Finance Companies and Notified Entities Regulations, 2008.
Amendments, intended to inculcate self-discipline amongst market players and enhance consumer protection, have been placed on SECP’s website to solicit public comments.
Alongside microfinance banks, the NBMFCs play a crucial role in achieving inclusive economic growth with their small-ticket loans and thus an important tool to reduce poverty. The sector has 26 operating NBMFCs with over three million active borrowers and a gross loan portfolio of Rs72 billion.
During the Covid-19 pandemic, the NBMFCs have faced serious sustainability challenges. However, SECP took timely decisions to enable NBMFCs to operate smoothly and provide relief to their respective microfinance clients. Further, the SECP made requisite changes to the prudential norms enabling the Pakistan Microfinance Investment Company Limited, an apex lender of the microfinance sector, to provide more subordinated debt to NBMFCs for strengthening their equity base. The pandemic situation, however, demonstrated that the resource base of many NBMFCs needed to be better managed to sustain such adverse situations. Hence, to address the challenges and to exploit the potential of the sector to leapfrog to a higher level of effectiveness, the SECP has proposed amendments addressing longer-term values for business continuity and sustainability such as governance, liquidity, risk management and credit underwriting.
SECP believes that the strengthened framework will help the adoption of an effective governance system, a robust risk management regime and implementation of institutionalized mechanisms of dealing with liquidity. The draft notification can be accessed at https://www.secp.gov.pk/document/sro-370-dated-29-3-2021-draft-amendments-to-the-nbfc-regulations-2008/