MICROCAPITAL BRIEF: Microfinance Institutions in Pakistan to be Registered as Non-Banking Financial Companies, Regulated by Securities and Exchange Commission

The Securities and Exchange Commission of Pakistan (SECP) recently announced plans to bring all non-deposit taking microfinance institutions (MFI) and related nongovernmental organizations (NGO) under the non-banking finance company (NBFC) framework in an effort to improve the regulation and monitoring of their activities. These microfinance providers will have a lower minimum paid-up capital requirement than other NBFCs, whether they operate as for-profit or nonprofit organizations. The State Bank of Pakistan (SBP) will continue to monitor and regulate MFIs that accept deposits. In addition, existing NBFCs currently operating as leasing companies or investment finance companies now may apply for microfinance business licenses [2].

The new framework also involves establishing a three-tier system for addressing borrower grievances: the retail institution; an industry-led body; and a government body at the final level.

A statement from SECP argues that regulating these institutions under the NBFC framework will improve transparency and reduce risks, thereby attracting more commercial equity investment into the industry [1].

By Sharanya Madhavan, Research Associate

About Security and Exchange Commission Pakistan

The Securities and Exchange Commission of Pakistan (SECP) was established in 1997 under the SECP Act to serve as the country’s financial regulatory agency in an effort to foster economic growth. SECP supervises the regulation of the corporate sector, capital markets, insurance companies, non-banking finance companies and private pensions. It also oversees service providers to the corporate and financial sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers and surveyors. As of 2016, Muhammad Zafar-Ul-Haq Hijazi serves as the chairman of SECP.

Sources and Additional Resouces

[1] Business Recorder: SECP to bring MFIs under framework of NBFCs

[2] The News: Non-banking microfinance regulations introduced

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