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The
State Bank of Pakistan’ mission is to promote monetary and financial stability
and foster a sound and dynamic financial system, so as to achieve sustained and
equitable economic growth and prosperity in Pakistan. Its primary functions
include issue of notes, regulation of the financial system, lender of the last
resort, and conduct of monetary policy. SBP secondary functions include the
management of public debt, management of foreign exchange, advising the
Government on policy matters, anchoring payments system, and maintaining close
relationships with international financial institutions. Responsibilities of the
State Bank of Pakistan go well beyond the conventional functions of a Central
Bank, by including the economic growth objective in its statute, supporting the
development of new financial institutions to promote financial intermediation.
SBP has also directed the use of credit according to development priorities,
providing subsidized credit.
The government first major involvement in microfinance was the promulgation of the Khushhali Bank Ordinance in 2000, to establish the Khushhali Bank (KB), under joint ownership of 16 commercial banks (3 public sector, 11 private sector, and 2 foreign banks). As Pakistan financial regulator, SBP has been entrusted by the MFIs ordinance 2001 for the licensing, regulation and supervision of Microfinance Banks (MFBs). SBP is the implementing agency for strengthening supervision and regulation under the Rural Finance Sector Development Program
SBP is also in charge of special funds of more than US$70 million to lend support to microfinance sector and provide risk mitigation mechanism to the poor depositors and borrowers of microfinance banks. The Microfinance Sector Development Fund (MSDF) of a value of US$40 million finances the social mobilization and community capacity building costs of Khushhali Bank/licensed MFIs provided KB/licensed MFIs outsource these functions to eligible NGOs. The MSDF, the largest of the four MSDP funds, does not only finance some of the operational cost of licensed MFIs but also provides an opportunity to the NGOs to work in partnership with MFIs and gradually develop their capacity to apply for an MFIs license. The Community Investment Fund (CIF) of a value of US$20 million provides matching grants to community organizations, availing microcredit facilities from KB/licensed MFIs, for building small infrastructure projects of common interest. Both CIF and MSDF are endowment funds with their resources invested in Government securities and only the interest revenues earned on the funds’ investments are used for the objectives and purposes of the funds. The Risk Mitigation Fund (RMF) of a value of US$ 5 million provides coverage to KB borrowers against risk of failure of enterprises/loss of income generating assets acquired through KB loans due to natural calamities. The Depositors’ Protection Fund (DPF) also valuing US$ 5 million provides coverage to KB depositors in case of its liquidation. Presently all these four funds are opened to microfinance banks.
The Government has also allocated some funds for extending institutional strengthening grants to licensed microfinance banks, under the Microfinance Sector Development program (MSDP) which is funded by a loan from the ADB. Presently, grants equivalent to 2.5% of paid-up capital of licensed MFIs are available to new licensed MFIs on first come first serve basis.
A New Bank Fund (NBF) of US$15 million has also been established at SBP under the Rural Finance Sector Development Program (RFSDP). Funded through an ADB loan, it extends grants and soft loans to district and province based MFIs. The Fund is likely to be operational by first quarter of 2004 and will encourage the emergence of MFIs in rural areas, especially at the provincial and district levels, and to facilitate the delivery of microfinance services to the lowest segment of the rural finance markets.
Still under the RFSDP, the central bank is expected to support Institutional Strengthening which include (i) reviewing the prevailing regulatory policy, systems, and framework for rural finance; (ii) upgrading and formulating guidelines, operational procedures, and standards for off-site and on-site inspection, supervision, and reporting; (iii) assessing human resource, skills, and IT requirements; (iv) installing basic IT infrastructure, facilities and equipment; and (v) providing training and skills development.
The Microfinance Institutions ordinance was enacted in 2001, regulating the establishment of microfinance banks in the private sector. The MFIs Ordinance 2001 stipulates the functions, capital requirements, ownership structure, terms and conditions for establishing microfinance banks (MFBs) or microfinance institutions in the country. The provisions of the ordinance are applicable to microfinance institutions mobilizing savings from the public to finance their operations. The framework allows the establishment of three categories of formal microfinance banks, with minimum paid-up capital required:
·
Nation
wide MFBs: Rs. 500 million
·
Province
wide MFBs: Rs.250 million
· District wide MFBs: Rs.100 million
NGOs and other microfinance providers can bring their loan portfolio to contribute to up to 50% to the capital requirements.
The
State Bank of Pakistan has also defined a separate set of Prudential Regulations
for microfinance banks in consultation with stakeholders and microfinance
practitioners, covering various areas of operations of microfinance banks with
the objective to ensure sound risk management systems in the microfinance banks
as well as requiring them to remain focused on their core market, i.e. the poor
and micro enterprises. The prudential regulations prescribe guidelines/limits on
capital requirements, creation of reserves, loan & Investments
classification and provisioning requirements, exposure limits, reporting
requirements and punitive measures on non-compliance of instructions.
The
State Bank of Pakistan has encouraged the entry of private sector institutions
into microfinance through an enabling environment. Thanks to the regulatory
framework in place, the First Microfinance Bank and the Khushhali Bank have been
established.
As
a Central Bank, SBP is very active and involved in microfinance, provides direct
on-lending to microfinance providers while assuming the traditional functions of
financial regulator.
Moreover,
SBP also provides guidelines for mobile banking operations for microfinance
banks, as well as the different forms of financial statements for MFIs.
State
Bank of Pakistan web site: www.sbp.org.pk
SBP
prudential regulations http://www.sbp.org.pk/bprd/index.htm
State
Bank of Pakistan information documents.
