In order to improve the governance and risk management of the 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.
The amendments that were intended to inculcate self-discipline among the market players and to enhance consumer protection have been placed on the SECP’s website to solicit public comments.
Alongside the microfinance banks, the NBMFCs play a crucial role in achieving inclusive economic growth with their small-ticket loans, and are, thus, an important tool in the reduction of poverty.
The sector has 26 operational NBMFCs with over three million active borrowers and a gross loan portfolio of Rs. 72 billion.
The NBMFCs have been facing serious sustainability challenges during the COVID-19 pandemic but the SECP took timely decisions to enable them to operate smoothly and to provide relief to their microfinance clients.
Furthermore, 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 to strengthen their equity base.
The pandemic situation, however, demonstrated that the resource base of many NBMFCs needed better management to sustain such adverse situations. Hence, to address their 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 like governance, liquidity, risk management, and credit underwriting.
The SECP believes that the strengthened framework will help with the adoption of an effective governance system, a robust risk management regime, and the implementation of institutionalized mechanisms of dealing with liquidity.
The draft notification can be accessed here.