Securities and Exchange Commission of Pakistan (SECP) Chairman Aamir Khan has said that the technology-enabled non-banking finance companies (NBFCs) have collectively reached out to over 365,000 new borrowers, with cumulative disbursement of over Rs 6 billion so far.
Addressing a virtual event on the launch of Karandaaz report, “NBFCs in Pakistan – Regulatory Landscape and Bottlenecks” on Thursday, SECP Chairman highlighted measures taken to address the liquidity challenges of NBFCs. In this regard, the SECP has always encouraged the NBFCs to tap the capital markets as a source of long-term liquidity, instead of singularly focusing on bank credit lines.
The event was also addressed by Waqas ul Hasan, CEO Karandaaz Pakistan and Dr. Shamshad Akhtar, Chairperson Karandaaz Pakistan.
The SECP has been able to garner the support of the Ministry of Finance and the State Bank of Pakistan for the inclusion of NBMFCs and HFCs as Executing Agents in the Kamyab Pakistan Program. Two NBMFCs, namely, NRSP and Akhuwat Islamic Microfinance, have so far disbursed over Rs 5 billion to approximately 28,000 borrowers.
He said that the most significant concern for NBFCs’ commercial viability stems from their high-cost structure brought about by limited capacity for resource mobilization and extensive reliance on credit lines from banks. Secondly, inability thus far, to leverage an increasingly digitalized financial ecosystem; and exclusion from government and central bank-backed concessionary funding.
These factors have constricted the growth of NBFCs in Pakistan, and have been a contributing factor in our inability to match the ambitious targets set in the National Financial Inclusion Strategy.
Chairman SECP said that the NBFCs should not try to emulate banks, and instead focus their efforts on developing a deeper understanding of different customer segments, such as the MSMEs, not served by traditional financial institutions.
Secondly, NBFCs need to embrace digitalization, and move away from an exclusively brick and mortar approach. The use of data science has revolutionized the financial industry, as analytical tools and modelling algorithms allow service providers to gain valuable insights into market dynamics, customer needs, competition, and risks. The use of data science is one of the areas NBFCs need to focus on, as given their structure, they have the flexibility to take calculated risks and venture into areas not catered by banks, such as micro and small businesses.
Thirdly, there is an urgent need for sound liquidity management. Fourthly, NBFCs should focus on co-branding and collaboration with established operators in other industries such as banking, Insurance, Real Estate Developers, cellular companies, etc., to use their services and outreach for offering value-added solutions.
Also, the NBFCs must up-tier their product suites, to create customer-focused products, such as leasing of machinery for SMEs, Agri and livestock sectors, Agri-produce warehousing, rental of agricultural machinery, and distribution of crop insurance, supply of fertilizer, quality seeds, and providing crop and weather information.
There is also immense potential in the space of consumer financing as most of the population does not have access to formal credit.
The improved governance standards are paramount for NBFCs to establish themselves as a viable and strategic part of the financial services ecosystem. NBFCs need to develop a deep understanding of their target market, the broader risk implications, and develop appropriate risk mitigation strategies on a scientific basis, to account for changing market dynamics, and to continue to evaluate their business models backed by solid research, SECP Chairman said.
Through proactive support and help extended to the Ministry of Finance and Karandaaz Pakistan, the SECP has granted permission for the formation of National Credit Guarantee Company Limited as an NBFC, Aamir Khan added.
