SBP allows MFBs to lend micro-enterprises up to Rs 0.5m

[Salman]

SBP allows MFBs to lend micro-enterprises up to Rs 0.5m



KARACHI: The State Bank of Pakistan (SBP) has decided to allow Microfinance Banks (MFBs) to lend to micro-enterprises any amount up to Rs 500,000.

This decision of SBP will help in addressing the credit needs of a large micro-enterprise market, which has traditionally remained unbanked, and will also provide an opportunity to microfinance banks to upscale their credit operations. Earlier, MFBs were allowed to lend up to Rs 150,000 for general purpose loans to individuals.

With a view to improving access to finance for micro-enterprises the SBP has amended Prudential Regulations 10 and 11 for MFBs pertaining to ‘Maximum Loan Size, and Disclosure of Basic Terms and Conditions of Financial Products’, and ‘Maximum Exposure of a borrower from MFBs/MFIs/other Financial Institutions/NGOs’.

For the purpose of the above-mentioned regulations, the term ‘micro-enterprise’ shall mean projects or businesses in trading, manufacturing, services or agriculture sectors that lead to livelihood improvement and income generation. Moreover, these projects and businesses are undertaken by micro-entrepreneurs who are either self-employed or employ few individuals not exceeding 10 (excluding seasonal labour).

The aggregate exposure of a borrower who is eligible to avail both general and micro-enterprise loans shall not exceed Rs 500,000. Further, MFBs shall restrict their exposure under micro-enterprise lending at maximum 40 percent of their gross loan portfolio ensuring a fair share of lending to each economic segment of the target market.

MFBs shall apply to AC&MFD director for seeking approval of SBP before undertaking ‘micro-enterprise’ lending. SBP shall grant approval based on satisfactory assessment of the capital position and readiness level of the applicant MFB, says AC&MFD Circular No 02.

MFBs shall henceforth also obtain CIB reports for all types of credit facilities on mandatory basis, the circular said and added that MFBs shall ensure meticulous compliance of the above instructions and non-compliance shall be dealt with in accordance with the provisions of the Microfinance Institutions Ordinance, 2001.