The State Bank of Pakistan is responsible for the licensing, regulation, and supervision of Microfinance Banks (“MFB”) established under the Microfinance Institutions Ordinance (MFIs), 2001. In accordance with Section 13 of the MFIs Ordinance, 2001, no institution or individual may commence operations as Microfinance Bank without obtaining a license from the State Bank of Pakistan.
The licensing requirements for establishing MFB are categorized into two distinct types:
- Establishment of a new MFB
- Transformation of an existing Microfinance Institution (“MFI”) into an MFB
Licensing Requirements for establishing a new MFB
Minimum Capital Requirements
MFBs in Pakistan are categorized based on their operational reach, with specific capital requirements for each type:
- Nationwide MFB: PKR 1,000 million
- Province-wide MFB: PKR 500 million
- Region-wide MFB: PKR 400 million
- District-wide MFB: PKR 300 million
In addition to the minimum capital requirement, MFBs must maintain a Capital Adequacy Ratio (CAR) of at least 15% of their risk-weighted assets. To meet this, they are allowed to raise subordinated debt in local currency, subject to SBP’s prior approval.
Eligibility Criteria for Obtaining an MFB License
The following are eligible to apply for an MFB license:
- Institutions that have demonstrated success in microfinance operations locally or internationally.
- Institutions with an extensive distribution network or strong technological resources.
- Any individual or group, whether Pakistani or foreign nationals, possessing the necessary financial and managerial capacity along with a commitment to the financial sector, must first establish a Microfinance Institution (“MFI”) and operate it for a minimum of three years to qualify for an MFB license. However, in exceptional circumstances, the State Bank of Pakistan may consider granting an MFB license to individual sponsors with extensive experience in Microfinance, Agriculture Finance, SME Finance, or other related fields.
Application & Licensing Process
The applicant must first incorporate the proposed MFB as a public limited company under SECP regulations. A complete application is then submitted to SBP’s Banking Policy & Regulations Department according to the format provided at Annexure-I. the following documents/information shall also be submitted alongside the application.
- A commitment confirming subscription of the required capital.
- Detailed CVs of proposed directors and the Chief Executive in light of the Fit & Proper Criteria provided under the Prudential Regulation No. 26.
- Organizational structure of the proposed MFB.
- Commitment letters from the Sponsors/Directors, Chief Executive and Members of senior Management team to subscribe the committed capital and serve in their respective positions.
- Detailed CVs and job description of the senior management team.
- A comprehensive feasibility study based on an actual survey of the target market. The survey findings should demonstrate the viability of the microfinance banking proposal, as well as outline the product design and service delivery channels.
- A comprehensive work plan outlining strategies for mobilizing funds, with a particular focus on core deposits, to effectively support loans growth.
- Five-year financial projections based on realistic assumptions, accurately reflecting the sponsors’ capacity, sector’s conditions, and future outlook.
- Short-term and long-term business plans designed to support the financial projections, outlining the key features of the proposed business model, growth strategy, use of technology options, MIS and HR development.
- The draft Memorandum and Articles of Association alongside the proposed name of the MFB.
- A non-refundable processing fee of PKR 1,000,000.
- Transformation of an existing Microfinance Institution (“MFI”) into an MFB
SBP allows NGOs, Rural Support Programs (“RSPs”), and other MFIs to transform into MFBs. These institutions can contribute up to 50% of the required capital through their existing credit and other assets portfolio, subject to the review by a Chartered Accountancy Firm from amongst the SBP panel.
Information/Documents for submission
While MFI must submit the application according to the procedure provided above for the new MFB, the additional requirements have been listed below:
- The application should be duly filled in and signed by the person authorized by the MFI’s board.
- Institutional Assessment Report prepared and completed according to the guidelines provided by State Bank of Pakistan.
- Board Resolution to go for transformation along with its objectives.
- Detail of assets & liabilities to be transferred to the MFB. It is pertinent to note that the transfer shall be admissible at value assessed/determined by the audit/consulting team during the institutional assessment phase.
NOC for Incorporation with SECP
Once SBP evaluates the proposal and is satisfied with the applicant’s financial capacity, governance structure, and business model, it issues an NOC for the incorporation of the proposed bank as a public limited company. If concerns are raised, applicants are given time to revise their proposals.
Subsequent to receiving the NOC, SECP must be applied to by the sponsors for the incorporation as public limited company. After incorporation, the applicant submits the Certificate of Incorporation to SBP. Following clearance from security agencies and CBR etc., SBP shall grant the license.