KARACHI: The State Bank of Pakistan (SBP) on Thursday allowed microfinance providers (MFPs) to mobilise funding from non-bank sources / capital market under the microfinance credit guarantee facility (MCGF) by issuing revised guidelines to all banks / development finance institutions (DFIs) / microfinance banks (MFBs), a statement said.
The revised guidelines on MCGF stressed upon the MFBs / MFIs to explore other local currency funding opportunities, such as raising capital by issuance of redeemable capital from the capital market, thereby, increasing the funding availability and diversification of sources, it said.
According to the SBP, it will encourage the microfinance providers, the microfinance banks and the microfinance institutions, to mobilise local currency funding from banks / development finance institutions (DFIs) for lending to microfinance borrowers to enhance microfinance outreach, it said. However, it has been observed that the funding requirements of MFBs / MFIs were partially met by banks / DFIs, it added.
The revised guidelines have been issued with a view to further easing the funding constraints of the microfinance sector, the statement said.
The SBP has also advised all banks, DFIs and MFPs to finalise their funding deals under the MCGF and submit their cases to the SBP Banking Services Corporation (SBP BSC) for issuance of guarantee as per the procedure envisaged in the revised guidelines on MCGF, it said.
The microfinance credit guarantee facility is a credit enhancement facility to attract long-term and market-based finance for microfinance institutions. The central bank has launched MCGF in December 2008 with £10 million funding support from the UK Department for International Development (DFID) under the £50 million financial inclusion programme (FIP), which is being managed by the State Bank, the statement said.
The facility offers 25 percent first loss or 40 percent partial guarantee (pari passu) coverage to banks. It is focused on market development and has significantly helped reduce the risk-perception of banks towards the microfinance sector, thus, introducing poor borrowers to mainstream financial institutions, the SBP said.
The facility has successfully overcome some funding constraints of the microfinance providers, as 15 guarantees have so far been issued mobilising private capital of over Rs4 billion from commercial banks for onward lending to around 200,000 new poor and low-income borrowers, it said.
As such the facility is now well-positioned to mobilise non-bank financing from the capital market and further diversifying sources of financing for micro borrowers, it added.
The revised guidelines on MCGF have been issued by the SBP through AC&MFD’s circular. This supersedes all earlier instructions / guidelines issued in this regard, it added.