SECP caps profit rate for online microloans

ISLAMABAD The Securities and Exchange Commission of Pakistan (SECP) on Monday announced new rules for non-banking financial companies (NBFCs) that offer online microloans, capping the profit rate and limiting the rollover of loans.

The SECP said the move was aimed at promoting responsible lending and consumer safety, as well as enhancing financial inclusion in the country. "The regulations, which came into effect on Monday, set a maximum limit for the profit rate that can be charged by a nanolender to the borrower, as well as a total cost cap that includes all associated fees and charges," the SECP said in a statement. "The cumulative price of a loan shall not exceed the aggregate amount of the principal loan amount."

The SECP also restricted the rollover of loans, which is the practice of extending the repayment period by paying additional fees or interest. "The circular specified the formulas and illustrations for calculating the profit rate and the brief illustration of a loan contract."

The SECP said it was actively evaluating and adapting policies to improve financial access and combat manipulative business practices.

"The measures, developed through consultation with stakeholders and industry participants, aim to balance financial inclusion and consumer protection against excessive debt burden." Online microloans, also known as nanoloans, are small, short-term loans that are typically offered through digital platforms such as mobile applications or websites. They are often used by low-income or unbanked segments of the population who lack access to formal credit sources.