SBP revises regulations for microfinance banks

KARACHI: The State Bank of Pakistan (SBP) has revised prudential regulations for the microfinance banks in light of business growth and technological innovations in the sector, a circular said.

These regulations establish minimum standards for governance, operations, consumer protection and risk management to ensure the financial stability and sustainability of microfinance banks, the SBP said in a circular issued on Friday.

The SBP has taken into account the unique dynamics and evolution of the microfinance sector and has adopted a ‘proportional’ regulatory approach to foster both innovation and stability. The guiding principle has always been to find a balance between inclusion and prudence.

“In view of business growth and technological innovations in the sector, the SBP has further strengthened the regulations in areas of governance, consumer protection and operations to help microfinance banks (MFBs) to manage the expected higher level of growth in future,” it said.

According to the SBP, microfinance banks are required to maintain a minimum paid-up capital (after accounting for losses) of at least Rs2 billion. Existing banks, regardless of their category, must increase their minimum paid-up capital to at least Rs2 billion in a phased manner.

These banks must adhere to a capital adequacy ratio (CAR) of at least 15 per cent of their risk-weighted assets and must maintain a cash reserve requirement in the form of balances in their current accounts with the SBP.