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Summary of Prudential Regulation-Microfinance Banks

The Pro Readers > All Articles  > Summary of Prudential Regulation-Microfinance Banks

Summary of Prudential Regulation-Microfinance Banks

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Summary of Prudential Regulation-Microfinance Banks

We have compiled Summary of Prudential Regulation-Microfinance Banks which is as follows:

Regulation R-1

Minimum Capital Requirement:

MFBs shall maintain a minimum paid up capital (net of losses) of below amounts.

Minimum Capital (Rupees)

Allowed to operate

1 Billion

Nationwide

500 million

Specific Province

400 million

Specific Region

300 million

Specific District

 

Capital Adequacy Ratio (CAR) = 15% of risk weighted assets of MFB.

Regulation R-2

Exposure against Contingent Liabilities

Period

Contingent Liabilities

First 3 years of operation

Not exceeding 3 times of its equity

Thereafter

Not exceeding 5 times of its equity

 

Regulation R-3

Maintenance of cash reserve and liquidity

Period

Contingent Liabilities

In the form of

Cash Reserve Requirement (CRR)

Not < 5% of demand and time deposits with tenor of < 1year

Current Account with SBP

Statutory Liquidity Requirement (SLR)

Not <10% of demand and time deposits with tenor of < 1year

Cash, Gold, unencumbered T Bills, PIBs and GoP Sukkuk

 

Regulation R-4

Statutory Reserve

Requirement

% of annual profit after tax

Until reserve becomes equal to paid up capital

20%

Thereafter

Not < 5%

  

Regulation R-5

Maximum loan size

As per circular reference AC&MFD Circular No. 02 of 2020 dated August 10, 2020 limits have been revised as follows:

Category

Maximum Size

Annual Income net of business expenses

General Loans

Upto Rs.350,000

Rs.1,200,000

Housing Loans

Up to Rs.3,000,000

Rs.1,500,000

Microenterprises*

Up to Rs.3,000,000

Not mentioned

 

*Microenterprises general loans above Rs.350,000 must be up to 40% gross loan portfolio.

Financing against Gold

Loan exposure on aggregate basis against the security of gold shall not be in excess of 50% of its gross loan portfolio.

This relaxation is available for 1 year period starting from Aug 10, 2020. Thereafter, 35% needs to be maintained within a maximum period of 1 year.

Regulation R-6

Maximum exposure of a borrower

As per circular reference AC&MFD Circular No. 02 of 2020 dated August 10, 2020 maximum exposure have been revised as follows:

Category

Maximum Size

General Loans

Up to Rs.350,000

Housing Loans

Up to Rs.3,000,000

Microenterprises

Up to Rs.3,000,000

 

Regulation R-7

Credit Report Check

If credit facility is > Rs.30,000 MFB is required to obtain CIB report.

Regulation R-8

Classification of assets and provisioning requirement

Specific Provision

Category

Number of days Loans (principal/mark-up) is overdue

Provisioning Requirement

Other Assets Especially Mentioned (OAEM)

30 days or more but less than 60 days

NIL

 

Substandard

60 days or more but less than 90 days

25% of *outstanding principal

Doubtful

90 days or more but less than 180 days

50% of *outstanding principal

Loss

180 days or more

100% of *outstanding principal

 

 

*outstanding principal shall be net of cash collaterals and gold that can be realized without recourse to a court of law.

Unrealized markup up

Unrealized markup up / interest / service charges on NPL to be suspended and credited to suspense account.

General Provision:

General Provision of 1% of outstanding advances (net of specific provision) is required to be maintained unless loans are secured against gold or other cash collaterals.

Regulation R-9

Rescheduling / Restructuring of loans

Approved BOD policy is required coving below;

  • Rescheduling / Restructuring should not be meant to break the timeframe or un-warranted improvement in classified category.
  • Mechanism needs to be place in order to verify genuineness of circumstances.
  • Rescheduling / Restructuring loans must remain classified for 6 months (excl. grace period) or 40% or more of the outstanding principal and accrued markup are received in cash.
  • If not recovered on revised maturity then directly classified as “losses”.
  • Relaxation to be given due to natural calamities.

 

Regulation R-10

Charging off / Write off NPLs.

One month after loan is classified as “Loss”

Regulation R-11

Classification of Investment

Classification

Holding Period

Revaluation Impact goes to

HTM

Till maturity

Recorded at Amortized cost if impaired charge off in P&L

HFT

Dispose off within 90 days

P&L

AFS

More than 90 days

OCI

 

 Valuation:

Quoted / Un-quoted

Nature of Securities

How valuation shall be done

Quoted

Government Securities

Through PKRV rates

Quoted

TFC and Mutual Funds

Through Market Value

Un-Quoted Securities

TFC and Mutual Funds

Through Amortized Cost

 

Regulation R-12

Investments of funds

Investment to be made in

% of investment is lower of

Government Securities, “A” rated debt securities like TFC and units of mutual funds

5% of share capital (free of losses) of MFB or

10% of paid up capital of the company in which investment is to be made

 

List of terms used with full form

Short Form

Full form

MFBs

Micro Finance Banks

T Bills

Treasury Bills

PIBs

Pakistan Investment Bonds

GoP

Government of Pakistan

TFC

Term Finance Certificate

CIB

Credit Information Bureau

NPLs

Non-performing Loans

OCI

Other Comprehensive Income

HTM

Held to maturity

HFT

Held for trading

AFS

Available for sale

 

Reference:

Prudential Regulation for Micro Finance Banks Updated June 10, 2014 can be downloaded from this link https://www.sbp.org.pk/acd/2014/C3-Annex.pdf

Circulars of 2020

https://www.sbp.org.pk/acd/2020/C2.htm

https://www.sbp.org.pk/acd/2020/C1.pdf

https://www.sbp.org.pk/acd/2020/CL1.htm

https://www.sbp.org.pk/acd/2020/CL2.htm

https://www.sbp.org.pk/acd/2020/CL3.htm

https://www.sbp.org.pk/acd/2020/CL4.htm

https://www.sbp.org.pk/acd/2020/CL5.htm

https://www.sbp.org.pk/acd/2020/CL6.htm

https://www.sbp.org.pk/acd/2020/CL7.htm

 

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Ali Murtaza

5 Comments

  • alphagull
    Reply January 22, 2021 at 15:31

    NICE ONE

    • Ali Murtaza
      Reply February 13, 2021 at 08:05

      Thanks, we are trying to improve.

  • Muhammad Faisal Ansari
    Reply February 26, 2021 at 12:32

    Wonderful, was looking to get the publish information.

  • Fazal Dharejo
    Reply October 22, 2021 at 17:48

    Very informative

  • Fazal Dharejo
    Reply October 22, 2021 at 17:49

    Clear and easy to adhere

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