SBP issues guidelines for micro-financiers

Instructions permit lenders to use alternative funding sources.

KARACHI: State Bank of Pakistan (SBP) has allowed microfinance providers (MFPs) to mobilise funding from non-bank sources or capital markets under the microfinance credit guarantee facility (MCGF) by issuing revised guidelines on MCGF to all commercial banks, development finance institutions (DFIs) and microfinance banks, according to a circular released on Thursday.

The revised guidelines on MCGF stressed upon MFPs to explore other local currency funding opportunities such as raising capital by issuance of redeemable capital from the capital market, thereby enhancing the funding availability and diversification of sources.

However, it has been observed that funding requirements of microfinance banks and institutions have been partially met by banks and DFIs. The revised guidelines have been issued with a view to further ease the funding constraints of the microfinance sector.

SBP advised all institutions to finalise their funding deals under the MCGF and submit their cases to SBP Banking Services Corporation for issuance of guarantee as per procedure envisaged in the guidelines.

MCGF, a credit enhancement facility, offers 25% first loss or 40% partial guarantee coverage to banks. It is focused on market development and significantly helped in reducing risk-perception of banks towards the microfinance sector.

Published in The Express Tribune, June 22^nd, 2012.