Microfinance banks: New rules to help curb money-laundering

State Bank revises regulations to enable MFBs to improve governance.

KARACHI: The State Bank of Pakistan (SBP) has issued revised prudential regulations for microfinance banks (MFBs) to further improve their governance structure, consumer protection practices and anti-money laundering policies.

Presently, 10 MFBs are providing basic financial services to poor and low-income people in the country. These MFBs are well-capitalised and owned by diverse sponsors.

The revised regulations will enable the MFBs to prudently manage their operations in the wake of their recent business growth, technological innovations and market infrastructure improvements, the SBP said on Tuesday.

The regulations define the role and responsibilities of boards of directors, require induction of two independent directors and prescribe a fit-and-proper test for the appointment of key executives of MFBs.

MFBs are also required to improve their consumer protection policies through basic financial literacy programmes, enhanced transparency and disclosures, fair debt collection practices and an effective complaint addressing mechanism.

Similarly, MFBs will implement a comprehensive anti-money laundering framework, covering areas such as customer identification and verification requirements, on-going and enhanced due diligence, record retention and cash and suspicious transactions reporting in line with the standards prescribed by the Financial Action Task Force (FATF).

Furthermore, instructions in certain areas of risk management and operations have also been revised.

The revised regulatory framework is in line with the SBP’s efforts to promote long-term, sustainable and growth-oriented business models in the microfinance sector.

This will also help in further mainstreaming of microfinance in the overall banking system of the country.

Published in The Express Tribune, June 11^th, 2014.

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