The Presidents/Chief Executive Officers,
All Microfinance Banks

Dear Sirs/Madams,

Revision in Prudential Regulation G-2

In exercise of the powers vested under the relevant provisions of Microfinance Institutions Ordinance 2001, the State Bank of Pakistan is pleased to amend the Prudential Regulation G-2 for Microfinance Banks (MFBs) issued earlier vide AC&MFD Circular No. 03 dated June 10, 2014, to read as under;

“MFBs shall pay a reasonable and appropriate remuneration to their Board members, as per the following parameters:

a) Board shall constitute a ‘Remuneration Committee’ with well-defined objectives, authority and tenure to formulate a comprehensive and transparent Remuneration Policy that shall be approved by the shareholders on pre or post facto basis in the Annual General Meeting.

b) Remuneration shall be fixed in Pakistani Rupees invariably; nevertheless, payment of the same can be made to foreign directors in equivalent foreign currency, where necessary.

c) While determining remuneration of a Board member (including the Chairman) for attending a Board and/or its committee meeting(s) following limits shall be observed:

Category	Parameters to Determine Category	Maximum Limits of Remuneration for a Board/ Committee meeting
		Independent Directors	Other Non-Executive Directors
First	Those MFBs which have Asset size of above Rs. 25 billion or After Tax Profit of above Rs. 250 million (As per last audited annual accounts)	Up to Rs. 200,000	Up to Rs. 50,000
Second	All other MFBs which do not fall in the first category		Up to Rs. 25,000

These are the maximum remuneration limits. Microfinance Banks may determine remuneration of their Board members (including the Chairman) taking into consideration their own governance structure, the level of responsibility & expertise of the concerned directors while remaining within the maximum limits as per their respective category and other instructions given in this circular. Further, the remuneration limits along with thresholds for assets size and profitability defined in above table will be reviewed by SBP after every three years.

d) Traveling, boarding and lodging expenses of a Director for attending Board and/or its committee meeting(s) shall be paid by the MFB at actuals. In this regard, the Remuneration Policy shall clearly specify the parameters for such expenses whereby additional costs should be borne by the concerned Director.

e) MFBs shall also ensure that no additional payments or perquisites are paid to the Non-Executive Directors and Chairman except as mentioned in above clauses.

f) The Executive Directors will only be paid usual TA/DA as per MFBs’ standard rules and regulations.

g) The Remuneration Policy shall ensure that remuneration to Directors commensurate with their qualification, experience besides responsibilities assigned and performance thereto.

h) The Remuneration Policy should outline performance indicators to evaluate performance of Board members and adequately envisage provisions for accountability of Directors for their conduct according to the scope of their responsibilities and scale of remuneration.

i) No consultancy or allied work shall be awarded to a Director or to the firm(s), institution(s) or company(ies) etc. in which he individually and/or in concert with other Directors of the same MFB, holds substantial interest.

j) Administrative expenses pertaining to the office, staff and security allocated to the Chairman, if so required, should be determined rationally.

k) The remuneration and other benefit/facility provided to the Board members, shall be disclosed in the annual financial statements in a proper and transparent manner.”

2. All MFBs are advised to ensure meticulous compliance of the revised instructions within six months of the issuance of the Circular. The non-compliance shall attract punitive action under relevant provisions of the Microfinance Institutions Ordinance, 2001.

3. Please acknowledge receipt.