Please refer to the Prudential Regulations for Microfinance Bank (MFBs) issued vide AC&MFD Circular No. 03 dated June 10, 2014 and subsequent revisions vide AC&MFD Circular No. 02 of 2015, AC&MFD Circular No. 03 of 2017 and AC&MFD Circular No. 01 of 2019.

2.    In order to enable MFBs to serve financing needs of the low-income segments, it has been decided to revise Regulation R-5 to up-scale the maximum loan sizes; revise borrowers’ eligibility criteria for various micro loans; allow lending against gold for consumption; and enhance portfolio ceiling for lending against gold up to 50% of gross loan portfolio. Further, the Regulation R-6 has been revised to enhance the maximum permissible exposure per borrower. The revised Regulations R-5 & R-6 shall be read as under;

Regulation R-5: Maximum Loan Size and Eligibility of Borrowers

Maximum loan sizes and borrowers’ income eligibility criteria shall be as under;

1. General Loans (Other than housing loans):
   

   The maximum size for general loans shall be up to Rs. 350,000/- to a poor person with annual income (net of business expenses) up to Rs. 1,200,000/-.

2. Housing Loans:
   

   The maximum size for housing loans shall be up to Rs. 3,000,000/- to a single borrower with annual income (net of business expenses) up to Rs. 1,500,000/-.

   Further, while assessing income eligibility on individual borrowers (including salaried person) for housing & general loans, MFBs shall ensure that the total installment of the financing facilities extended by the financial institutions is commensurate with monthly income and repayment capacity of the borrower, such that total monthly amortization payments of financing facilities should not exceed 50% of the net disposable income of the prospective borrower. These measures would be in addition to MFBs’ usual evaluations of each proposal concerning credit worthiness of the borrowers, to ensure that their portfolio fulfills the prudential norms, instructions issued by the State Bank of Pakistan and does not impair the soundness and safety of the MFB itself.

3. Loans to Microenterprises:
   

   The maximum size for microenterprise loans shall be up to Rs. 3,000,000/- to a single project or business. The MFBs shall extend the microenterprise loans only in the name of micro entrepreneurs to ensure traceability and reduce the incidence of multiple borrowing. However, the aggregate exposure against the microenterprise loans in excess of ceiling prescribed for general loans shall not exceed 40% of the MFB’s gross loan portfolio.
   
   Pre-requisites for Undertaking Microenterprise Lending
   
   Only those MFBs that are fully compliant with Minimum Capital Requirement (MCR) and Capital Adequacy Ratio (CAR) shall be eligible to undertake microenterprise lending.

   1. MFBs interested to extend microenterprise loans exceeding ceiling prescribed for general loans shall develop related institutional capacity (products, credit risk management and monitoring system, trainings etc.) and submit its detailed business plan of microenterprise lending to SBP for seeking necessary approval for pilot program. The SBP shall inter-alia evaluate the plan along with operational/financial performance, funding plan, supervisory assessment, and credit rating of the MFB, and accordingly grant permission for launching pilot program to the applicant MFB.

   2. Moreover, during the pilot phase MFBs will have to ensure that their aggregate exposure against the microenterprise loans in excess of ceiling prescribed for general loans shall not exceed 20% of the gross loan portfolio. The final approval for undertaking microenterprise lending on full/commercial scale shall be granted subject to satisfactory evaluation of pilot program.

   3. The enhanced loan size (up to Rs. 1,000,000/- and Rs. 3,000,000/- respectively) will be allowed to those MFBs which have graduated from pilot microenterprise lending programs (up to Rs. 500,000/- and Rs. 1,000,000/- respectively) to commercial scale. However, prior to extending microenterprise loans exceeding Rs. 500,000/- and Rs. 1,000,000/- MFBs shall apply to this department for approval. SBP shall grant approval for pilot/commercial launch based on satisfactory assessment of the capital position and readiness level of the applicant MFB.

4. Consumption Financing Against the Security of Gold:
   

   In line with SBP’s instructions issued vide AC&MFD Circular No. 02 of 2015 (Annexure I, Para-2), MFBs may also extend loans against gold collateral for consumption purposes categorized as domestic needs/emergency loan. Moreover, the aggregate loan exposure of a MFB against the security of gold shall not exceed 50% of its gross loan portfolio. The above relaxations shall expire after one year from the date of issuance of these instructions. Thereafter, MFBs shall reduce their aggregate loan exposure against the security of gold to 35% within a maximum period of 1 year.

Regulation R-6: Maximum Exposure of a Borrower from MFBs/MFIs/Other Financial Institutions

The maximum limits of the borrowers’ aggregate exposure shall not exceed Rs. 350,000/- for general loans, Rs. 3,000,000/- for housing loans, and microenterprise loans. The aggregate exposure of the borrowers who are eligible to avail both general and microenterprise loans shall not exceed Rs. 3,000,000/-.

The MFBs shall develop an internal mechanism to monitor the overall exposure of their borrowers to manage credit risk and minimize the risk of borrowers’ over indebtedness. At the time of granting facility, MFBs shall obtain a written declaration on the prescribed format attached as Annexure - C from the borrower disclosing details of various facilities already obtained from other MFBs / MFIs / Banks / other Financial Institutions. The MFBs shall ensure that total exposure of their clients does not exceed their total repayment capacity as determined under the criteria laid-out in the MFBs’ credit policy

3.    The aforesaid revisions shall come into force with immediate effect.

4.    Please acknowledge receipt.