The Presidents/Chief Executives,

All Banks/MFBs,

Dear Sir / Madam,

Guidelines for Islamic Microfinance Business

Pakistan is among the few countries in the world, which has a separate legal and regulatory framework for Microfinance Banks. The framework allows microfinance and commercial banks to extend range of microfinance services to poor and low income people through various arrangements. With the growing popularity of Islamic Banking in the country, it was deemed necessary to provide options for provision of Islamic microfinance services by microfinance and commercial banks as well as allowing full fledged Islamic microfinance banks in the country.

2. Consequently, State Bank of Pakistan has formulated guidelines for provision of Islamic microfinance products and services by financial institutions which are attached as annexure to this circular. These guidelines are aimed at broadening the coverage of microfinance products and services to low income segments of the society in a Shariah compliant manner. These guidelines stipulate four types of institutional arrangements for offering Islamic microfinance viz:

1. Establishing Full Fledged Islamic Microfinance Banks (IMFBs)
2. Islamic Microfinance Services by Full-fledged Islamic Banks
3. Islamic Microfinance Services by Conventional Banks
4. Islamic Microfinance Services by Conventional Microfinance Banks (MFBs)

3. It must be taken into account that the criteria mentioned in these guidelines shall be in addition to the requirements already issued by SBP under respective category of financial institutions. These regulations and guidelines, by any means, are not replacing the regulations and guidelines already issued by SBP from time to time in this area.
4. Commercial and microfinance banks interested in building Islamic microfinance portfolio should review the different institutional/organizational arrangements and select, one or the combination of more than one mode, based on their organization structure, capacity and overall objectives.
5. Please acknowledge receipt.

Annexure