The Presidents / Chief Executive Officers,

All Commercial Banks

Dear Sirs,

Guidelines for Commercial Banks to Undertake Microfinance Business

Microfinance is an important area for broadening and deepening of financial services particularly to poor and low income people. Pakistan is one of the few countries in the world, which has a separate legal and regulatory framework for Microfinance Banks. The framework allows MFBs to extend range of microfinance services including savings and payment transfer facilities to the marginalized people and their micro enterprises.

In this regard, to facilitate the downscaling financial services of the commercial banks, State Bank has prepared guidelines for them to provide Microfinance services under four different modes which include,

1. establishment of MF counters in the existing branches,
2. designating stand alone MF branches either through conversion of existing branches or opening new MF branches,
3. establishing independent MF subsidiary with independent and professional board and management under MFIs Ordinance 2001 and
4. developing linkages with MFBs licensed by SBP and NGO-MFIs that are not licensed by SBP to extend wholesale funds for onward lending.

Each mode has its merits which have been discussed in the guidelines. The commercial banks interested in building MF 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.

The MF operations of commercial banks through MF Counters at conventional branches, Standalone MF branches and wholesale funds to NGO-MFIs will be subject to Prudential Regulations issued separately under Banking Companies Ordinance 1962 for commercial banks undertaking microfinance. However, MF operations through establishment of independent MF subsidiary, with independent and professional board and management, will be governed under MFIs Ordinance 2001 and Prudential Regulations applicable on Micro Finance Banks. The guidelines for undertaking microfinance services are given at annexure A.

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