Gross loan portfolio of Rs500m or more: SECP tells NBMFCs to follow risk management guidelines

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has directed the Non-Bank Microfinance Companies (NBMFCs), having a gross loan portfolio of Rs500 million or more, to follow guidelines on risk management, which provide minimum benchmark of best practices.

The SECP has issued an SRO 1605 (I)/2021, here on Tuesday to amend Non-Banking Finance Companies and Notified Entities Regulations, 2008.

The NBMFCs shall formulate and implement a comprehensive funding and liquidity management policy duly approved by its board to ensure that it has funding from well-diversified sources for its sustainability and meeting social and performance objectives.

The regulations said that the NBMFCs shall devise and implement a comprehensive risk management framework duly approved by its board to identify, assess, and prioritize risks, develop strategies to measure risk, design operational policies and procedures to mitigate risk, implement and assign responsibilities, test effectiveness, evaluate results and revise policies and procedures, where required.

The NBMFCs would ensure that the risk management framework comprehensively covers all risks, including credit, operational and market risks, to which the company is exposed and encompasses the scope of risks to be managed, determine risk tolerance limits and have flexibility to accommodate any change in business activities.

The NBFCs would design risk management tools and approaches that respond to their specific clients, lending methodologies, operating environments, and financial and social performance objectives and develop contingency plans duly approved by its board to effectively deal with stress situations.

A NBMFC shall formulate and implement a comprehensive funding and liquidity management policy duly approved by its board to ensure that it has funding from well-diversified sources for its sustainability and meeting social and performance objectives, the SECP said.

A NBFC shall ensure that its funding sources are well diversified including equity, sponsors’/donors’ funding, subordinated loans, commercial finance, debt instruments issued through capital markets and other sources; (b) its funding mix has a good balance of short-term, medium-term and long-term funds in line with the overall funding policy; (c) its borrowings including subordinated debt from a single source as a percentage of total assets is not more than the specified limits, the SECP added.

Copyright Business Recorder, 2021