Pakistan's first Collateral Management Company (CMC) is expected to be operational by March 2020. The Chairman, Securities and Exchange Commission of Pakistan (SECP) Aamir Khan and the Commissioner, Securities Market Division, Shauzab Ali chaired a crucial meeting, of all stakeholders to finalise operational modalities collateral management companies, that to be licensed by the SECP.
Representatives of State Bank of Pakistan (SBP), commercial banks, Pakistan Mercantile Exchange Limited (PMEX), Central Depository Company (CDC), Pakistan Agriculture Coalition (PAC), insurance companies and warehousing companies attended the meeting. The meeting aimed at discussing various issues at length prior to operationalization of the first CMC.
The SECP, in July this year, had notified Collateral Management Companies Regulations, 2019, under the Companies Act, 2017. According to regulations, "Any public limited company with an equity of Rs200 million or higher will be eligible to seek the permission of SECP to register as a collateral management company."
The collateral management companies will provide storage and preservation services for a range of agricultural commodities and will issue credible warehouse receipts for agricultural commodity financing.
These companies will also carry out stock audits, as well as accreditations and inspections of warehouses. Such accreditations will be based on an evaluation of relevant documents including, but not limited to, an evidence of ownership/lease documents of warehouse, certificate of compliance of warehouse with the applicable local laws, security and insurance arrangements and presence of all necessary equipment for loading/unloading, weighing, drying and handling commodities.
"The meeting discussed various things including development of standardised insurance products for warehouse operators, development of SOPs for CMC, amendments in prudential regulations of SBP to make warehouse receipts acceptable collateral, development of standardised agreements between banks and CMC, etc," the SECP spokesperson Musarrat Jabeen told.
The meeting also discussed to protect lenders rights, in case of default by borrower or warehouse operator, what recourse is available to banks/lenders, obligations of CMC need to be properly spelt out, moreover, insurance should cover all possible perils so that the lender/depositor is adequately protected.
"It is envisaged that the collateral management ecosystem shall revolutionise the agriculture sector and provide myriad benefits including but not limited to reduction in post harvest losses," the spokesperson said adding that a well-designed warehouse receipt system will enable development of modern storage infrastructure for agriculture commodities which could save billions of rupees and make the agriculture sector more competitive.
The adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh had emphasised in a meeting held few days back to introduce formal commodity management and Warehouse Receipt Financing System that is essential to address the issue of post-harvest losses and enhance the farmers' access to agriculture credit.
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