Money laundering, terror financing: SBP helps MFBs strengthen internal controls, NA panel told

The State Bank of Pakistan (SBP) has provided active guidance to Microfinance Banks (MFBs) to further strengthen their internal controls and deterrence towards money laundering, terrorist financing and other related unlawful activities.

According to a brief on microfinance institutions submitted by the SBP to the National Assembly Standing Committee on Finance Thursday, MFBs are regulated by the SBP under the Microfinance Institutions Ordinance 2001 and SBP's Prudential Regulations for MFBs. The Non-Bank Microfinance Institutions (NBMFIs) are regulated by Securities and Exchange Commission of Pakistan (SECP).

Furthermore, the SECP introduced separate regulatory framework to regulate NBMFIs by making necessary amendments in the current regulatory framework for Non-Banking Finance Companies (NBFCs). In this connection, NBFCs have been allowed to undertake microfinance business and a new class of NBFCs i.e. Non-Bank Micro Finance Companies (NBMFCs) has been introduced. During FY 2019, besides initiatives aimed at enhancing financial inclusion, the government/ State Bank of Pakistan (SBP) provided active guidance to microfinance banks (MFBs) to further strengthen their internal controls and deterrence towards money laundering, terrorist financing and other related unlawful activities.

At the close of quarter ended December 2018, around 44 institutions reported provision of microfinance services. These included 11 deposit taking microfinance banks (MFBs), one Islamic banking institution while others were non-bank microfinance companies (NBMFCs).

On a year to year basis, the sector was able to expand its retail business network to 4,239, adding 566 new business locations as of December 2018 compared to the last year.

The initiatives for promotion of microfinance revealed that the SBP has allowed MFBs to open accounts of Afghan refugees holding Proof of Registration (PoR) Cards, issued by NADRA as acceptable identity document

The SBP has also enhanced the lending limits under 'Housing Finance' for MFBs by increasing the maximum loan size from Rs 500,000 to Rs 1,000,000.

The federal government vide Second Supplementary Finance Bill 2019, has announced that with effect from 1st July 2019, reduced rate of taxation @ 20 percent (instead of 35 percent) on interest income of Banking Companies from additional advances to micro, small and medium enterprises; and low cost housing finance and farm credits for four years (from Tax Year 2020 to Tax Year 2023) subject to fulfillment of certain conditions. This would further encourage MFBs to extend credit to priority sectors.

To provide relief to adversely affected borrowers in eight calamity-affected districts of Sindh, microfinance banks were advised to undertake all possible measures in line with the Prudential Regulation R-9 - Rescheduling/Restructuring of Loans.

The Pakistan Microfinance Network (PMN) is the national association for retail players in the microfinance industry with a membership of microfinance providers including microfinance banks (regulated by SBP) and non-bank microfinance companies (regulated by SECP). PMN works in three principal areas i.e. serves as an information hub for the industry, promotes an enabling environment, and capacity building, the SBP added.

Copyright Business Recorder, 2019