MFBs sponsor shares now to be deposited with CDC: SBP issues new instructions

The State Bank of Pakistan (SBP) on Saturday instructed sponsor shareholders of microfinance banks to deposit their sponsor, bonus and right shares in a blocked account of Central Depository Company. The SBP further directed sponsor shareholders of microfinance banks (MFBs) not to withdraw the sponsor shares from CDC blocked account without prior written permission of SBP.
Previously, sponsor shares of MFBs were in the custody of SBP. The above instructions have been issued by SBP in exercise of the powers conferred under Section 22 of the Microfinance Institutions Ordinance 2001. In this regard the Banking Policy & Regulations Department of SBP has issued BPRD Circular No 09 for the implementation of these directions.
Under Section 10 (2) of the Microfinance Institutions Ordinance, 2001 which states that "Not less than fifty-one percent of the paid up capital of a microfinance institution shall be subscribed by the promoters or sponsor members and the shares subscribed to by the promoters or sponsor members shall remain in the custody of State Bank and shall neither be transferable nor encumbrance of any kind shall be created thereon without prior permission, in writing, of the State Bank".
However, now SBP has decided that the sponsor shares and subsequently issued bonus/right shares issued to sponsors of Microfinance Banks (MFB) shall be deposited in the Central Depository Company of Pakistan Ltd (CDC). "All sponsor shares and subsequent right and bonus shares, including those deposited with SBP Banking Services Corporation (BSC), would be deposited in a blocked account with the CDC," SBP said in the circular.
No withdrawal of the sponsor shares from CDC blocked account would be allowed without prior written permission of SBP, it added. SBP has directed that blocked account should be opened by the sponsor shareholders of MFBs exclusively for deposit of the sponsor shares and subsequently right and bonus shares issued thereon and charges for opening and operating of the blocked account with CDC will be borne by the sponsor shareholders.
However, SBP has made it clear that these instructions will not be applicable to the shareholding of Federal and Provincial governments in MFBs. Explaining the "sponsor shares" SBP said that sponsor Shares mean 5 percent or more paid-up shares of an MFB, acquired by a person(s) individually or in concert with his family members (including his spouse, lineal ascendants and descendents and dependents brothers and sisters), group companies, subsidiaries, and affiliates/associates.
In addition, such acquisition of shareholding will include all the shares acquired by aforesaid person (s) including, interalia, through (a) as original subscriber/promoter of the MFB, (b) subsequent right / bonus issues; (c) market based acquisition deal, (d) reconstruction/ restructuring of an MFB carried out by SBP, (e) strategic sale through privatisation, (f) amalgamation of MFBs, or (g) any other mode of acquisition. All shares acquired by common shareholders, who are also sponsor shareholders of amalgamating MFB in amalgamation transaction shall be considered Sponsor Shares.
While, sponsor Shareholders mean all those shareholders of an MFB holding sponsor shares. The members of the Board of Directors of an MFB holding sponsor shares will be considered Sponsor Directors, SBP added. SBP has advised all MBFs to ensure meticulous compliance of these instructions. SBP has issued following Procedure for deposit of sponsor shares into a blocked account with CDC.
FOLLOWING PROCEDURE SHALL BE FOLLOWED BY MFBS FOR DEPOSIT /TRANSFER OF SPONSOR SHARES IN CDC ACCOUNT:
1. The existing sponsor shareholders who have already deposited their shares with SBP BSC shall:
a) Open account (sub-participant account or investor account) at CDC exclusively for depositing sponsor shares and subsequent bonus and right shares.
b) Confirm the account number to SBP through company secretary of the MFB.
c) On receipt of above confirmation, SBP will allow the withdrawal of shares deposited with SBP BSC for deposit with CDC.
d) The MFB shall confirm the deposit of sponsor shares in the CDC account within 15 days of release of shares by SBP.
2. The prospective sponsor shareholders shall open CDC account (sub-participant account or investor account) and confirm the account number to SBP through Company Secretary of the MFB at least 15 days prior to issuance/transfer of shares. Further, they shall arrange for confirmation of submission of shares in CDC account within 3 (three) days of issuance of shares.
3.The existing sponsor shareholders of MFBs shall either open a new account with CDC or identify an existing account and confirm the same through Company Secretary of the MFB to SBP by June 15, 2009 along with schedule for transfer of sponsor shares in the account by July 31, 2009.