Leasing, Modaraba sectors: lending NBFCs being segregated into two entities: SECP

Securities and Exchange Commission of Pakistan (SECP) is revamping its regulatory structure for the leasing and Modaraba sectors in line with best international practices. "Lending NBFCs are being segregated into non-deposit-taking and deposit-taking entities with distinct regulatory requirements," said Commissioner Insurance at SECP, Fida Hussain Samoo.
He was addressing the launching ceremony of 'Year Book 2014' and distribution of Best Performance Awards of NBFI and Modaraba Association of Pakistan for 2014. SECP's executive director Shahid Nasim and director Tariq Soomro, chief executives of Modarabas, leasing and Takaful companies, investment banks, REIT and senior officials from other financial entities were present on the occasion.
The commissioner said SECP had taken initiative to review the entire regulatory structure and was in the process of revamping the existing regulatory framework for the NBF sector. After undertaking a thorough consultative process with the stakeholders, the SECP was now in a position to introduce significant structural changes for improving NBF sector. He said an opportunity for Islamic NBFCs was also being provided to cater for growing needs of Islamic finance in the country.
Another important step, he said, was the introduction of a framework that would cater for the non-banking microfinance institutions that were currently not regulated. "Housing finance companies are now also proposed to be permitted to undertake commercial housing finance activities," Samoo said.
Moreover, he said, prudential regulations for Modarabas had been revised to better align their operations. "The proposed NBF regulatory framework would be helpful in developing and promoting the NBF sector in order to diversify the inherent systematic risk and to enhance the resilience of the financial system by increasing outreach and penetration especially for the micro, small and medium enterprises," the SECP official said.
Earlier, Chairman NBFI and Modaraba Association of Pakistan Muhammad Shoaib Ibrahim said despite facing challenges like limited resource mobilisation, lack of a level-playing field, liquidity problem, minimum equity issues, sales tax and federal excise issues and levy of alternate corporate tax, the NBFI and Modaraba sector had progressed and posted Rs 2 billion profit during last five years.
While the profit of leasing firms had shown 18 percent growth, 17 of the total 25 Modaraba companies had declared a cash dividend of 1.5-50 percent. The equity base of Modaraba sector, he said, had swelled to Rs 14 billion in 2014 from Rs 10 billion in 2009.
Basheer A Chowdry, former Chairman of the Association, lauded the clear classification of NBFCs into lending entities, fund management entities and advisory entities. He said a distinction created between deposit taking and non-deposit taking NBFCs, introduction of various levels of advisory functions, private funds, micro financing and Islamic NBFCs would significantly mould the future and culture of the entire sector.
He said that proposed changes may be implemented in the context of functional practicalities and transitional capacity of those who have to go through the process of change. He said it will help make NBFI sector a vibrant and significant contributor to the economic development of the country. Meanwhile, Samoo gave away awards to Allied Rental Modaraba, ORIX Leasing Pakistan Limited, First Habib Modaraba and Standard Chartered Modaraba for an outstanding performance in 2014. The entry of two Sindh Bank's subsidiaries, Sindh Leasing Company Limited and Sindh Modaraba, added Rs 1.450 billion to the Association's paid-up capital.