KARACHI: In a major move to facilitate small borrowers, the State Bank of Pakistan (SBP) on Saturday withdrew requirements for written declarations and credit information report for loans from microfinance banks (MFBs).
The SSP introduced changes to prudential regulations for microfinance institutions to simplify requirements for obtaining a credit information report (CIR) and simplify documentary requirements from microfinance borrowers.
This step aims to enhance the role of microfinance institutions in accelerating economic activities and creating greater opportunities for small borrowers. Earlier, MFIs were required to obtain written statements from the borrowers about the facilities they have already obtained from other financial institutions.
“However, since licensed credit bureaus (LCBs) are able to provide a comprehensive CIR to individuals/borrowers, so this requirement has been withdrawn to avoid duplication,” SBP said. “This would achieve efficiency and simplify the loan approval process by reducing the documentary requirements of borrowers.”
The microfinance industry faces many challenges such as insufficient regulatory framework, ad hoc competitiveness, lack of innovative and diversified products, profitability, market stability, and limited management capacity of microfinance institutions.
Both SBP and the government believe that MFBs can help eliminate rising unemployment and poverty by offering an attractive microfinance package to increase employment and income. This can provide the basis for this sector to stimulate the growth of the economy, empower women, increase the volume of finance and facilitate access, etc.
Similarly, earlier microfinance banks were required to have a mandatory credit report from SBP’s eCIB for all credit facilities above Rs 30,000.
“Since LCBs are able to offer blanket CIRs to their members consisting of all banks, MFBs and non-bank microfinance companies (NBMFCs), the mandatory requirement for an inquiry from SBP’s eCIB has been withdrawn.” .
She added that this amendment would allow MFIs to make an independent decision on obtaining a financial reporting rate (CIR) for borrowers, regardless of loan size.
MFBs’ obligation to report to SBP’s eCIB has also been streamlined along with the harmonization of related terminology with the Credit Bureaus Act 2015, according to SBP.
Multinational banks remained at the top of the market and saw their market share in terms of active borrowers increase from 48 percent in the previous year to 50 percent by the end of 2019.
Earlier, the Credit Bureau Act (CBA) 2015 was enacted to provide the basis for the establishment and operation of credit bureaus in Pakistan. Under the Bank Credit Act, authorized credit bureaus provide a comprehensive CIR to financial institutions for individuals/borrowers to make informed decisions, borrowers’ creditworthiness and debt sustainability.
Posted in Dawn, December 12, 2021