The State Bank of Pakistan (SBP) has withdrawn the general provision requirements for loans extended by micro-finance banks (MFBs) against gold or other cash collateral. In case of all other loans, SBP has reduced the general provision requirement for MFBs by 50 basis points.
"It has been decided to withdraw the general provision requirements wherein loans have been secured against gold or other cash collateral with appropriate margin," said AC&MFD Circular Letter No 01, issued to all micro-finance banks on Friday. Further, in case of all other loans, micro-finance banks henceforth will have to maintain general provision of 1 percent, instead of the current requirement of 1.5 percent, the Circular Letter added.
After this amendment in Prudential Regulation for micro-finance banks (MFBs) pertaining to General Provisioning Requirements, the pressure on minimum capital requirement and capital adequacy ratio of MFBs will ease. Peviously, MFBs could not take benefit of gold and cash collateral while meeting the general provisioning requirement which was 1.5 percent for the entire loan portfolio.
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