SBP scale-up maximum loan sizes of MFBs, allows loans against gold collateral

The State Bank of Pakistan (SBP) on Thursday has scaled up the maximum loan sizes of the Micro Finance Banks (MFBs), allowed lending against gold for consumption, and has also enhanced portfolio ceiling for lending against gold up to 50pc of the gross loan portfolio.

The revisions were made to enable MFBs to serve financing needs of the low-income segments, said SBP.

Under the latest revisions, maximum loan sizes and borrowers’ income eligibility criteria shall be as under;

General Loans (Other than housing loans):

The maximum size for general loans shall be up to Rs. 350,000/- to a poor person with an annual income (net of business expenses) up to Rs. 1,200,000/-.

Housing Loans:

The maximum size for housing loans shall be up to Rs. 3,000,000/- to a single borrower with an annual income (net of business expenses) up to Rs. 1,500,000/-.

Further, while assessing income eligibility on individual borrowers (including a salaried person) for housing & general loans, MFBs shall ensure that the total installment of the financing facilities extended by the financial institutions is commensurate with monthly income and repayment capacity of the borrower, such that total monthly amortization payments of financing facilities should not exceed 50pc of the net disposable income of the prospective borrower.

SBP said that these measures would be in addition to MFBs’ usual evaluations of each proposal concerning the creditworthiness of the borrowers, to ensure that their portfolio fulfills the prudential norms, instructions issued by the State Bank of Pakistan and does not impair the soundness and safety of the MFB itself.

Loans to Microenterprises:

The maximum size for microenterprise loans shall be up to Rs. 3,000,000/- to a single project or business. The central bank said that MFBs shall extend the microenterprise loans only in the name of micro-entrepreneurs to ensure traceability and reduce the incidence of multiple borrowing.

However, the aggregate exposure against the microenterprise loans in excess of the ceiling prescribed for general loans shall not exceed 40pc of the MFB’s gross loan portfolio.

Consumption Financing Against the Security of Gold:

In line with SBP’s instructions, MFBs may also extend loans against gold collateral for consumption purposes categorized as domestic needs/emergency loan.

Moreover, the aggregate loan exposure of an MFB against the security of gold shall not exceed 50pc of its gross loan portfolio. The above relaxations shall expire after one year from the date of issuance of these instructions. Thereafter, MFBs shall reduce their aggregate loan exposure against the security of gold to 35pc within a maximum period of 1 year.