Microfinance banks: SBP sets Rs2bn Minimum Capital Requirement target

KARACHI: The State Bank of Pakistan (SBP) has announced that the Minimum Capital Requirement (MCR) for Microfinance Banks (MFBs) will be increased to Rs 2 billion by the end of June 2027.

In order to align the prudential regulations for Microfinance Banks (MFBs) with changing business environment, the State Bank of Pakistan has issued revised Prudential Regulations (PRs) for Microfinance Banks (MFBs).

As per revised RPs provincial and national MFBs are required to maintain a minimum paid up capital (net of losses) of at least Rs. 2 billion by June 2027. The existing MFBs (irrespective of their category) will raise their minimum paid-up capital to at least Rs 2 billion in a phased manner.

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Currently, Minimum Capital Requirement (MCR) of Provincial MFBs is Rs. 500 million and they are required to build up it up to Rs 1.5 billion by June 2026 and Rs 2 billion by June 2027. While, existing MCR for national MFB is Rs 1 billion and they will also require increase MCR to Rs. 1.5 by June 2026 and billon Rs 2 billion by June 2027.

The MCR standard includes fully paid-up common shares, balance in share premium account, reserve for issue of bonus shares, any other type of instrument approved by the SBP less, accumulated losses or discount allowed on the issuance of shares and negative general reserves. MFBs shall also maintain Capital Adequacy Ratio (CAR) equivalent to at least 15 percent of their risk weighted assets.

In view of business growth and technological innovations in the sector, SBP has further strengthened the regulations in areas of governance, consumer protection, and operations to help MFBs to manage the expected higher level of growth in future. To add clarity, the Prudential Regulations for MFBs have been segregated in three categories including Risk Management, Corporate Governance, and Operations.

These regulations prescribe minimum benchmarks in Governance, Operations, Consumer Protection and Risk Management to ensure financial stability and sustainability of the microfinance banks. The instructions issued by SBP from time to time have also been included in the revised PRs.

However, SBP has mentioned that MFBs will continue to comply with the directives and instructions of the SBP not covered under these regulations. These regulations will come into force with immediate effect except where specifically mentioned otherwise. Any deviation or non-compliance of the same will attract enforcement actions under the relevant legal and regulatory provisions, the SBP warned.

Penalty on default in maintaining CRR: For levy of penalty on default in maintaining average balance, the minimum balance required to be maintained during the reserve maintenance period shall be the product of CRR Rate (Average i.e. currently 3 percent), Liabilities (subject to CRR) and number of days in the reserve maintenance period.

MFBs are required to maintain the liquid assets (excluding CRR) equivalent to at least 12 percent of their total ‘demand liabilities’ and ‘time deposits with tenor of less than one year’ in Pakistan.

Copyright Business Recorder, 2025