SBP allows MFBs to lend against gold
KARACHI: The State Bank of Pakistan (SBP) which increased the maximum amount of loans allowed microfinance banks (MFBs) to lend against gold.
In order to enable BMFs to meet the financing needs of low-income segments, it was decided to revise the maximum loan sizes, the eligibility criteria of borrowers for various micro-loans and to authorize loans against cash. ‘gold for consumption and improve the maximum exposure allowed per borrower.
In accordance with the revised regulation on maximum loan size and borrower income eligibility criteria, the maximum general loan size will be up to Rs 350,000 / – for a poor person with annual income (net of business expenses) up to Rs 1,200,000 / -.
The maximum size of home loans will be up to Rs 3,000,000 / – for a single borrower with an annual income (net of business expenses) up to Rs 1,500,000 / -.
When assessing the income eligibility of individual borrowers (including employees) for housing loans and general loans, MFBs will ensure that the total disbursement of financing facilities provided by financial institutions is proportionate to the monthly income and repayment capacity of the borrower, so that the total monthly amortization payments of the financing facilities should not exceed 50 percent of the net disposable income of the potential borrower.
According to the SBP, these measures would be in addition to the usual MFB assessments of each proposal regarding the creditworthiness of borrowers, to ensure that their portfolios comply with prudential standards, instructions issued by the State Bank of Pakistan and not does not affect the strength and safety of the MFB itself.
The maximum size of microenterprise loans will be Rs 3,000,000 / – for a single project or business. MFBs will only provide microenterprise loans on behalf of microentrepreneurs to ensure traceability and reduce the incidence of multiple borrowing. However, the aggregate exposure to microenterprise loans in excess of the prescribed ceiling for general loans will not exceed 40 percent of the MFB’s gross loan portfolio.
Only MFBs that are fully compliant with the Minimum Capital Requirements (MCR) and Capital Adequacy Ratio (CAR) will be eligible to provide loans to microenterprises.
MFBs wishing to extend microenterprise loans exceeding the prescribed ceiling for general loans will develop related institutional capacities (products, credit risk management and monitoring system, trainings, etc.) and submit their detailed loan business plan. microenterprises at SBP to obtain the necessary approval for the pilot program.
In particular, the SBP will have to assess the plan as well as the operational / financial performance, the financing plan, the prudential assessment and the credit rating of the MFB, and consequently grant the authorization to launch a pilot program to the candidate MFB.
In addition, during the pilot phase, MFBs will need to ensure that their overall exposure to microenterprise loans exceeding the prescribed ceiling for general loans will not exceed 20% of the gross loan portfolio. Final approval to undertake large scale / commercial microenterprise loans will be granted subject to satisfactory evaluation of the pilot program. The improved loan amount (up to Rs 1,000,000 / – and Rs 3,000,000 / – respectively) will be granted to MFBs which have moved from pilot loan programs to microenterprises (up to Rs 500,000 / – and Rs 1 000 000 / – respectively) on a commercial scale.
However, before granting microenterprise loans exceeding Rs 500,000 / – and Rs 1,000,000 / -, MFBs will seek approval from this department. SBP will grant approval for the pilot / commercial launch based on a satisfactory assessment of the financial situation and readiness of the applicant MFB.
Under the new guidelines, MFBs can also provide loans against gold collateral for consumption purposes classified as domestic needs / emergency loans. In addition, an MFB’s aggregate loan exposure against the gold collateral will not exceed 50% of its gross loan portfolio. This relaxation will expire after one year. Subsequently, MFBs will reduce their overall exposure to gold collateralized loans to 35% over a maximum period of one year.
The maximum aggregate exposure limits for borrowers will not exceed Rs 350,000 / – for general loans, Rs 3,000,000 / – for home loans and microenterprise loans. The aggregate exposure of eligible borrowers to general and micro business loans should not exceed Rs. 3,000,000 / -.
MFBs were asked to develop an internal mechanism to monitor the global exposure of their borrowers in order to manage credit risk and minimize the risk of borrowers over-indebtedness.
Copyright Business Recorder, 2020