SBP Revises Paid-up Capital Requirement for Microfinance Bank

The State Bank of Pakistan (SBP) has revised up the minimum capital requirement (MCR) or paid-up capital of the microfinance banks (MFBs) from Rs. 1 billion to Rs. 2 billion in phases. According to the revised Prudent Regulations for Microfinance Bank, the banking regulator increased the paid-up capital limit of the microfinance bank with a national-level operating license from the present level of Rs. 1 billion to Rs. 1.5 billion by the end of June 2026 and Rs. 2 billion by the end of June 2027. Similarly, it also increased the paid-up capital requirement for the provincial-level microfinance banks from the existing level of Rs. 500 million to Rs. 1.5 billion by the end of June 2026 and Rs. 2 billion by the end of 2027. Microfinance Banks (MFBs) shall maintain a minimum paid-up capital (net of losses) of at least Rs. 2 billion. The existing MFBs (irrespective of their category) shall raise their minimum paid-up capital to at least Rs. 2 billion in a phased manner, the regulations stated. Further, the SBP maintained the Capital Adequacy Ratio (CAR) equivalent to at least 15% of their risk-weighted assets for MFBs. There are 12 microfinance banks operating in Pakistan, with a majority of them running in losses since 2021, after the Covid-19 pandemic and floods have hit small businesses in Pakistan, directly affecting the recoveries of loans and balance sheets of these banks, subsequently. Until then, the overall sector continues to struggle to maintain its financial standing. According to the regulations, the MFB shall create a reserve fund which shall be credited with an amount equal to at least 20% of its annual profits after taxes till such time the reserve fund equals the paid-up capital of the MFB. The contingent liabilities of an MFB for the first three years of its operations shall not exceed three times its equity, and thereafter shall not exceed 5 times its equity. 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%), Liabilities (subject to CRR), and the number of days in the reserve maintenance period. If the aggregate balance maintained, during the reserve maintenance period, is below the minimum balance required to be maintained, the bank shall render itself liable to pay the penalty. The penalty shall be levied on the shortfall between the aggregate balance maintained and the aggregate minimum balance required to be maintained during the reserve maintenance period. If any MFB maintains the required average balance (currently 3%) during the reserve maintenance period but fails to maintain a daily minimum balance (currently 2%) at the close of business on any day, such bank shall also render itself liable to pay the penalty. In case of the shortfall in maintenance of CRR, the concerned MFB shall be liable to pay a penalty @ one percent of the shortfall per day, which shall be calculated on the basis of reporting through the Reporting Chart of Accounts and/or return as required by SBP.