April 2, 2003	Wednesday	Muharram 29, 1424

ISLAMABAD, April 1: The Securities and Exchange Commission of Pakistan (SECP) notified the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 which will require all NBFIs into NBFCs, whether conducting a single or multiple activities.

However, these rules will not apply to the modaraba companies and development financial institutions (DFIs) that are governed under a law different from the Companies Ordinance.

While unveiling the rules at a press conference, SECP chairman Abdul Rehman Qureshi had directed the NBFIs to send their applications to the Commission by May 15, 2003, for fresh licences to function as non-bank financial company (NBFC) separately for engaging in different kinds of activities.

Under an amendment in section 282 B of the Companies Ordinance, 1984, it will be recalled, the Government of Pakistan last November transferred to SECP the regulatory powers previously exercised by the State Bank of Pakistan in respect of NBFIs numbering 69.

Consequently, SECP has come to regulate the leasing companies, investment banks, discount houses, venture capital companies, housing finance companies, National Investment Trust and Investment Corporation of Pakistan, in addition to modarabas and mutual funds. The rules which previously governed various NBFIs, therefore, stand abolished after promulgation of NBFC rules.

The SECP had then prepared NBFC Rules after consolidating the existing rules governing leasing companies, investment companies and investment advisers, asset management companies, venture capital companies and venture capital funds, housing financing companies and investment companies.

After vetting by the Law, Justice and Human Rights Division, the NBFC Rules were finally cleared by the Ministry of Finance on Tuesday. These Rules are also available at the SECP website www.secp.gov.pk

Explaining the genesis of the decision, Mr Qureshi remarked that the NBFIs had performed well and provided quality services to their customers over the past few decades.

However, the traditional model of NBFIs, consisting of a variety of separate, compartmentalized and specialized institutions such as leasing companies etc., had resulted in fragmentation of the financial sector. There was a proliferation of institutions with inadequate capital, weak human resource base, low access to technology and high cost of operations.

The NBFC concept envisages a single entity being able to provide a wide range of financial services through one-window operation. The NBFC Rules contain separate chapters relating to operational aspects of leasing, investment finance services, investment advisory services etc.

These prescribe licensing criteria for undertaking any/all activities. He also clarified that till such time as a new license is issued, the existing licences/registrations would be deemed to be valid for the purposes of these rules.

Certain new definitions have been given to terms such as “Administrator”, “Facility”, “leasing” and “equity” etc., with a view to making the NBFC rules more comprehensive and practicable.

These rules also specify the minimum paid-up capital requirement to be maintained — as separated tiers — for each form of business to be undertaken by an NBFC, which is as follows:

Investment Finance Services: Rs300 million; Investment Advisory and/or Asset Management Services: Rs30m; Discounting Services: Rs200 million; Venture Capital Investment: Rs5 million for a venture capital company; Leasing: Rs200m and Housing Finance Services: Rs100 million.

These rules also contain conditions for issuance of certificates of investment (COI)/certificates of deposit (COD) by NBFCs undertaking leasing/housing finance services/investment finance services.

The accounts of every NBFC, the rules further state, shall be audited by an auditor who is a Chartered Accountant within the meaning of the Chartered Accountants Ordinance, 1961, appointed by the NBFC with the approval in writing of the Commission. The SECP’s permission would have to be obtained prior to the name of the auditor being proposed at the Annual General Meeting.

Asked how the companies concerned would be benefited by the induction of NBFCs, the SECP chairman said it would reduce operating costs by encouraging mergers and allow balancing the profit/loss of various activities.

All such mergers, through amendments in the company law, have been made conditional after prior approval of SECP. In fact, a number of companies had already merged into a single NBFC and brought their activities under a single umbrella.