KARACHI: In a major move to facilitate small borrowers, the State Bank of Pakistan (SBP) on Saturday withdrew the requirements of written declarations and a credit information report for obtaining loans from the microfinance banks (MFBs).

The SBP has introduced the changes to the prudential regulations for MFBs to streamline the requirement of obtaining Credit Information Report (CIR) and simplifying the documentary requirements from microfinance borrowers.

The move is aimed at enhancing the role of MFBs in accelerating economic activities and creating bigger opportunities for small borrowers. Earlier, the MFBs were required to obtain written declarations from borrowers about facilities already obtained by them from other financial institutions.

“However, as Licensed Credit Bureaus (LCBs) are able to offer comprehensive CIR on individuals/borrowers, therefore in order to avoid duplication, this requirement has been withdrawn,” the SBP said. “This would bring efficiency and further simplify the loan approval process by reducing documentary requirements from borrowers.”

The microfinance industry is facing many challenges like inadequate regulatory frame­work, ad hoc competitiveness, lack of innovative and diversified products, profitability, market stability, limited management capacity of microfinance institutions (MFIs).

Both the SBP and the government believe that the MFBs could help to eradicate the rising unemployment and poverty by offering attractive microfinance package for increasing employment and income. This could provide the basis for this sector to stimulate the growth of the economy, empower women, increase the volume of finances and facilitate accessibility, etc.

Similarly, MFBs were earlier required to obtain a mandatory credit report from SBP’s eCIB for all credit facilities exceeding Rs30,000.

“Since LCBs are able to offer comprehensive CIR to its members which constitutes of almost all banks and MFBs and Non-Bank Microfinance Companies (NBMFCs), therefore, the mandatory requirement to make an inquiry from SBP’s eCIB has been withdrawn,” said the circular.

This revision will allow MFBs to independently decide on obtaining CIR of borrowers, regardless of loan size, it added.

The MFBs obligation towards reporting to SBP’s eCIB has also been simplified besides aligning relevant terminologies with the Credit Bureaus Act, 2015, said the SBP.

The MFBs remained market leaders and witnessed an increase in their market share in terms of active borrowers from 48 per cent in the prior year to 50pc by the end of 2019.

Earlier, the Credit Bureau Act (CBA) 2015 was promulgated to provide the basis for the incorporation and functioning of credit bureaus in Pakistan. Under the CBA, licensed credit bureaus are offering comprehensive CIR to financial institutions on individuals/borrowers to make informed decisions, borrowers’ creditworthiness and debt carrying capacity.

Published in Dawn, December 12th, 2021

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