ISLAMABAD: As up to 53 per cent of the adult population in Pakistan has no access to banks and related financial services, the gap is being filled by a growing number of Non-Banking Finance Companies (NBFCs), which not only provide various banking services to customers but also rid the market of illegal players.

As most Pakistanis fail to avail of banking services, they have no option but to rely on ‘loan sharks’ to finance household expenditures on credit or for other emergency expenses. However, the NBFCs have been introduced by the government to provide services to the unbanked population in order to eliminate the unregulated credit market. These companies provide financial services, mainly relating to credit, under five categories: investment banks, non-bank microfinance companies, leasing companies, housing finance companies, and discounting companies.

As the NBFCs aim to eliminate unregulated and illegal players in the field, their number continues to grow – despite the economic turndown – on the back of Chinese investments in the small and micro financial sector.

‘Legend Financial Services’ is the latest firm to obtain a licence from the Securities and Exchange Commission of Pakistan (SECP).

Official says growth of finance companies will eliminate unregulated credit market

A senior official of the SECP said that registered companies giving digital loans or providing goods on credits were regulated entities and any violation of law, including coercing customers, were checked.

“Since banks do not operate at a micro level, only these NBFCs can eliminate illegal and unregulated lending, including the sale of household goods at exorbitant credits,” the official said in reference to instalments.

As the investments in NBFCs continue to grow, many Chinese law firms have also established their offices in Pakistan to facilitate their clients belonging to mainland China.

Donna Tang of Esquare Legal firm – which acquired the licence for ‘Legend Financial Services’ – has opened an international office in Islamabad amid millions of dollars of investments by Chinese nationals in Pakistan.

Ms Tang told Dawn said that the entry of Chinese law firms in Pakistan was an important development, citing deepening economic ties between China and Pakistan.

She said the enhanced ties highlighted the importance of legal expertise to facilitate investments and will also strengthen confidence of Chinese investors in Pakistan.

“The Chinese investments are not only in NBFCs, but our firm has also obtained a licence from the Drug Regulatory Authority of Pakistan (Drap) for a Chinese medicine company,” she said, adding that this registration is part of the China-Pakistan Economic Corridor (CPEC) health corridor project – an integral component of the CPEC initiative.

“The NBFCs play a crucial role in the financial and fintech ecosystem and Pakistan has seen a 600pc growth in the NBFC sector in the last year,” she claimed.

Published in Dawn, May 1st, 2023