ISLAMABAD, Sept 6: The Asian Development Bank (ADB) will lend Pakistan $400 million including $1 million on a grant basis to implement second generation capital market reforms.

An agreement was signed by officials of the Economic Affairs Division and Securities and Exchange Commission of Pakistan (SECP) here on Thursday for receiving the grant money to be followed by loan disbursement.

Representatives of the ADB’s Pakistan Resident Mission and the Japanese embassy were also present during the ceremony. The technical assistance is being fully financed by the Japan Special Fund (JSF).

The technical assistance will cost $1.34m and will be implemented over the next two and half years. The ADB will provide $1m on a grant basis, while the SECP will execute the project.

The technical assistance aims to strengthen the enabling environment for institutional investors by developing a regulatory framework for employer sponsored occupational pension schemes and drafting legislation for the regulation and supervision of non-bank financial companies (NBFCs).

The assistance is supposed to increase professional standards and the qualification of securities market participants by supporting the nascent Securities Institute of Pakistan. It will enhance strategic planning capacity of the ministry of privatisation in support of more capital market oriented privatisation approach.

According to ADB, capital markets in Pakistan are constrained by insufficient development of institutional investors such as private pension funds and non-bank financial companies, including mutual funds.

The relative underdevelopment of institutional investors, in turn, inhibited the development of equity and bond markets. The development of an enabling legal and regulatory environment for institutional investors could have a significant positive impact on the development of equity and bond market, and vice versa, stated an official statement issued by the ADB after the signing ceremony of the agreement.

The ADB says the major thrust of support under the programme is strengthening the governance of securities market and market professionals to increase investors’ protection and confidence.

“At present, there is no mechanism in place to increase professional standards and qualifications of stock brokers, mutual fund sales agents, or company officers within the financial institutions and stock exchanges,” the ADB says.

If appropriate training and certification programme are implemented, this would enhance the level of professionalism in the securities market and improve investor protection.