KARACHI, Oct 15: Microfinance banks/institutions are supposed to develop and implement effective procedure to avoid becoming a conduit of money laundering.

The State Bank has issued a set of rules to govern the working of microfinance banks/institutions that call upon them to develop and implement “effective procedures and methods” to determine the true identity of its clients.

The rules that take immediate effect are contained in a SBP circular (BSD no. 18) and replace the existing Microfinance Bank Rules 2000.

The rules say that the microfinance banks/institutions shall obtain copies of national identity card or passport or driving license from those seeking loans. The officers of microfinance bank will see the original documents and stamp the same. But the circular allows the microfinance banks to establish the identity of their clients “through other appropriate means” in far-flung and remote areas “where people particularly women don’t have identity cards.” For the corporate clients the microfinance banks “shall obtain by-laws, Memorandum & Articles of Association and Board Resolution etc.”

The rules have it that microfinance banks/institutions cannot remove from a specified area its business records and documents either physically or electronically without the written permission of the SBP.

The rules make it clear that microfinance banks/institutions shall not:

(a) allow any facility for speculative purposes

(b) allow financing facilities and other microfinance services to nay of its sponsors/directors or employees including their spouses/parents and children.

Without prior SBP permission the microfinance banks/institutions shall also not enter into leasing and renting or sale/purchase of any kind with its directors and employees who own over five per cent equity.

Under the rules laid down by the SBP microfinance banks/ institutions shall not extend loans exceeding Rs100,000 to a single borrower.

The rules say that the microfinance banks/institutions shall not undertake any business of cash payments at any place other than the authorized place of business. “However, this rule will not apply in case of mobile banking where permission has been obtained from the State Bank.”