State Bank of Pakistan withdraws general provision requirements for Microfinance Banks loans secured against gold or cash collateral

Karachi: The State Bank of Pakistan (SBP) has immediately withdrawn the general provision requirements for loans extended by Microfinance Banks (MFBs) against gold or other cash collateral. In case of all other loans, SBP has reduced the general provision requirement for MFBs by 50 basis points.

‘It has been decided to withdraw the general provision requirements wherein loans have been secured against gold or other cash collateral with appropriate margin,’ says AC and MFD Circular Letter No. 01 issued to all Microfinance Banks on September 16, 2011.

Further, in case of all other loans, Microfinance Banks shall henceforth maintain general provision of 1% instead of the existing requirement of 1.5%, the Circular Letter added.

After this amendment in Prudential Regulation for Microfinance Banks (MFBs) pertaining to General Provisioning Requirements, the pressure on minimum capital requirement and capital adequacy ratio of MFBs will ease.

It may be recalled that previously, MFBs could not take benefit of gold and cash collateral while meeting the general provisioning requirement which was 1.5% for the entire loan portfolio.

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