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2012 Annual Conference and the 1st African SPM Conference
from 24/09/2012 to 29/09/2012
Kampala (Uganda)
The Africa Microfinance Network (AFMIN) will organize its 11th Annual Conference
and the 1st African SPM Conference in Kampala, Uganda, from September 24th to 29th, 2012
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Pakistan Amends Guidelines for Microfinance Credit Guarantee Facility
July 20, 2000
KARACHI, July 17, 2009 (The NEWS)-State Bank of Pakistan (SBP) has amended guidelines for the Microfinance Credit Guarantee Facility (MCGF), which the bank introduced earlier in May.
Introduction of the guidelines was aimed at making provisions more flexible for commercial banks and/or Development Finance Institutions (DFIs) so that they could easily provide wholesale funds to eligible microfinance banks and/or institutions, said the central bank.
The modified clause 5(i) of guidelines reads as follows: “The lending institution shall provide financing after carrying out proper due diligence of the microfinance banks and/or institutions, keeping in view the risk profile of the borrower in light of the policy developed, duly approved by its board of directors, for providing financing under the MCGF.
In case, the microfinance lending policy, duly approved from the board of directors is not in existence, such policy shall be made within two years of the first disbursement under the facility; however, it shall be mandatory if the funding under the facility exceeds 20 per cent of the lending bank’s equity, prior to disbursement under the facility.”
It is further clarified that the MCGF guarantee (to the extent of risk coverage issued by SBP) is recognized for capital adequacy purpose as per BSD circular No 8 issued on June 27, 2006 and will carry zero per cent risk weight under Credit Risk Mitigation (CRM), the SBP underlined.
Excerpts from SBP Microfinance Credit Guarantee Facility:
Interest rate charged from borrowing institutions under the guarantee facility shall not exceed two per cent over and above the prevailing SBP Policy Discount Rate, which at present stands at 14 per cent.
Keeping in view the importance of microfinance in the context of a developing country, SBP has been encouraging banks/DFIs to provide funding to viable microfinance banks (MFBs), to enable them to achieve the outreach targets.
It has, however, been observed that apart from a few instances, where funds have been provided to few MFBs/microfinance institutions (MFIs), the commercial banks are yet to explore local currency lending opportunities with MFBs/MFIs.
In order to incentivize channeling of funds to the microfinance sector, SBP has designed MCGF, henceforth referred to as the ‘facility’ which shall be administered by SBP, BSC. The facility is expected to facilitate banks/DFIs to play a leading role in easing credit constraints of MFBs/MFls in their efforts to maximize outreach.
The facility will provide Partial Guarantee or First Loss Default Guarantee up to a certain limit prescribed by the SBP to reduce credit risk to banks/DFIs entering into lending arrangements with financially and socially sustainable MFBs/MFIs with significant potential to maximize outreach to poor and marginalized segments of the society.
The facility will effectively allow risk sharing, as Partial Guarantees or First Loss Default Guarantees will provide incentives to participating banks/DFIs to monitor these loans. The structure of the guarantees will enable MFBs/MFIs to borrow in local currency.
The facility will be initially started with the help of the UK Department of International Development (DFID) grant amount of GBP10 million to be kept as reserve and used for issuing guarantees to microfinance providers who fit the criteria of the facility.
The extent of risk coverage under this facility will be either 40 per cent of the loss incurred in case of Partial Guarantee or 25 per cent of first loss in case of First Loss Default Guarantee, on the principal amount only. With coverage limited up to 40 per cent or 25 per cent of the expected loss on the principal amount as the case may be, the facility will be able to achieve a leverage of up to four times.
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