SBP Revises Paid-up Capital Requirement for Microfinance Bank

Karachi, Pakistan –TheState Bank of Pakistan (SBP)has revised the minimum capital requirement (MCR) for Microfinance Banks (MFBs), significantly increasing the paid-up capital threshold in a phased manner to strengthen the financial stability of the sector. Under the newly issuedPrudential Regulations for Microfinance Banks, the central bank has raised the paid-up capital requirement for MFBs with anational-level licensefrom the current Rs. 1 billion toRs. 1.5 billion by June 2026, and further toRs. 2 billion by June 2027. Similarly, forprovincial-level MFBs, the paid-up capital threshold has been increased fromRs. 500 milliontoRs. 1.5 billion by June 2026andRs. 2 billion by June 2027. “All existing MFBs, irrespective of their category, must raise their minimum paid-up capital (net of losses) to at least Rs. 2 billion in a phased manner,” the SBP stated. The regulator has alsomaintained the Capital Adequacy Ratio (CAR) at a minimum of 15%of risk-weighted assets, in line withglobal prudential standards to ensure resilience in the microfinancesector. In addition to the capital revisions, the updated regulations require MFBs tocreate a reserve fund, which will be credited withat least 20% of annual profits after taxesuntil it is equal to the MFB’s paid-up capital. To manage financial risk, thecontingent liabilitiesof an MFB during its first three years must not exceedthree times its equity, and not more thanfive timesthereafter. The SBP also laid out strict guidelines and penalties for non-compliance with theCash Reserve Requirement (CRR). Theminimum average balance, which is currently based on a CRR rate of3%, must be maintained during the reserve maintenance period. If a shortfall is recorded between theaggregate balance maintainedand therequired minimum balance, the MFB will be subject to apenalty on the shortfall amount. Additionally, if an MFB maintains the average CRR but fails to meet thedaily minimum CRR balance (currently 2%), it will also face penalties. The penalty is set at1% of the shortfall per day, calculated based on the reporting chart of accounts submitted to the SBP. The decision comes at a time whenPakistan’s microfinance sectoris still recovering from the aftershocks of the COVID-19 pandemic and devastating floods that adversely impacted small businesses. These events have significantly affected loan recoveries, pushing most of the12 operational MFBs into lossessince 2021. By tightening capital and compliance requirements, the SBP aims to ensure better risk management, financial sustainability, and stronger oversight of MFBs — ultimately strengthening the country’s financial inclusion agenda.