Karachi, Pakistan – The State 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 issued Prudential Regulations for Microfinance Banks, the central bank has raised the paid-up capital requirement for MFBs with a national-level license from the current Rs. 1 billion to Rs. 1.5 billion by June 2026, and further to Rs. 2 billion by June 2027.
Similarly, for provincial-level MFBs, the paid-up capital threshold has been increased from Rs. 500 million to Rs. 1.5 billion by June 2026 and Rs. 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 also maintained the Capital Adequacy Ratio (CAR) at a minimum of 15% of risk-weighted assets, in line with global prudential standards to ensure resilience in the microfinance sector.
In addition to the capital revisions, the updated regulations require MFBs to create a reserve fund, which will be credited with at least 20% of annual profits after taxes until it is equal to the MFB’s paid-up capital.
To manage financial risk, the contingent liabilities of an MFB during its first three years must not exceed three times its equity, and not more than five times thereafter.
Penalties for Non-Compliance with CRR
The SBP also laid out strict guidelines and penalties for non-compliance with the Cash Reserve Requirement (CRR). The minimum average balance, which is currently based on a CRR rate of 3%, must be maintained during the reserve maintenance period.
If a shortfall is recorded between the aggregate balance maintained and the required minimum balance, the MFB will be subject to a penalty on the shortfall amount.
Additionally, if an MFB maintains the average CRR but fails to meet the daily minimum CRR balance (currently 2%), it will also face penalties. The penalty is set at 1% of the shortfall per day, calculated based on the reporting chart of accounts submitted to the SBP.
Industry Challenges
The decision comes at a time when Pakistan’s microfinance sector is 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 the 12 operational MFBs into losses since 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.
