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SBP amends Prudential regulations for Micro-Finance Banks

KARACHI (April 14 2006): The State Bank of Pakistan (SBP) on Thursday made certain amendments to the prudential regulations for micro-finance banks (MFBs) to ensure soundness and stability of the micro-finance banking industry in Pakistan.

The amendments are also aimed at bringing the existing classification/provisioning/write-off criteria for micro loans in line with the international best practices while keeping in view the local conditions and the evolving phase of MFB industry, a circular of the SBP issued here on Thursday said.

The changes in the existing criteria for classification, provisioning and write-off will result in elimination of OAEM category, revision of ageing criteria whereby now the loans/advances overdue by 30 days or more (but less than 90 days) will be classified as 'Substandard', 90 days or more (but less than 180 days) as 'Doubtful' and 180 days or more as 'Loss'.

In addition, the provisioning requirement for substandard category has been increased to 25 percent as well as MFBs will maintain a Watch List of all accounts delinquent by 5-29 days.

The MFB/MFI will maintain a General Provision equivalent to 1.50 percent of the net outstanding advances (advances net of specific provisions) while all non-performing loans (NPLs) will be written off, one month after the loan is classified as 'Loss'.

This will, however, not extinguish the MFBs' right of recovery of such written-off loans. Finally, the classification and provisioning will be made at the end of every month.

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