Credit rating made mandatory for micro-finance banks

KARACHI (November 18 2003): The State Bank of Pakistan on Monday issued new Prudential Regulations making Credit Ratings mandatory for micro-finance banks (MFBs), and each bank would be rated within one year of commencement of deposits mobilisation services.

The State Bank circular with new Prudential Regulations said: “The MFBs shall get themselves rated by any of the rating agencies on the panel of State Bank of Pakistan, or any international micro-finance rating agency with prior approval of SBP, within three years of grant of licence by State Bank to operate as MFB, or within one year of commencement of deposit mobilisation services, which-ever is earlier.”

The rating shall be an ongoing process, and would be updated on continuous basis from year to year, within four months of the close of financial year after the first rating, as stated in the first paragraph.

“The rating report shall be submitted to State Bank within 7 days of notification of the latest rating.

The rating shall also be disclosed to the public within 15 days of the notification of the latest rating by the rating agency,” said the SBP circular.

The Credit Rating of financial institutions provides the depositors, investors and creditors an independent assessment as to the institutions' capacity to meet their short term and long term obligations, as well as their future outlook, and enables them to make informed decisions about investment and deposit etc in the institutions.

“Considering its critical importance for overall health of the financial system, as also to safeguard the interest of prospective investors, depositors and creditors, the rating has already been made mandatory for all commercial banks and DFIs operating in the country,” said the circular.

As micro-finance banks are also emerging as important players in the country's banking and financial system, it has been decided to make it mandatory for Micro-finance Banks to get themselves rated, said the SBP.

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