Securities and Exchange Commission of Pakistan introduces substantial reforms in Non-Banking Financial Sector
Islamabad, October 16, 2015 (PPI-OT): The Securities and Exchange Commission of Pakistan (SECP) with the approval of the Federal Government has introduced substantial amendments in Non-Banking Finance Companies (Establishment and Regulation) Rules 2003 (‘NBFC Rules 2003’). These reforms will enable NBFCs to undertake micro finance business, allow housing finance companies to undertake commercial housing finance activities and cater for the growing needs of Islamic Finance in the country.
Now, the Non-Banking Finance Companies (NBFCs) have been categorized in to two main types i.e. lending NBFCs and Fund Management NBFCs. Further, Lending NBFCs i.e. Leasing Companies, Investment Banks, Housing Finance Companies and Discount Houses have also been segregated in non-deposit taking and deposit-taking entities with distinct regulatory requirements.
In this connection, a new class of NBFCs i.e. Non-Bank Micro Finance Companies (NBMFCs) has been introduced. Comprehensive framework for providing finance to poor persons and microenterprises including conduct requirements for NBMFCs has also been prescribed. This will also enable SECP to regulate the micro finance institutions other than micro finance banks.
The existing companies other than NBFCs have been allowed to apply for license to carry out lending activities subject to the fulfilment of prescribed eligibility criteria under the new regulatory regime. For instance, an equipment manufacturer, producer of home appliances or automobile assembler may undertake leasing of its own product as an ancillary activity by obtaining leasing license. These amendments are likely to boost lending business in a regulated environment.
In addition, a new type of fund i-e., Private Fund has also been introduced. Now, the fund management company may launch private funds with varied objectives of investing in wide range of financial assets including equity securities, debt securities etc. Fund Management NBFCs have also been allowed to undertake different Fund Management Services i-e., asset management, Investment Advisory, Private Equity and Venture Capital Fund Management Services and REIT management Services under a single entity.
In order to encourage private fund management, the eligibility criteria for fund management company has been redefined and now a company other than a public limited company may also obtain license for private fund management. To facilitate the different segments of NBF Sector and considering their size and diverse nature of activities, separate eligibility criteria encompassing several aspects such as type of company, number of directors, rating requirements etc. have been prescribed for each class of NBFCs.
To cater for the growing needs of Islamic Finance in the country, an environment for Islamic NBFCs has also been provided. Moreover, Housing finance companies have now been permitted to undertake commercial housing finance activities It is expected that the new regulatory framework would be helpful in developing and promoting the Non-Banking Financial Sector in order to diversify the inherent systemic risk and to enhance the resilience of the financial system by increasing outreach and penetration especially for the micro, small and medium enterprises.
For more information, contact:
Shakil Ahmad Chaudhary
Head, Internal and External Communication
Securities and Exchange Commission of Pakistan (SECP)
NIC Building, 63 Jinnah Avenue, Islamabad
Tel: +92-51-9214005 or +92-51-9214009 (Ext. 378)
Category: SECP Announcements