The State Bank of Pakistan (SBP) has issued revised Microfinance Credit Guarantee Facility (MCGF) Guidelines offering higher risk coverage of up to 60 per cent to Commercial Banks/ Development Finance Institutions (DFIs) for lending to smaller Microfinance Banks (MFBs)/ Microfinance institutions (MFIs).
The eligibility of MFPs for various risk sharing options will be assessed on the above criteria. The MFPs failing to meet any of Tier 1 criteria shall be assessed against Tier 2 criteria.
The interest rate under MCGF shall not exceed 2 (two) per cent over and above the Karachi Interbank Offer Rate (KIBOR) of relevant tenor. The tenor of KIBOR should be the same as of tenor/ re-pricing tenor of the loan.
All Banks/DFIs/MFPs are advised to finalize their funding deals under MCGF and submit their cases to SBP BSC for issuance of subject Guarantee as per procedure envisaged in the guidelines attached herewith. The facility is expected to graduate smaller MFBs/ MFIs to avail credit lines from commercial banks/ DFIs for onward lending to microfinance clients.
It may be recalled that the Microfinance Credit Guarantee Facility is a credit enhancement facility to attract market-based and long-term finance for microfinance institutions. MCGF was launched by the State Bank in December 2008 with £15 million funding support from the UK Department for International Development (DFID) under the Financial Inclusion Program (FIP) which is being implemented by SBP.
The facility is focused on market development and has been instrumental in resolving the funding constraints of the microfinance sector in Pakistan. So far, 6 large MFBs/MFIs have completed 38 transaction with commercial banks and capital markets/retail investors mobilizing Rs.12.825 billion for onward lending to around 650,000 micro borrowers. This has significantly helped in reducing the risk perception of banks towards the microfinance sector, thus introducing poor borrowers to mainstream financial institutions.