PMN asks PBA to get WHT ex­emp­tion for mi­cro­fi­nance sec­tor

The Pak Banker - - FRONT PAGE -

Pak­istan Mi­cro­fi­nance Net­work (PMN) has asked Pak­istan Banks As­so­ci­a­tion (PBA) to con­vince the gov­ern­ment to ex­empt 0.3 per­cent with­hold­ing tax (WHT) for mi­cro­fi­nance and branch­less bank­ing sec­tor to con­tinue its con­stant growth in the fu­ture.

The im­po­si­tion of 0.3 per­cent WHT for bank­ing trans­ac­tion has in­creased the cost of ad­min­is­tra­tion by mi­cro­fi­nance banks whereas it hurt equally the growth of lend­ing to cus­tomers. Mi­cro­fi­nance banks lend Rs 150,000 to a big ma­jor­ity of bor­row­ers but it is be­ing taxed at source in­creas­ing the bur­den on the small en­trepreneurs whom is al­ready pay­ing huge in­ter­est rates to banks.

The mi­cro­fi­nance sec­tor and branch­less bank­ing sec­tor are two key driv­ers of fi­nan­cial in­clu­sion which was planned by State Bank of Pak­istan (SBP) with stake­hold­ers for stream­lin­ing banked and doc­u­mented econ­omy. The newly im­posed tax is big dam­aged to process of fi­nan­cial in­clu­sion be­ing set by the cen­tral bank with mi­crofi- nance bank, said Nadeem Hus­sain Chair­man Pak­istan Mi­cro­fi­nance Net­work.

"I have writ­ten a let­ter to PBA for con­vinc­ing the Fed­eral Board of Rev­enue (FBR) and the gov­ern­ment to ex­empt mi­cro­fi­nance and branch­less bank­ing sec­tor from the tax", he added. Re­cently, the cen­tral bank asked mi­cro­fi­nance banks to re­duce their loan ex­po­sure ceil­ing in com­pa­nies and in­di­vid­u­als hav­ing loans against gold as col­lat­eral to the ex­tent of 35 per­cent of its gross loan port­fo­lio.

The cen­tral bank has al­ready im­posed lim­its for mi­cro­fi­nance banks re­lated to reg­u­la­tions in­clud­ing re­vi­sion of Tier-1 cap­i­tal and Com­mon Eq­uity Tier 1 and Ad­di­tional Tier-1 com­po­nents. Be­sides, a floor of 20% Risk weight has been in­tro­duced for fi­nanc­ing against gold.

The bank has in­tro­duced an Op­er­a­tional Risk Cap­i­tal Charge @ 3% of av­er­age Gross In­come has been in­tro­duced. It has en­hanced the ben­e­fit of ben­e­fit of reval­u­a­tion re­serve from 50% to 100%. The de­ferred Tax As­sets will be de­ducted from cap­i­tal in a phased man­ner @ 25% per an­num start­ing from De­cem­ber 31, 2015 with full de­duc­tion from De­cem­ber 31, 2018.

Bankers at mi­cro­fi­nance banks said the gov­ern­ment taxes and cen­tral banks reg­ula- tions were made ex­tremely chal­leng­ing en­vi­ron­ment for the banks to flour­ish at hand­some pace. They added that the re­stric­tions along with tax obli­ga­tion will not bode well for the pen­e­tra­tion of mi­cro­fi­nance banks to in­creas­ing their bor­row­ers-base coun­try­wide be­cause three out of ten banks are in profit at present whereas rest of them are strug­gling for breakeven.

They were of the view that the cen­tral bank's reg­u­la­tion was bi­ased for mi­cro­fi­nance banks which even was not im­posed on com­mer­cial banks with huge re­serves and liq­uid­ity. Pak­istan's Mi­cro­fi­nance Bank­ing in­dus­try has ex­pand­ing ev­ery month with in­creas­ing oper­a­tions of mi­cro­fi­nance banks and De­vel­op­ment Fi­nance In­sti­tu­tions (DFIs) as it touched Rs 70 bil­lion as Gross Loan Port­fo­lio, which is 228 per­cent year than pre­vi­ous year.

Ac­cord­ing to the statis­tic of Pak­istan Mi­cro­fi­nance Net­work, the val­ues of GLP in­creased by Rs 13 bil­lion in a year from Rs 57 bil­lion re­ported in the first quar­ter of 2014. All key in­di­ca­tors in­clud­ing sav­ing ac­counts, bor­row­ers and pol­icy hold­ers of mi­cro-in­sur­ance were seen ter­rific growth show­ing the no­tice­able pen­e­tra­tion of the mi­cro­fi­nance banks which are ex­plor­ing cities and sec­tors with their in­no­va­tive fi­nan­cial prod­ucts and ser­vices.

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