The new facility provides banks and DFIs with first-loss guarantees of up to 25% to expand financing for women-led microenterprises and improve access to institutional funding.
KARACHI: The State Bank of Pakistan (SBP) has launched the Women Microfinance Credit Guarantee Facility (WMCGF), offering first-loss guarantees of up to 25% to banks and development finance institutions (DFIs) against financing extended to eligible non-bank microfinance companies (NBMFCs) and non-bank finance companies (NBFCs).
The facility has been introduced under the Federal Government’s Women Inclusive Finance Sector Development Programme (WIFSDP) to improve women’s access to finance and strengthen their participation in economic activity.
The WMCGF aims to address liquidity constraints in the microfinance sector by enabling NBMFCs and NBFCs to secure financing from banks and DFIs for on-lending to women-led microenterprises.
Under the scheme, participating NBMFCs will provide loans ranging from PKR 25,000 to PKR 3 million, with financing available for up to 36 months. The guarantees will be provided to participating financial institutions (PFIs) without any fee.
SBP Sets Eligibility Criteria for Banks and DFIs
The SBP has established several eligibility requirements for banks and DFIs seeking guarantee limits under the facility.
Participating financial institutions must demonstrate profitability, including an average pre-tax return on assets of at least 1%. They must also maintain a net non-performing loans-to-capital ratio of no more than 15% and comply with the minimum capital adequacy ratio prescribed under SBP regulations.
Banks and DFIs must comply with applicable laws and policies covering integrity, anti-money laundering and counter-terrorist financing. They must also not appear on the Asian Development Bank’s Debarment and Suspension Register.
Participating institutions are further required to maintain sound financial management practices, including effective audit systems, internal controls and governance standards.
Requirements for Beneficiary Institutions
The facility also sets eligibility requirements for beneficiary financial institutions (BFIs), which will receive financing from participating banks and DFIs.
BFIs must have a gender-focused women finance strategy, including plans to increase the number and volume of active women enterprise loan accounts and develop products targeting women in both rural and urban areas.
They must also take measures to raise awareness among boards, senior management and staff about women’s business needs and improve financial literacy among women clients.
BFIs are required to demonstrate strong financial performance, including:
• Three-year average operational self-sufficiency above 100%
• Average pre-tax return on assets of at least 1%
• Net non-performing loans-to-capital ratio of no more than 15%
• Compliance with minimum capital requirements under Securities and Exchange Commission of Pakistan (SECP) regulations
• Sound financial management, audit, internal control and governance systems
Financing Restricted to Women-Led Businesses
Under the scheme, banks and DFIs must ensure that financing provided through NBMFCs is used exclusively for women-led, income-generating households and businesses.
Participating institutions must also ensure that women borrowers understand the terms and conditions of their loans, helping protect them against the risk of over-indebtedness.
Financed loans must have no or only minor environmental and social impacts in accordance with the applicable Environmental and Social Management Framework and the Asian Development Bank’s safeguard requirements.
The scheme also requires loans repaid to NBMFCs during the approved financing period to be lent again to women beneficiaries.
Guarantee Limits and Claims
Guarantee limits will be allocated to banks and DFIs based on their requests. The performance of participating institutions will be monitored quarterly, or more frequently where necessary.
Based on performance, the SBP may increase, reduce or withdraw allocated guarantee limits.
A guarantee limit may also be withdrawn if a beneficiary institution is found to have been ineligible for financing when the facility was extended. In such cases, the participating bank or DFI will bear 100% of the credit risk for that institution.
Guarantee claims can be submitted while the guarantee remains active and the amount due to the bank or DFI has not been paid and has been classified as a “Loss”, where principal, mark-up or interest has remained overdue for one year or more.
SBP Introduces Digital Claims Processing
The SBP has directed participating institutions to use digital platforms, including the Regulatory Approval System (RAS), for submitting guarantee applications and claims.
The move is aimed at speeding up claims processing, reducing administrative costs and improving transparency.
The Financial Inclusion Support Department (FISD) of SBP Banking Services Corporation will process claims within 10 working days, provided they comply with the prescribed format, procedures and information requirements.
Participating institutions will remain responsible for recoveries, while the Trust’s share of recoveries, up to 100%, will be credited to the WMCGF account.
Environmental and Reporting Requirements
Participating financial institutions must establish an Environmental and Social Management System (ESMS) and conduct environmental and social due diligence in line with the applicable framework.
They must maintain records of all financing provided under the facility and submit borrower-wise reports to the SBP on a quarterly basis or whenever required.
An environmental and social report must also be submitted annually.
The SBP’s inspection teams may inspect the relevant portfolios of participating institutions to ensure compliance with the facility’s terms and conditions.
The WMCGF forms part of the government’s broader efforts to improve women’s access to finance and expand opportunities for women-led microenterprises by increasing the availability of institutional funding.