The Securities and Exchange Commission of Pakistan (SECP) has released a draft outlining proposed amendments to the Non-Banking Finance Companies (Establishment & Regulations) Rules, 2003, seeking public input. The objective behind these amendments is to create a more favorable regulatory framework for the non-banking finance sector in the country.
The proposed changes stem from a thorough evaluation of the existing regulations, taking into account the advancements in the Non-Banking Finance Company (NBFC) ecosystem and the effectiveness of mandatory approval requirements.
Key modifications include the elimination of approval processes for the rate of profit on subordinated loans and the repayment of such loans. Additionally, the mandatory application for a license within six months of the Rules’ notification has been removed as it is considered obsolete.
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Furthermore, the requirement for promoters or majority shareholders to submit an undertaking for the sale or transfer of shares without prior approval from the Commission has been deemed unnecessary and thus eliminated.
The demand for evidence of qualifications and experience for individuals in “executive positions, research, or other related functions” within both existing and new companies has been considered excessive and has been omitted.
Recognizing technological advancements in financial services, specific licensing requirements have been introduced for lending and microfinance services through digital channels, including mobile applications. Additional requirements include the identification of major shareholders and funding sources, along with providing an undertaking on fund sources.
The proposed amendments also mandate NBFCs to maintain membership in the relevant microfinance association. Additionally, Schedule-I has been amended to provide existing companies with an opportunity to convert to an NBFC, creating a conducive environment for such transitions.
These amendments, resulting from comprehensive internal and stakeholder consultations, are viewed by the SECP as critical for the long-term sustainability of the NBFC sector in Pakistan.
