In order to encourage smaller microfinance banks (MFBs) and microfinance institutions (MFIs) to avail credit lines from commercial banks and development finance institutions (DFIs) for onward lending to microfinance clients, the State Bank of Pakistan (SBP) revised on Wednesday the microfinance credit guarantee facility (MCGF) guidelines.
Revised guidelines offer higher risk coverage of up to 60% to commercial banks and DFIs on lending to smaller MFBs and MFIs. MCGF is a credit enhancement facility to attract market-based and long-term finance for microfinance institutions. It was launched by the SBP in December 2008 with £15 million funding support from the UK Department for International Development (DFID) under the Financial Inclusion Programme (FIP), being implemented by the 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, six large MFBs/MFIs have completed 38 transactions with commercial banks and capital markets/retail investors, mobilising Rs12.8 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.