Amendments to the Microfinance Institutions Ordinance, 2001 - Implications for the Sector
Oct 2007, Ahmed, S. & Shah, M.

Have the microfinance amendments in Pakistan helped the sector gain recognition?

This paper analyzes the implication of the amendments to the Microfinance Institutions Ordinance (MIO) to the microfinance sector in Pakistan.

The analysis documents the procedure adopted by the Government of Pakistan (GoP) and the State Bank of Pakistan (SBP) to develop and amend regulation for the microfinance industry. It describes:

• The factors that prompted the GoP to establish a regulatory framework for microfinance banks,
• The process that the main actors followed in developing the regulation,
• The various roles that the SBP played.

The paper then identifies amendments to the MIO and the Prudential Regulations for microfinance banks, and examines the implications of the amendments. It states that:

• The strengthening of the supervisory role of the SBP indicates the confidence of the central bank in the microfinance sector and the new breed of financial institutions.
• The amendment authorizing microfinance banks (MFBs) to invest surplus funds in ‘marketable securities’ highlights the policy makers’ recognition of the existence of wider avenues for the investment of surplus funds.
• The amendments indicate recognition by policy makers of the need for a diverse microfinance sector by differentiating between other MFI and MFBs.

The paper concludes by identifying areas for improvement in the legal and regulatory environment to attract private risk capital to the microfinance industry, and by recommending additional amendments.

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