The Securities and Exchange Commission of Pakistan (SECP) has released a draft proposing amendments to the Non-Banking Finance Companies (Establishment & Regulations) Rules, 2003, inviting public input. The objective behind these proposed changes is to enhance the regulatory framework for the non-banking finance sector.
These modifications stem from a thorough review of the existing regulations, taking into account the evolving landscape of the NBFC sector and evaluating the efficacy of mandatory approval requirements.
Included in the proposed amendments is the elimination of approval processes for the rate of profit on subordinated loans and the repayment of subordinated loans. The provision requiring the application for a license within six months of the Rules’ notification has been removed as it is deemed obsolete.
Moreover, the necessity for a submission of an undertaking by the company’s promoters or majority shareholders for the sale or transfer of shares without prior approval from the Commission has been eliminated.
The requirement for furnishing evidence of qualifications and experience for individuals in “executive positions, research, or other related functions” within both existing and new companies has been omitted as it is perceived as excessive.
In recognition of technological advancements within financial services, specific licensing requirements have been introduced for lending and microfinance services through digital channels, including mobile applications. Additional stipulations encompass identifying major shareholders and funding sources, along with providing an undertaking on fund sources.
Once these rules are amended, NBFCs will be obligated to maintain membership in the relevant microfinance association. Additionally, Schedule-I has been amended to provide existing companies with an opportunity for conversion to an NBFC, creating a more conducive environment.
These proposed amendments have undergone extensive internal and stakeholder consultations. SECP firmly believes that these changes are imperative for the sustained growth and stability of the NBFC sector in Pakistan.
