SECP proposes amendments to NBFC Rules 2003 for public input

ISLAMABAD: 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 feedback. The primary objective of these amendments is to create a more favorable regulatory framework for the non-banking finance sector.

As per details the proposed changes stem from a thorough review of regulations, taking into account developments in the NBFC ecosystem and the effectiveness of mandatory approval requirements. 

Non-Banking Financial Companies (NBFCs) in Pakistan are financial institutions that provide a variety of financial services but do not hold a banking license. Unlike traditional banks, NBFCs cannot accept demand deposits but engage in activities such as lending, investment, and wealth management. These companies play a crucial role in the financial sector by offering services like consumer loans, leasing, and investment advisory. Unlike traditional banks, these companies fall under the ambit of the SECP, as opposed to the State Bank.

Key modifications proposed in the NBFC Rules 2003 include the elimination of approval processes for the rate of profit on subordinated loans and the repayment of such loans. Subordinated loans are low priority, high interest loans that NBFCs are permitted to provide under the SECP’s guidelines. After the proposed amendment comes into act, the NBFC would not have to seek individual approval of the SECP to set a profit/interest rate on such loans.

Additionally, the obsolete provision requiring a license application within six months of the Rules’ notification has been removed.

Furthermore, the requirement of submission of an undertaking by a company’s promoters or majority shareholders, for the sale or transfer of shares, without prior approval of the Commission, has been deemed unnecessary and has been removed. 

The requirement for furnishing evidence of qualifications and experience for individuals in “executive positions, research, or other related functions” in both existing and new companies has also been considered excessive and consequently omitted.

In recognition of technological advancements in the financial services sector, specific licensing requirements for lending and microfinance services through digital channels, including mobile applications, have been introduced. Additional requirements include identifying major shareholders and funding sources, as well as providing an undertaking on fund sources. Upon amendment, NBFCs will be required to maintain membership in the relevant microfinance association to foster a conducive environment.

Moreover, Schedule-I has been amended to allow existing companies an opportunity to convert to an NBFC, promoting a more flexible business landscape. These amendments have been proposed following extensive internal and stakeholder consultations, with SECP emphasizing their critical role in ensuring the long-term sustainability of the NBFC sector in Pakistan.