Pakistan State Bank Designs Microfinance Credit G'Tee Facility

May 2009
Karachi, Pakistan, May, 29 2009 - State Bank of Pakistan Tuesday said it has designed a Microfinance Credit Guarantee Facility MCGF in order to incentivize channelling of funds to Microfinance Sector, to be administered by SBP, BSC.

It is expected to facilitate banks/ DFIs to play leading role in easing credit constraints of MFBs/ MFls in their efforts to maximize outreach by extending credit facilities to them.

It is expected to achieve objectives: guarantees are expected to help building links between micro borrowers and formal financial institutions. The familiarisation of bank with client should eventually lead to "graduation" of borrower.

SBP BSC shall provide Partial Guarantees (pari passu) to cover principal amount in default or First Loss Default Guarantees to cover first loss, limited to a certain percentage on principal amount only, to banks/ DFIs to minimize perceived risk premium by covering part of losses incurred on funds made available to MFBs/ MFIs with advantage of leveraging guarantee fund a number of times while keeping incentive for banks/ DFIs to collect loan.

Banks/ DFIs will evaluate prospective recipient MFBs/ MFIs according to well defined due diligence criteria. This way credit enhancement facility will serve banks/ DFIs to develop their sense of risks involved in microfinance.

The guarantee will facilitate resolution of regulatory issues that limit unsecured lending by banks/DFIs and bring loans to MFBs/MFIs under compliance with banking regulations.

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