Islamabad, May 19, 2025: In a bold move to reinforce financial stability in Pakistan’s microfinance sector, the State Bank of Pakistan (SBP) has announced a significant increase in the minimum capital requirement (MCR) for microfinance banks (MFBs)—doubling it from Rs. 1 billion to Rs. 2 billion in phases.
The updated directive aims to improve the resilience and risk-bearing capacity of MFBs amid ongoing economic challenges.
Under the revised Prudential Regulations for Microfinance Banks, the SBP has rolled out a two-step plan to implement the new MCR. For banks holding a national-level license, the paid-up capital must rise to Rs. 1.5 billion by June 2026 and reach Rs. 2 billion by June 2027.
Similarly, provincial-level MFBs will also need to gradually scale up from Rs. 500 million to Rs. 2 billion over the same period.
All microfinance banks in Pakistan—regardless of category—must eventually meet the Rs. 2 billion capital requirement.
The SBP emphasized that the move is critical for building a buffer against credit risk and maintaining institutional sustainability.
In addition to the MCR, the existing Capital Adequacy Ratio (CAR) of 15% based on risk-weighted assets remains unchanged, ensuring that banks continue to maintain sufficient capital against their lending exposures.
Pakistan currently hosts 12 operational microfinance banks, many of which have been operating under financial strain since the economic downturns triggered by the COVID-19 pandemic and widespread flooding.
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These events significantly impacted small and medium-sized enterprises (SMEs), leading to deteriorating loan recoveries and disrupted income flows for MFBs.
Experts view the SBP’s revised regulations as a necessary step. “Increasing the capital base will not only ensure solvency but also enhance investor and depositor confidence in the microfinance system,” said a senior financial analyst.
The move is expected to attract more robust risk management practices and capital injections from stakeholders.
Furthermore, new compliance measures require MFBs to establish a reserve fund, into which at least 20% of post-tax annual profits must be transferred until the reserve matches the paid-up capital. Additionally, MFBs’ contingent liabilities must be capped—three times their equity for the first three years and five times thereafter.
To enforce liquidity discipline, the SBP also issued stricter guidelines on Cash Reserve Requirements (CRR). Microfinance banks must maintain an average CRR of 3% and a daily minimum of 2%.
Failing to meet these thresholds will result in daily penalties of 1% on the shortfall, reinforcing the importance of reserve maintenance.
