Microfinance Focus, June 14, 2011: Pakistan’s Central Bank, State Bank of Pakistan (SBP) has allowed the country’s Microfinance Banks to use gold as collateral for extending microloans to low income borrowers. In a circular addressed all Microfinance Banks, SBP notified that Microfinance Banks are allowed to treat gold as eligible collateral with 0% risk weight for calculation of Capital Adequacy Ratio.

According to the Prudential Regulations for the sector, Microfinance Banks and institutions are required to maintain equity equivalent to at least 15% of its risk-weighted assets.

Sector analysts have reportedly said that SBP’s move will increase the advances of MFBs, which were badly affected during the last quarter of 2010 due to devastating floods that hit the country last year

It was reported that lending from MFBs declined by 7.5 percent from Rs10.79 billion in September 2010 to Rs9.985 billion by December 2010.