Ordinance LV of 2001 · 19 pages
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THE MICROFINANCE INSTITUTIONS ORDINANCE, 2001
CONTENTS
PART I
PRELIMINARY
1. Short title, extent and commencement
2. Definitions
3. Applications of other laws
PART II
ESTABLISHMENT AND WINDING UP
4. Restrictions on establishment and operations
5. Name
6. Functions and powers
7. Prohibition and restrictions
8. Principal Office
9. Area of operation
10. Capitalization
11. Winding up
PART III
LICENSING
12. Existing microfinance institutions
13A. Suspension or cancellation of a licence
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PART IV
REGULATION AND SUPERVISION
14. Management and administration
15. Accounts
16. Audit
17. Returns
18. Liquidity and reserves
19. Depositors’ protection fund
20. Power to call for information
21. Inspection and investigation
22. Powers to give directions
22A. Power of the State Bank to remove Directors or other managerial persons from offices
22B. Power of the state Bank to supersede Board of Directors of microfinance banks
22C. Limitations
22D. Prosecution of directors, chief executive officers or other officers
PART V
MISCELLANEOUS
23. Penalties
24. Continuance of charge and priority
25. Restrictions on removal of records and documents
26A. Declaration of fidelity and secrecy
27. False information
28. Cognizance of offences
29. Indemnity
30. Power to make rules
31. Power to make regulations
32. Removal of difficulties
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THE MICROFINANCE INSTITUTIONS ORDINANCE, 2001
ORDINANCE No. LV of 2001
An Ordinance to regulate the establishment, business and operations of microfinance institutions.
WHEREAS it is expedient to promote the establishment of microfinance institutions for
providing organizational, financial and infrastructural support to poor persons, particularly
poor women, for mitigating poverty and promoting social welfare and economic justice through
community building and social mobilization and to provide for matters connected therewith or
ancillary thereto;
AND WHEREAS it is essential to regulate microfinance institutions to protect the depositors
and customers and to safeguard these institutions against political and other outside interference;
AND WHEREAS the President is satisfied that circumstances exist which render it necessary
to take immediate action;
NOW, THEREFORE, in pursuance of the Proclamation of Emergency of the fourteenth day of
October, 1999, and Provisional Constitution Order No.1 of 1999, read with the Provisional
Constitution (Amendment) Order No.9 of 1999, and in exercise of all powers enabling him in that
behalf, the President of the Islamic Republic of Pakistan is pleased to make and promulgate the
following Ordinance:—
PART I
PRELIMINARY
1. Short title, extent and commencement.—(1) This Ordinance may be called the
Microfinance Institutions Ordinance, 2001.
(2) It extends to the whole of Pakistan
(2) It shall come into force at once.
2. Definitions. In this Ordinance, unless there is anything repugnant in the subject or context,—
(a) “auditor” means any person who is appointed in accordance with the provisions
of this Ordinance for the audit of the accounts of a microfinance institution;
(b) “Banking Companies Ordinance” means the Banking Companies Ordinance,
1962 (LVII of 1962);
(c) “company” means a company incorporated under the Companies Ordinance,
1984 (XLVII of 1984), or any other law for the time being in force;
(d) “customer” means any person or group of persons availing the services of a
microfinance institution;
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(e) “deposit” means the deposit of money, repayable on demand or otherwise,
accepted by a microfinance institution from the public for the purpose of
providing microfinance services;
(f) “depositor” means a person in whose name a deposit is held by a
microfinance institution;
(g) “license” means the license issued by the State Bank and the expression
“licensed” should be construed accordingly;
(h) “member” means the member or shareholder who has contributed or
subscribed to the capital of a microfinance institution;
1
[(i) “microfinance institution” means an institution, which extends micro credit and
allied services to the poor through sources other than public savings and
deposits];
1
[(ia) “microfinance bank” means an institution licensed by State Bank under this
Ordinance to establish and operate as microfinance bank;]
(j) “microfinance services” means the financial and other related services
specified in section 6, the value of which does not exceed such amount as
the State Bank may, from time to time, determine;
(k) “poor persons” means persons who have meager means of subsistence and
whose total income during a year is less than such minimum limit as the
State Bank may, from time to time, prescribe;
(l) “prescribed” means prescribed by rules [and regulations] made under this
Ordinance;
(m) “specified area” means the district, province or other specified area within
which a microfinance institution is licensed to operate; and
(n) “State Bank” means the State Bank of Pakistan established under the State
Bank Act, 1956 ( XXXIII of 1956).
3. Applications of other laws.__ (1) The provisions of this ordinance shall be in addition to,
and, save as hereinafter provided, not in derogation of, any other law for the time being in force.
2. Save as otherwise provided in this Ordinance, the Banking companies ordinance any other
law for the time being in force relating to banking companies or financial institutions shall not apply
to microfinance institutions licensed under this ordinance and microfinance institution shall not be
deemed to be a banking company for the purposes of the said ordinance, the state Bank of Pakistan
Act, 1956 (XXXIII of 1956), or any other law for the time being in force relating to banking companies.
1
Subs. AND Ins. by the Finance Act, 2006 (3 of 2006), s. 18 for “clause (i)”.
2
New clause (ia) ins. ibid.
Page 4 of 19
3. save as expressly provided in this ordinance, the provisions of this ordinance shall have
effect notwithstanding anything contained in any rules, regulations, memoranda or articles of
association of a microfinance institution or in any resolution passed by such institution in its general
meeting or by its Board of Directors, whether the same be applied, executed or passed before or after
the commencement of this ordinance and any provision contained in any rules, regulations,
memoranda, articles or resolutions aforesaid shall, to the extent of its inconsistency become or be void
and of no legal effect.
PART II
ESTABLISHMENT AND WINDING UP
4. Restrictions on establishment and operations.—company, shall be established as a
microfinance institution
2. No microfinance institution shall commence, or carry on, the business of taking deposits
unless and until such institution has been licensed in accordance with the provisions of this Ordinance
5. Name.___ (1) No person other than a licensed microfinance bank shall use with its name the
words “Microfinance Bank” or “MFB” or its derivatives or any words or letters which convey that it is
a microfinance bank.
(2) Any person or company to whom license has not been granted under this Ordinance
or the license granted has been cancelled, contravenes, or attempts to contravene or abets the
contravention of sub-section (1), the chief executive by whatever name called, a Director, a Manager
and other officer of the company, and the individual and every member of the association or body of
individuals shall be deemed to be guilty of such contravention and shall be punishable with
imprisonment for a term which may extend to three years or with fine which may extend to one
million rupees or with both.”].
6. Functions and powers.—(1) A microfinance institution shall, in accordance with prudential
regulations and subject to the terms and conditions of the license issued by the state bank, render
assistance to micro-enterprises and provide microfinance services in a sustainable manner to poor
persons, preferably poor women, with a view to alleviating poverty.
(2) without prejudice to the generality of the foregoing provisions, the powers and functions
of microfinance institutions shall be__
(a) to provide financing facilities, with or without collateral security, in cash or
in kind, for such terms and subject to such conditions as may be prescribed,
to poor persons for all types of economic activities including housing, but
1
excluding business in foreign exchange transactions [except to receive
remittances from abroad payable only in Pakistan Rupees to beneficiaries in
Pakistan subject to rules and regulations and authorization issued by State
Bank of Pakistan from time to time];
(b) to accept deposits;
1
Added by the Finance Act, 2007 (4 of 2007), s.21, (w.e.f. 1-7-2007).
Page 5 of 19
(c) to accept pledges, mortgages, hypothecations or assignments to it of any
kind of movable or immovable property for the purpose of securing loans
and advances made by it;
(d) to undertake the management, control and supervision of any Organization,
enterprise, scheme, trust fund or endowment fund for the benefit and
advancement of poor persons;
(e) to buy, sell and supply on credit to poor persons industrial and agricultural
inputs, livestock, machinery and industrial raw materials, and to act as agent
for any Organization for the sale of such goods or livestock;
(f) to invest in shares of anybody corporate, the objective of which is to provide
microfinance services 1[and technical, vocational, education, business
development and allied services to the poor and micro enterprises] to poor
persons;
(g) to provide storage and safe custody facilities;
(h) to carry out survey and research, and to issue publication and maintain
statistics relating to the improvement of economic condition of poor persons;
(i) to provide professional advice to poor persons regarding investments in small
business and such cottage industries as may be prescribed;
(j) to encourage investments in such cottage industries and income generating
projects for poor persons as may be prescribed
(k) to provide services and facilities to customers to hedge various risks relating to
microfinance activities;
(l) to render managerial, marketing, technical and administrative advice to
customers and assisting them in obtaining services in such fields;
(m) to borrow and raise money and open bank accounts;
(n) to purchase, take on lease, or otherwise acquire, sell, exchange, surrender,
lease, mortgage, dispose of and deal in any movable and immovable property
and rights of all kinds for and on behalf of its customers for the purpose of
promoting development opportunities, building of assets, resource allocation,
promotion of markets, and adoption of better technology for economic growth
and development;
1Ins. by the Finance Act, 2006 (3 of 2006), s.18.
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(o) to establish subsidiaries, whether wholly or partly owned, and to appoint
agents in various locations for various activities which it may consider
necessary for the proper discharge of its functions;
(p) to pay, receive, collect and remit money and securities within the country;
(q) to acquire, maintain and transfer all movable and immovable property
including residential premises, for carrying on its business;
(r) to open account or make any agency arrangement with, and to act as agent or
correspondent of, any bank or financial institution;
1
(s) to invest its surplus funds in Government [and such other marketable securities
as State Bank may from time to time notify];
(t) to impose and receive fees, charges, profits or return for its services;
(u) to mobilize and provide financial and technical assistance and training to
micro enterprises;
(v) to undertake mobile banking to expedite transactions and reduce costs;
(w) to establish trust and endowment funds;
(x) to receive grants from the government and any other sources permitted by the
State Bank; and
(y) to generally do and perform all such acts, deeds and things as may be necessary,
incidental or conducive to the fulfillment of their functions and the attainment
of their objectives.
7. Prohibition and restrictions.___ (1) A microfinance institution shall not undertake or transact
any kind of business other than that authorized by, or under, this ordinance.
(2) In performance of its functions under this Ordinance, a microfinance institution shall have
proper regard to the economic and commercial merits of any or the transactions or activities it plans
to undertake or assist.
(3) Where a microfinance institution is required by any authority to undertake or assist
a micro enterprise or other such activities which it considers economically or otherwise unsound,
the microfinance institution shall not undertake or assist such activity until and unless the said
authority has provided adequate guarantee to the microfinance institution or indemnify any losses
that it may incur in the undertaking of such activity.
1Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “securities”.
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(4) No microfinance institution shall create a floating charge on the undertaking or any of
its assets or part thereof, unless the creation of such floating charge is certified in writing by the State
Bank as not being detrimental to the interest of the depositors of such institution.
(5) Any such charge created without obtaining the certificate of the State Bank shall be
invalid.
(6) Any microfinance institution aggrieved by the refusal of a certificate under sub- section
(4) may, within thirty days from the date on which such refusal is communicated to it, prefer an appeal
to the Central Board of the State Bank whose decision thereon shall be final.
8. Principal Office.___ (1) The principal office of a microfinance institution shall be situated in
the specified area and shall not be changed without prior approval of the state Bank. The microfinance
institution may, with the approval of the state Bank, establish branch offices at such other place, or
places, in the specified area as it may think fit.
(2) A microfinance institution shall furnish to the State Bank an annual plan indicating
the place where new branches will be opened or the names of agents to be appointed together
with the details of their duties and functions.
(3) A microfinance institution shall give at least thirty days’ advance notice to the State
Bank for opening of a new branch or appointment of an agent.
(4) Unless otherwise advised by the State Bank, the opening of the new branch or appointment
of an agent shall be deemed to be licensed at the expiry of thirty days of the notice given to the State
Bank under sub-section (3).
9. Area of operation. A microfinance institution shall be licensed to operate in an area
which may consist of,—
(a) a district;
1
[(aa) a region comprising up to five adjacent districts within the same
Province or any other area wherein this Ordinance is applied with
necessary adaptations as the case may be;].
(b) a province; or
(c) the whole of Pakistan
10. Capitalization.___ 2[(1) Power to prescribe paid-up capital reuirements for microfinance
banks shall vest in State Bank of Pakistan and no microfinance bank shall operate unless it has a
minimum paid-up capital as state Bank may, from time to time, prescribe. The State Bank may prescribe
different minimum paid-up capital requirements for microfinance banks operating at district, regional,
provincial, and national level.
1 New clause (aa) ins.by the Finance Act, 2006 (3 of 2006), s.18
2Subs. by the Finance Act, 2007, (4 of 2007),s.21, for, “sub-section (1)”.
Page 8 of 19
Explanation.__ For the purpose of this sub-section the expression “district” shall include the
Islamabad capital territory and such other territories as specified by the Federal Government may, by
notification in officer Gazette, specify.]
(2) Not less than fifty-one per cent of the paid up capital of a microfinance institution shall be
subscribed by the promoters or sponsor members and the shares subscribed to be the promoters or
sponsor members shall remain in the custody of state bank and shall neither be transferable nor
encumbrance of any kind shall be created thereon without prior permission, in writing, of the state
Bank.
11. Winding up. The provisions of Banking companies ordinance for winding up of banking
companies shall, mutates mutandis, apply to microfinance institutions of the purpose of their winding
up.
LICENSING
1[12. Existing microfinance institutions.___ (1) Any person performing the functions of a non-
deposit taking microfinance institution may make an application to the state bank on such forms
accompanying such information and fee, as may be prescribed, for issuance of a license to set up
microfinance bank and take deposits.
(2) The State Bank may, on receipt of the application, make such enquiries as it considers
necessary and either grant a license as for a specified area as permissible under this ordinance, subject
to such conditions as the State Bank may think fit to impose or for reasons to be recorded in writing,
reject the application for the license.
(3) Before granting the license, the State Bank shall satisfy itself by an inspection of the books
of the microfinance institution, programme, project or otherwise, etc, that—
(a) the micro finance institution, project or programme, etc., enjoys a good
financial health and is and will be in a position to meet its liabilities; and
(b) the affairs of the microfinance institution are not being, and are not likely to
be, conducted in a manner detrimental to the interests of its members and
present or future customers.
(4) Where an application of a non-deposit taking microfinance institution for grant of license
to take deposits is rejected, the concerned microfinance institutions may continue operations as a non-
deposit taking micro finance institution.
(5) If the State Bank rejects such an application for grant of licence to take deposits, the
applicant may, within thirty days from the date of the order of the State Bank, prefer an appeal to the
Central Board of the State Bank and the order passed by the Central Board in this respect shall be
final.]
1 Sub by the Finance Act, 2006 (3 of 2006), s.18 for “section 12”.
Page 9 of 19
1[13A. Suspension or cancellation of a licence.___ (1) The State Bank may suspend or cancel
a license granted to a microfinance bank if the microfinance bank.—
(a) at any time fails to comply with any of the conditions imposed upon it under
sub-section (2) of section 12 or sub-section (2) of section 13, as the case may
be;
(b) at any time fails to pay its liabilities or in the opinion of State bank of Pakistan
the affairs of the microfinance bank are conducted in a manner detrimental
to its depositors; or
(c) has furnished false or misleading information in its application for a licence;
or
(d) has gone into liquidation, suspended its business activities or ceased to carry
on business as microfinance bank in Pakistan:
Provided that before suspending or canceling a licence under clause (a)
or clause (b), the State Bank, unless it is of opinion that the delay may be
prejudicial to the interest of the micro finance bank’s depositors or the public,
shall grant to the micro finance bank on such terms as it may specify, an
opportunity of taking the necessary steps to comply with or fulfill such
conditions.
(2) No license shall be suspended or cancelled under sub-section (1) unless and until the
microfinance bank is called upon by a notice in writing by the State Bank to show cause within fifteen
days as to why its licence should not be suspended or cancelled
(3) In the event of suspension or cancellation of a license the microfinance bank concerned
shall be notified forthwith and, from the date of such notification, shall cease to transact any business
other than that required to wind up its affairs with the approval of the State Bank. The State Bank
shall publish notice of such suspension or cancellation in one leading Urdu language newspaper and
one English language newspaper in addition to its publication in the official Gazette.
(4) The provisions of sub-section (1) shall not prejudice the rights or claims of any person
against the micro finance bank or of the micro finance bank against any person.
(5) A micro finance bank aggrieved by the decision of the State Bank for suspension or
cancellation of its licence may, within thirty days from the date on which such decision is
communicated to it, apply for review to the Central Board of the State Bank.
(6) The decision of the State Bank, subject to the result of review by the Central Board of
the State Bank under sub-section (5) shall be final.]
1
Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “section 13”.
Page 10 of 19
PART IV
REGULATION AND SUPERVISION
14. Management and administration: (1) The general superintendence and management
of the affairs of a microfinance institution shall vest in its Board of Directors which shall manage its
business and affairs in accordance with the principles of good governance.
(2) There shall be a chief executive officer who shall work full time and be responsible
for the day-to-day administration of microfinance institution.
(3) The State Bank shall ensure that the persons serving on the Board of Directors and the
chief executive officer of a microfinance institution are persons of integrity and have good
financial reputation.
15. Accounts.___ (1) A microfinance institution shall maintain porper books of accounts and,
at the expiration of teach calendar year, prepare annual statement of accounts including the profit and
loss account and balance sheet as may be prescribed.
(2) A microfinance institution shall, in respect of such accounts, comply with such
general directions as the State Bank may, from time to time, issue.
16. Audit.___ (1) The accounts of a microfinance institution shall maintain proper books of
accounts and, at the expiration of each calendar year, prepare annual statement of accounts including
the profit and loss account and balance sheet as may be prescribed.
(2) The auditor or auditors shall be appointed for such terms and on such remuneration, to
be paid by the microfinance institution, as the Board of Directors of such institution may fix:
1
Provided that the auditors once appointed shall not be removed before [five] years without
the prior approval of the State Bank and no auditor shall serve as external auditor of a microfinance
institution consecutively for more than five years.
(3) Every auditor, appointed under sub-section (2), shall be given a copy the annual balance
sheet and other accounts of the microfinance institution who shall examine it, together with
the accounts and vouchers relating thereto, and shall have a list delivered to him of all books kept
by the microfinance institution, and shall, at all reasonable times, have access to the books of
accounts and documents of the microfinance institution, and may, in relation to such accounts,
examine any director or officer of the microfinance institution.
(4) The auditors shall report to the Board of Directors of the microfinance institution upon the
annual accounts and balance sheet and in their report they shall state whether, in their opinion, the
balance sheet contains all necessary particulars and is properly drawn up so as to exhibit a true and
correct view of the state of affairs of the microfinance institution and, in case they have called for any
explanation or information from the microfinance institution, whether it has been given and whether
it is satisfactory.
1 Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “Three”.
Page 11 of 19
(5) The audited financial statements shall be published within three months of close of its
financial year and microfinance institution shall cause its accounts to be published in a daily
newspaper having wide circulation in the specified area.
(6) A microfinance institution shall submit audited financial statements along with auditors’
report to the State Bank within three months of the close of its financial year.1
2
[Provided that in exceptional circumstances the State Bank may, for the reasons to be
recorded, extend such period up to a period of another one month.].
(7) Nothing in this Ordinance shall apply to the preparation of accounts by a microfinance
institution and its audit in respect of any accounting year which has expired prior to the
commencement of this Ordinance, and notwithstanding the other provision of this Ordinance such
accounts shall be prepared, audited and submitted in accordance with the law in force immediately
before such commencement.
17. Returns.___ (1) A microfinance institution shall furnish to the State Bank such returns,
reports and information as may be prescribed.
(2) Without limitation to the foregoing, a microfinance institution shall,—
(a) maintain a register of its members, Board of Directors and the chief executive
officer and provide information thereof to the State Bank at such time and in
such manner as may be prescribed;
(b) maintain accounts and have the same audited at such time and in such manner
as may be prescribed;
(c) submit its annual report and audited accounts to the State Bank and publish the
same for general information at such time and in such manner as may be
prescribed; and
(d) furnish to the State Bank such particulars with regard to accounts and other
records as the State Bank may from time to time require.
(3) The State Bank, or any officer duly authorized by it in this behalf, may at all reasonable
times inspect the books of account and other records of a microfinance institution, the securities, cash
and other properties held by such institution, and all documents relating thereto.
18. Liquidity and reserves.___ (1) A microfinance institution shall maintain investment in
liquid assets, i.e. cash, gold and unencumbered approved securities, valued at a price not exceeding
the lower of the cost and the current market price, which shall not at the close of business on any day
be less than such percentage of the total of its time and demand liabilities, as may be notified by the
state bank from time to time:
1
Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “fullstop”.
2
Proviso added ibid.
Page 12 of 19
Provided that the state bank may separately specify the applicable percentage either in general
or in relation to any class of microfinance institution in particular.
Explanation.__ (1) For the purpose of this section, the expression “unencumbered approved
securities of a microfinance institution lodged with another microfinance institution or institution for
an advance or any other credit management to the extent to which such securities have not been drawn
against or availed of, and the expression “ liabilities” shall not include the paid up capital or reserves
or any credit balance in the profit and loss account of the microfinance institution or any such
liabilities as may be notified by the state bank for the purposes of this section.
b) In computing the amount provided for in clause (a) any balances maintained in Pakistan
by a microfinance institution in a current account with the State Bank or its agent or both 1* * *
shall be deemed to be cash maintained.
2
[(c) The State Bank shall monitor the liquidity position through such returns and systems as
may be prescribed by it from time to time.].
3
[(2) A microfinance bank shall maintain by way of cash reserve in cash in current account,
opened with the State Bank or its agent, a sum equivalent to five per cent of its deposits or such
percentage as State Bank may from time to time notify. The State Bank shall monitor the reserve
position through such returns and systems as may be prescribed by it from time to time.]
Explanation.__ For the purpose of this section the expression “liabilities” shall not include the
paid up capital, the reserves or any credit balance in the profit and loss account of a microfinance
institution, the amount of any loan taken from the state bank and the amount received as loan in
Pakistan currency by a microfinance institution from the Federal Government out of a foreign
currency loan contracted by the Government or the amount of foreign currency loans obtained by the
microfinance institution directly from any foreign agency but should include the amount of any
other rupee loan taken from the Federal Government.
(3) A microfinance institution shall create and maintain a Statutory Reserve Fund to which
shall be credited each year, a sum equivalent to such percentage of its aftertax profit as may be
prescribed. No appropriation from the Statutory Reserve Fund shall be made without prior written
approval of The State Bank. A microfinance institution shall also create other reserves as required
by the State Bank from time to time.
19. Depositors’ protection fund.___ (1) A microfinance institution shall, as required by the
state bank, establish and maintain depositors’ protection fund or scheme for the purpose of providing
security or guarantee to persons depositing money in such institution.
(2) Five per cent of the annual after tax profits of a microfinance institution and profits
earned on the investments of the fund shall be credited to the depositors’ protection fund and such
fund shall either be invested in Government securities or deposited with State Bank in a remunerative
account.
1 The certain words omitted by the Finance Act, 2006 (3 of 2006),s.18.
2 Subs. by Act.3 of 2006, s.18, for “paragraph (c)”.
3 Subs. ibid., for “sub-section (2)”.
Page 13 of 19
(3) The depositors’ protection fund shall be used to make payment to the individual depositors
with aggregate deposits of up to ten thousand rupees in case of liquidation of the microfinance
institution.
(4) The depositors’ protection fund shall be operative with effect from the expiry of five years
from the date of first Annual Balance Sheet of the microfinance institution and shall remain
unencumbered at all times.
20. Power to call for information. Where it appears to the state bank that a person is carrying
on the business of a microfinance institution in contravention of section 4, the state bank may,__
(a) direct such person or any other person who is, or has at any time, been dealing,
doing business or associating in any manner with such person, to give or
furnish to the State Bank within a specified period such books, accounts,
information, documents or records relating to such microfinance institution’s
business as may be within the custody, possession or control of such person;
(b) authorize any person to enter and search any premises and seize books,
accounts or other documents or records relating to such business;
(c) inspect and examine any of the books, accounts, documents or records referred
to in clause (a); and
(d) exercise as far as may be applicable the powers conferred on the State Bank
under section 22.
21. Inspection and investigation.___ (1) The state Bank may, at any time, inspect books of
accounts and records of any microfinance institution to evaluate its financial viability and may, of its
own or on recipt of complaint investigate the affairs of such institution.
(2) The inspection or investigation shall be carried out by such officer of the State Bank
or by such other person as the State Bank may authorize.
(3) It shall be the duty of every officer and employee of a microfinance institution or any other
person dealing with or connected with the operations of the microfinance institution to produce to
any officer, making an inspection or investigation under this section, hereafter in this section called
the inspecting officer, all such books, accounts and other documents in his custody or power and to
furnish him with such statements and information relating to the affairs of the microfinance institution
within such time as the inspecting officer may require.
(4) The inspecting officer may examine on oath any officer or employee of the
microfinance institution in relation to its business and may administer an oath accordingly.
(5) The State Bank shall supply to the microfinance institution a copy of its report on the
inspection made under this section.
Page 14 of 19
(6) The State Bank shall systematically monitor and evaluate the performance of a
microfinance institution to ensure that it is complying with the applicable criteria and prudential rules
and regulations:
Provided that if any officer or any employee fails to produce any books of account or other
documents or to furnish any statement or information which under sub-section (3) it is his duty to
produce or furnish or to answer correctly any question relating to the business of the microfinance
institution which he is asked by an inspecting officer, such officer or employee shall be liable
to fine as the State Bank may determine to be recovered from the salary of such officer or employee
and, in the event such failure persists, the State Bank may order removal of such officer or employee
and the microfinance institution shall comply with such order forthwith.
22. Powers to give directions.___ (1) Where the State Bank is satisfied that,
(a) in the public interest; or
(b) to prevent the affairs of a microfinance institution being conducted in a manner
detrimental to the interest of the depositors or in a manner prejudicial to the
interest of a microfinance institution; or
(c) in furtherance of monetary or financial sector policy; or
(d) to secure the proper management of a microfinance institution, it is necessary
to issue directions to microfinance institutions generally or to any microfinance
institution in particular, it may, from time to time, issue such directions as it
may deem fit and the microfinance institutions or the microfinance institution,
as the case may be, shall comply with such directions.
(2) The State Bank may, on representation made to it or of its own motion, modify or cancel
any direction issued under sub-section (1), and in so modifying or canceling any direction may impose
such condition, as it thinks fit, subject to which the modification or cancellation shall have effect.
1
[22A. Power of the State Bank to remove Directors or other managerial persons from
offices. (1) Where the State Bank is satisfied that__
__
(a) association of any chairman or director or chief executive by whatever name
called or other officer of a microfinance bank not being lower in rank than a
branch manager, is or is likely to be detrimental to the interests of the
microfinance bank or its depositors or is otherwise undesirable; or
(b) in the public interest; or
(c) to prevent the affairs of a microfinance bank being conducted in a manner
detrimental to the interest of its depositors or in a manner prejudicial to the
interests of the microfinance bank; or
1New section 22A, 22B, 22C ins. by the Finance Act, 2006 (3 of 2006), s.18
Page 15 of 19
(d) to secure the proper management of any microfinance bank, it is necessary
so to do; the State Bank may, for reasons to be recorded in writing, by order,
remove from office, with effect from such date as may be specified in the
order, any chairman or director or chief executive officer by whatever name
called or other officer of the microfinance bank.
(2) No order under sub-section (1) shall be made unless the chairman or director or chief
executive or other officer has been given a reasonable opportunity of making a representation to the
State Bank against the proposed order:
Provided that if, in the opinion of the State Bank, any delay shall be detrimental to the public
interest or the interest of the microfinance bank or its depositors, the State Bank may, at the time of
giving the opportunity aforesaid or at any time thereafter and pending the consideration of
the representation aforesaid, if any, by order direct that-
(a) the chairman or, as the case may be, director chief executive officer or other
officer, shall not, with effect from the date of the order,—
(i) act as such chairman or director or chief executive or other officer
of the microfinance bank; or
(ii) in any way, whether directly or indirectly, be concerned with, or
take part in the management of the micro finance bank; and
(b) any person authorized by the state bank in this behalf shall act as such
chairman or director or chief executive of the microfinance bank
(3) Where any order under sub-section (1) is made in respect of a chairman, director, chief
executive or other officer of a microfinance bank, he shall forthwith cease to be a Chairman or, as the
case may be, a director chief executive officer or other officer of the microfinance bank and shall
not in any way, whether directly or indirectly, be concerned with, or take part in, the management
of the microfinance bank or any other microfinance bank for such period not exceeding three years
as may be specified in the order.
(4) Any person appointed as chairman director or chief executive officer under sub-section
(2) shall—
(a) hold office during the pleasure of the State Bank subject to such conditions as
may be specified in the order of his appointment and, subject thereto, for
such period, not exceeding three years as the State Bank specify in such order;
and
(b) not incur any obligation or liability for anything, which is done or intended to
be done in his capacity as such chairman, director or chief executive.
(5) No person removed from office under sub-section (1) shall be entitled to claim any
compensation for the loss or termination of office.
Page 16 of 19
22B. Power of the state Bank to supersede Board of Directors of microfinance banks.___
(1) Where the state Bank is satisfied that__
(a) the association of the Board of Directors, by whatever name called, of a
microfinance bank, is or is likely to be detrimental to the interests of the
microfinance bank or its depositors or otherwise undesirable; or
(b) for all or any of the reasons mentioned in sub-section (1) of section 22A, it is
necessary so to do, the State Bank may, for reasons to be recorded in writing,
by order, supersede the Board of Directors of a microfinance bank with effect
from such date and for such period as may be specified in the order.
(2) The period of supersession specified in an order under sub-section (1) may from time to
time be extended by the State Bank and the total period of supersession shall in no case exceed three
years.
(3) All orders and duties of the Board of Directors shall, during the period of supersession,
be exercised and performed by such persons as the State Bank may from time to time appoint in
this behalf
(4) The provisions of sub-sections (2), (3), (4), and (5) of section 22A shall, apply to an
order made under sub-section (1) or sub-section (3).
22C. Limitations.___ (1) No order under section 22A or section 22B- shall be made except
by the governor of the state bank on a report by a standing committee set up by the state bank for the
purpose.
(2) Any person or micro finance bank aggrieved by an order made by the Governor of the
State Bank under section 22A or section 22B may make an appeal to the Central Board of Directors
of the State Bank whose decision shall be final.
(3) No action taken under section 22A or section 22B or sub-section (2) shall be called
in question by or before any court, tribunal or other authority
22D. Prosecution of directors, chief executive officers or other officers. Notwithstanding
anything contained in section 22A the State Bank may direct prosecution of a director or chief
executive officer by whatever name called or other officer who, in its opinion, has knowingly acted
in the manner causing loss of depositors’ money or of the income of the microfinance bank.
Explanation.__ For the purpose of this section a director chief executive officer or other officer
shall be deemed to have acted knowingly if he has departed from established banking practices and
procedures or circumvented the regulations or related restrictions laid down by the State Bank of
Pakistan from time to time.]
PART V
MISCELLANEOUS
23. Penalties.___ (1) Whoever carries on the business of a microfinance institution without
having been licensed to do so or who carries on such business after the license therefore has been
Page 17 of 19
suspended or cancelled shall be punished with imprisonment for a term which shall not be less than
five years.
(2) Any person who willfully withholds or fails to deliver any document or information
or makes a statement in any return, balance sheet or other document or in any information required
or furnished under, or for the purpose of any provision of, this Ordinance which to the
knowledge of such person is false in any material respect, shall be punishable with imprisonment for
a term which may extend to one year, or with fine which may extend to one hundred thousand rupees,
or with both.
(3) Any person who contravenes any other provision of this Ordinance or does not comply
with any requirement of this Ordinance or any rule, regulation, order, instruction, condition made,
given or imposed hereunder shall be liable to such fine as the State Bank may, from time to time
determine.
(4) If any officer of a microfinance institution, mismanages the affairs of the microfinance
institution or misuses his position for gaining direct or indirect benefit for himself or any of his family
members, he shall be punishable with imprisonment for a term which may extend to three years and
shall also be liable to fine which may extend to one hundred thousand rupees, and shall be ordered,
by the court trying the case, to deliver or refund within a time to be fixed by the court any property
acquired or gained by him in his own name or in the name of his family members by using his
position or, in default, to suffer further imprisonment for a term which may extend to six years.
(5) A microfinance institution, which fails to maintain liquid assets and reserves in accordance
with the provisions of this Ordinance, shall be punished with a fine equivalent to one per cent of the
shortfall for every day in which the failure occurs.
24. Continuance of charge and priority.—Where a charge over any property has been,
or is, created by any person in favour of a microfinance institution to secure any of the services
extended by the microfinance institution to such person, such charge shall continue to remain valid
and shall maintain its priority in favour of the microfinance institution against all charges created by
such person in favour of any other person subsequent to the original date of registration of such
charge.
25. Restrictions on removal of records and documents.—No microfinance institution shall
remove from the specified area, to a place outside the specified area, any of its records and documents
relating to its business without the prior permission in writing of the State Bank.
Explanation.__ In this section the expression “records” includes ledgers, day books, cash
books, books of accounts, and all other books, maintained either on paper books or on electronic or
magnetic devices, used in the business of a microfinance institution; and the expression “document”
includes vouchers, cheques, bills, pay orders, securities for advances and any other documents
supporting entries in the books of accounts, or claims by or against, a microfinance institution.
1
[26A. Declaration of fidelity and secrecy.—(1) Every member, director, auditor and staff
member of the microfinance bank shall, before entering upon his office and performance of duties,
make a declaration of fidelity and secrecy in the form as State Bank may prescribe.
1
New section 26A ins. by the Finance Act, 2006 (3 of 2006),s.18.
Page 18 of 19
(2) Whoever contravenes the declaration of fidelity and secrecy shall be punishable with
imprisonment for a term which may extend to six months, or with fine which may extend to one
hundred thousand rupees, or up to the extent of loss caused, whichever is higher, or with both.
27. False information. Whoever in any application for obtaining assistance or in any balance
sheet, statement of profit and loss, declaration or any other document submitted to the microfinance
institution for the purpose of obtaining any financial aid sought or granted under this Ordinance, willfully
makes false statement or knowingly permits any false statement to be made or to remain, or uses or
permits to be used any financial facility for any purpose other than that for which it is granted by
the microfinance institution shall be punishable with imprisonment for a term which may extend to six
months, or with fine which may extend to one hundred thousand rupees, or with both.
28. Cognizance of offences.__ (1) No court shall take cognizance of an offence under this
ordinance except on complaint in writing made by an officer of the state bank authorized in this behalf.
(2) Notwithstanding anything in the code of criminal procedure, 1898, (Act V of 1898),__
(a) no court other than that of a Judicial Magistrate of the first class shall try an
offence under this Ordinance; and
(b) it shall be lawful for the Judicial Magistrate to pass any sentence authorized by
this Ordinance.
29. Indemnity.___ No suit or other legal proceeding shall lie against the federal by government,
the state bank or nay officer of the federal government or the state bank for anything which is in good faith
done, or intended to be done, under this ordinance or of any rules, regulations or orders made there under.
30. Power to make rules.___ (1) the state bank may, with the approval of the federal government,
by notification in; the official Gazette, make rules for carrying out the purposes and provisions of this
ordinance.
1
* * * * * * *
31. Power to make regulations. The State Bank may make regulations, not inconsistent with the
provisions of this Ordinance and the rules, to provide for all matters for which provision is necessary or
expedient for the purpose of giving effect to the provisions of this Ordinance and efficient conduct of
the affairs of a microfinance institution.
32. Removal of difficulties (1) Subject to sub-section (2), if any difficulty arises in giving effect
to any of the provisions of this ordinance, the federal government may make such order, not inconsistent
with the provisions of this ordinance, as may appear to it to be necessary for the purpose of removing the
difficulty.
(2) No order under sub-section (1) shall be made after expiry of two years from the commencement
of this Ordinance.
1Sub. Section (2) omitted by the Finance Act, 2006 (3 of 2006),s.18.
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Source: Pakistan Code, Ministry of Law and Justice (pakistancode.gov.pk). Text on this page is reproduced verbatim from the official PDF and is provided for reference only. For the authoritative version, always consult the source document or a current reported edition.
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