The document discusses regulations around non-banking financial companies (NBFCs) in Pakistan. It provides background on NBFCs and how they were introduced through amendments to Pakistani law. It outlines the types of licenses and regulations NBFCs must comply with, including different categories of NBFCs and their minimum requirements. It also discusses the application and approval process for setting up an NBFC and obtaining licenses to conduct different financial services.

1. NBFC – Establishment
& Regulation
Presenter: Mr. Muhammad Umer Draz Awan

2. Introduction
NBFC: Non-Banking Finance Companies
• Financial institutions that provide selected financial services but do not hold a banking
license.
• Main objective of NBFC is to consolidate the non-banking financial services sector and
to allow multiple business activities under one umbrella for the ease and facility of the
customers.
• Engaged in specialized financial services and are envisioned to play an important role in
mobilizing finance to complement the outreach of the banking industry, especially in
underserved segments such as the SME sector, housing and infrastructure development,
leasing and discounting.
• In most cases, NBFCs are not allowed to take demand deposits and unlike banks,
cannot offer checking accounts.

3. NBFC: Non-Banking Finance Companies
• In 2002, NBFC regime was introduced in Companies Ordinance 1984 through
the Companies second amendment
• Accordingly, NBFCs have been allowed to function as companies, duly
licensed by the SECP with multi-tiered capital requirements in accordance with
the risks associated with their proposed businesses namely: asset management
services, discounting services, housing finance services, investment advisory
services, investment finance services, leasing, and venture capital investment.

4. Applicable License & Regulations
• Locally domiciled NBFCs are regulated and licensed by the SECP and
following:
1. The Companies Ordinance, 1984
2. The Non-Banking Finance Companies (Establishment and Regulation)
Rules, 2003
3. The Non-Banking Finance Companies and Notified Entities Regulations,
2008

5. Application of NBFC
NBFCs which include companies licensed by the Commission to carry out any one or
more of the following forms of business, namely:
i. Investment Finance Services
ii. Leasing
iii. Housing Finance Services
iv. Venture Capital Investment
v. Discounting Services
vi. Investment Advisory Services
vii. Asset Management Services

6. Banking Companies vs. NBFCs

7. NBFC Categories
In 2015, the SECP introduced amendments to the Regulations that divided NBFCs
into two categories:
Lending NBFCs include Non-Bank Micro Finance Companies (NB-MFC)
NBFC
Categories
Lending NBFCs
Asset
Management
NBFCs

8. AMC: Asset Management Company
• AMC is a NBFC licensed by the SECP to carry out Asset Management in accordance with Part VIII-A of the
Companies Ordinance, 1984 and the NBFC & NE Regulations, 2008 . AMC shall be incorporated under the
Ordinance read with the provisions of the NBFC Rules, 2003
• The SECP has given the following methodology chronologically for the incorporation of a NBFC and licensing as
AMC:
1. NOC for Formation of NBFC: Application to Specialized Companies Division, SECP Headquarter Islamabad
for obtaining permission to form an NBFC along with the following documents: Form I of the Rules along with
all relevant supporting documents and Fee with Form I (as per Schedule II of the regulations)
2. Incorporation of NBFC: Incorporation of NBFC as a Public Limited Company, at the concerned Company
registration office, as per the existing procedures, form and fees
3. Licensing as AMC: Application to Specialized Companies Division, SECP Headquarter Islamabad for grant of
license for to carry out Asset Management Services: Form II of the Rules along with all relevant supporting
documents and Fee with Form II (as per Schedule II of the Regulations)
4. AMC Established

9. Types of NBFCs
Following slides show NBFC types
They differ in terms of the services they offer, their clientele,
minimum equity and licensing requirements:

13. Total Assets & Advances of Lending NBFCs
(March 2020)

14. Documentary Evidence by Exposure Limit

15. Permission to form NBFC
• Any person who wishes to establish a NBFC shall make an application for
permission to the Commission on the prescribed Form -I of the rules along
with all the required documents and the non-refundable fee.
• The permission is usually in writing to form the NBFC valid for the period
of six (6) months.
• This duration of six months can be extended to nine months in special
circumstances.
• During this duration, the NBFC shall be incorporated and an application
should be submitted to the Commission for the grant of License.

16. Conditions for the Grant of License
• The NBFC or any other company subject to eligibility in terms of schedule I
shall make separate applications to the Commission for grant of license for
carrying out each form of business.
• The said application shall be submitted to the Commission in Form-II along
with a non-refundable processing fee as may be specified by the
Commission.
• Fees:
• NOC / Permission = Rs.250,000
• Licensing = Rs.500,000

17. Conditions Applicable to a NBFC
• Maintain such books of accounts and other records, as prescribed under the ordinance (e.g.
cash register, journals, ledgers, MoMs of board meetings, etc.)
• Maintain books for a period of no less than 10 years
• Ensure that its statutory auditors are from the approved list of auditors circulated by the
Commission
• Appoint top management as per criteria laid out in the procedure (experience, educational
background, etc.)
• Furnish to the Commission its quarterly and annual financial statements
• Etc.

18. Deposit taking Capacity of NBFCs
• One critical aspect to the operationalization of an NBFC is access to capital via deposits.
• Current regulations include a clear set of criteria for an NBFC to evolve from a non-deposit
taking to a deposit taking entity.
• The criteria are listed below:
1. The entity should have been operational as a lending NBFC for a minimum of three years,
and posting profits for the last two years
2. The entity should be meeting Compliance with Minimum Equity requirements (depending
on the type of license)
3. The entity should be compliant with Capital Adequacy Ratio (CAR) requirements

19. Requirement for Audited Financial Statement
• SECP has defined a tiered structure of documentary requirements for
NBFCs extending financing to its retail clients.
• The requirements are defined based on exposure limits.
• As per the pre-amendment regime, a borrower was required to submit
audited accounts if the loan request exceeds PKR 5 million.
• Loans of less than PKR 5 million could be sanctioned and approved based
on less stringent documentary requirements.