SOHAIL SARFRAZ

ISLAMABAD: The asset size of Non-Bank Financial (NBF) sector has increased to Rs1,190 billion as of June 30, 2017 as compared to Rs 925 billion on June 30, 2016, reflecting an increase of 29 percent.

According to the data of Securities and Exchange Commission of Pakistan (SECP) on NBF sector during 2016-17, over the years, the SECP has strived to provide a transparent and robust regulatory framework based on the best international practices for the entire NBF sector. As a result, the asset size of NBF sector has increased at a steady pace during the past few years. As of June 30, 2017, it stood at Rs1,190 billion as compared to Rs925 billion on June 30, 2016, reflecting an overall increase of 29 percent during the period under review.

As of June 30, 2017, the total size of the industry stood at Rs 710 billion as compared to Rs546 billion on June 30, 2016. The total number of funds/plans stood at 228 as of June 30, 2017, as compared to 199 as of June 30, 2016. The industry was also managing discretionary portfolio of Rs141 billion as of June 30, 2017.

As of June 30, 2017, equity funds (both conventional and Shariah-compliant) dominated the assets under management of the industry with the largest share of the mutual fund industry, i.e. 48.03 percent. Income funds (both conventional and Shariah-compliant) held the second largest industry share, ie, 17.76 percent, followed by money market funds (both conventional and Shariah-compliant) with industry share of 11.93 percent.

At present, 19 NBFCs have licenses to conduct the business of investment advisory in addition to business of asset management services while two NBFCs have an exclusive license for conducting investment advisory services. As of June 30, 2017, the total discretionary/non-discretionary portfolio held by all of the NBFCs was Rs141 billion, the SECP said.

During 2016-17, three NBFCs were granted license to undertake private equity and venture capital fund management services business under the newly promulgated Private Fund Regulations, 2015.

During the period under review, the NBF sector grew by 29 percent from Rs925 billion to Rs1,190 billion. Mutual funds, pension funds and separately managed accounts witnessed substantial increase in their assets. Of these, the assets of private pension funds grew by 37 percent during the year. This notable growth is attributed, among other things, to conducive regulatory and fiscal framework. During 2016-17, 2 new leasing companies were incorporated. Moreover, the declining trend in asset size of investment banks and leasing companies witnessed a reversal. Following the risk-based approach, seven AMCs and one leasing company were inspected during the year, covering 48 percent of the NBFCs and Modaraba sectors. Based on the violations and observations reported in the offsite and onsite inspection reports, 12 show cause notices and orders, 37 warnings, and 299 compliance related letters were issued to the entities to enhance level of discipline and compliance in the NBF sector.

In order to further develop the mutual fund sector, the SECP introduced Sahulat Sarmayakari Accounts for opening of mutual funds accounts by individual low-risk customers and branchless banking account holders with asset management companies (AMCs). This initiative is aimed at achieving the objectives of financial inclusion as set out in the National Financial Inclusion Strategy (NFIS) recently adopted by the government. Moreover, recent expansion in online and branchless banking also warrants innovative products in mutual fund sector to facilitate investment in mutual fund through mobile banking and web portal. During the year, to increase the retail penetration of mutual funds and distribution network of the AMCs, the SECP allowed charging of selling and marketing expenses for opening of AMCs new branches in cities other than Karachi, Lahore and Islamabad/Rawalpindi.

To enhance liquidity and protect investor interest, mandatory requirements for cash and cash equivalents for mutual funds to meet the redemption pressure and committed credit lines for asset management companies for liquidity risk management were introduced. Furthermore, to facilitate mutual fund unit holders and to enhance investors’ confidence through better disclosures and more transparency, the SECP directed all AMCs to provide a right to individual unit holders to obtain a refund of their first time investment (cooling-off right) in an open-end collective investment scheme. An investor can claim refund of its investment amount without deducting any sales load within three business days, commencing from the date of the issuance of investment report to the unit holder.

Modarabas were also advised to expand their outreach, especially to SMEs and the low-income groups. In this regard, four Modarabas opened the first Islamic financing facility centre in Rawalpindi to provide affordable financing on Shariah principles to the common people to buy motorcycles and other products.

In order to strengthen the Modaraba sector, the SECP has drafted a new Modaraba law, which shall replace the 37-year-old Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980. The existing ordinance lacks a proper and logical structure and suffers from numerous inconsistencies and gaps. There is a need to replace it with a contemporary and all-encompassing piece of legislation; Modaraba Bill, 2017, SECP said.

In a bid to facilitate transition of microfinance institutions into Non-Bank Micro Finance Companies (NBMFCs), the SECP remained engaged in constant consultation with the industry association, Pakistan Microfinance Network (PMN), and the premier funding agency of the sector, Pakistan Microfinance Investment Company (PMIC). The SECP instituted significant reforms in the regulatory framework governing lending NBFCs especially for NBMFCs. Many of the regulatory challenges and difficulties that impeded the progress and growth of the NBMFCs were either removed or modified to help these institutions contribute to the national economic agenda effectively. The main objective of this reform process was to improve access to finance for the micro and small businesses as well as individual proprietors undertaking micro businesses, the SECP added.