ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued a new circular imposing additional restrictions on digital nano-lending apps, but the lending non-banking finance companies (NBFCs) argue that these measures contradict the commission’s policies.

Circular 15, notified by the SECP, has reduced the nano-loan tenure to 30 days from the earlier approved date of 90 days, and apart from limiting the exposure limit, the regulator has also imposed an upper limit at the rate of return on these loans.

To protect borrowers, the SECP has set limits on the loan returns, specifying that the recoveries in terms of markup, profit rates, and all other applicable fees, such as processing fees, service fees, verification fees, etc., as well as penalties for late payment and non-payment, cannot exceed the principal loan.

Circular 15 also states that an NBFC cannot roll over and restructure a loan more than twice, with the maximum tenure for a loan, including rollovers, not exceeding 90 days.

Furthermore, the SECP has set an upper limit for the annualised percentage rate (APR), which cannot exceed ten times the policy rate issued by the State Bank of Pakistan.

On the other hand, several NBFCs have written to the SECP, highlighting flaws in the new circular.

Abrar Amin of Seedcred pointed out, “If there is an upper limit, there has to be a lower limit too.”

“As per this circular the APR will be 100 per cent if the policy rate is pc by the SBP, whereas by all calculations the minimum return has to be around 114pc for the short-term loans because it was costlier and the per cent of defaults was high too,” he noted.

The SECP has called Mr Amin to present his case over the objections to Circular 15 next week.

Incidentally, another senior official from an NBFC highlighted that the SECP has set the maximum nano-loan tenure at 30 days whereas Google only allows apps which offer a minimum of 65 days and those with 90 days tenure can be uploaded on Facebook.

At the same time, the SECP has also directed the borrowers to pay the loan amount and the profit on maturity or extended maturity date in case of a rollover.

Published in Dawn, October 5th, 2023