Microfinance institutions (MFIs) play a vital role in Pakistan’s financial inclusion agenda by providing access to financial services for low-income households, small businesses, and underserved communities. These institutions bridge the gap between informal financing and the formal banking sector. With over 8 million active borrowers and increasing demand for accessible credit, registering a microfinance company in Pakistan offers high impact and promising business potential. This article provides a step-by-step guide on how to register a microfinance company in Pakistan, covering legal incorporation, licensing, capital requirements, and regulatory compliance under the relevant legal frameworks.

Legal and Regulatory Framework

Microfinance institutions in Pakistan are regulated under two main regulatory regimes:

1. SECP-Regulated Microfinance Companies

• Licensed as Non-Banking Finance Companies (NBFCs) under:

  • Companies Act, 2017

  • Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003

  • Non-Banking Finance Companies and Notified Entities Regulations, 2008

2. SBP-Regulated Microfinance Banks (MFBs)

• Licensed under the Microfinance Institutions Ordinance, 2001

• Regulated by the State Bank of Pakistan (SBP)

• Includes nationwide, provincial, district, and Islamic microfinance banks

This article focuses on SECP-licensed microfinance companies, which are easier and less capital-intensive to establish than microfinance banks.

Step 1: Choose the Type of Microfinance Institution

Microfinance businesses in Pakistan can operate in various forms:

1. Microfinance Company (SECP-NBFC): Non-deposit taking entity offering loans to individuals, MSMEs, or groups
2. Microfinance Bank (SBP-regulated): Deposit-taking, full-service licensed bank (more capital intensive)
3. Rural Support Program or NGO (Not-for-Profit): Social welfare entity with financial inclusion objectives
4. Fintech-Based Microcredit Provider: Tech-driven lending platforms (must comply with SECP Sandbox or NBFC regime)

For most private entrepreneurs, the microfinance NBFC is the preferred model due to manageable capital requirements and faster licensing.

Step 2: Incorporate a Company with SECP

The first step is to incorporate a Private or Public Limited Company under the Companies Act, 2017 through the Securities and Exchange Commission of Pakistan (SECP).

Steps include:

• Choose a name with the term “Microfinance” or “Finance”

• Reserve the name via SECP’s e-Services Portal

• Submit incorporation documents:

  • Memorandum and Articles of Association (stating microfinance or lending as the principal activity)

  • Form 1 (Declaration), Form 21 (Registered Office), Form 29 (Director Details)

  • CNIC/passport copies of directors and shareholders

  • Paid incorporation fee challan

• Obtain Certificate of Incorporation, Company Registration Number, and NTN

At this stage, your company is a registered legal entity but cannot commence microfinance business until SECP licensing.

Step 3: Apply for NBFC License as a Microfinance Institution

To legally offer microfinance loans, the company must be licensed as an NBFC under the NBFC Rules, 2003 and NBFC Regulations, 2008.

Submit a comprehensive application to SECP’s Specialized Companies Division including:

Mandatory Requirements

• Covering Letter and Application Form for NBFC license

• Certificate of Incorporation and certified copy of MoA

• Minimum Paid-up Capital Certificate from a scheduled bank

• Bank Statement reflecting deposited capital

• List of directors, sponsors, and senior management, with:

  • CNIC/passport

  • Personal wealth statement

  • Source of funds

  • Affidavit of no default or litigation

• Detailed Business Plan (target market, loan products, interest structure, repayment model)

• Credit Risk Management Policy

• Lending and Recovery Policy

• AML/CFT Policy as per SECP guidelines

• Proposed IT system and recordkeeping infrastructure

Minimum Paid-up Capital Requirement
As of 2025, the SECP requires a minimum paid-up capital of PKR 100 million for a microfinance NBFC. This must be:

• Deposited in a scheduled bank in Pakistan

• Free from encumbrances or loans

• Verified by a certified auditor

Step 4: Fit and Proper Evaluation of Directors and CEO

All sponsors, directors, and the proposed CEO must meet SECP’s Fit and Proper Criteria, which include:

• Clean financial and legal record

• Minimum 5 years’ experience in finance, banking, or lending operations

• No involvement in defrauding, insolvency, or regulatory violations

• Good professional repute

SECP reviews each profile and reserves the right to reject any individual found unsuitable.

Step 5: SECP License Issuance and Business Commencement

After evaluating the application and conducting any necessary due diligence, SECP issues:

• License to operate as a Non-Banking Finance Company (NBFC) with permission to carry out Microfinance Business

• The license is published in the Official Gazette and registered on SECP’s NBFC licensee portal

Upon receipt of the license, the microfinance company can begin operations, launch products, and issue loans in compliance with SECP’s guidelines.

Step 6: Register with FBR and Provincial Tax Authorities

Your company must be registered for tax purposes:

• Federal Board of Revenue (FBR):

  • Confirm NTN issuance

  • Register for withholding tax obligations

  • File monthly withholding statements under sections 149 and 153

• Provincial Sales Tax Authorities (PRA, SRB, KPRA, BRA):

  • Register if your company charges service fees (e.g., processing charges, insurance, advisory)

  • File monthly sales tax returns if applicable

  • Note: Interest/markup on loans is exempt from sales tax

Step 7: Operational Readiness and Launch

To begin offering loans, the company must ensure operational readiness:

• Open Bank Accounts for lending and operational funds

• Develop loan application forms, agreements, and recovery notices

• Establish credit assessment tools and KYC protocols

• Deploy a Loan Management System (LMS) for tracking disbursements and repayments

• Hire a compliance officer to oversee SECP, AML, and tax compliance

• Train loan officers and field staff in microfinance ethics and collections

• Establish data privacy policies, especially if using digital channels

Step 8: Maintain Ongoing Compliance

NBFC-microfinance companies must comply with the following ongoing SECP requirements:

SECP also conducts on-site inspections and off-site surveillance, so maintaining books of accounts, ledgers, and loan records is essential.

Step 9: Consider Membership of PMN and Credit Bureaus

To strengthen transparency and access to shared data, microfinance companies are encouraged to:

• Join the Pakistan Microfinance Network (PMN)

• Become a member of Credit Information Bureau (CIB) or Private Credit Bureaus

• Report borrower data to the State Bank’s eCIB system to avoid multiple borrowings

This improves industry credibility and supports credit risk assessment.

Tax Treatment of Microfinance Companies

Microfinance companies are taxed like normal companies, with the following key considerations:

• Corporate tax rate of 29% on net profit before tax

• Markup income from loans is taxable under normal tax provisions

• Expenses (e.g., salaries, travel, training) are deductible

• Provision for bad debts can be claimed, but must be written off

• Minimum tax under Section 113 applies at 1.25% of turnover if taxable profit is below threshold

• Withholding tax must be deducted from:

  • Salaries (Section 149)

  • Vendor payments (Section 153)

  • Consultancy fees (Section 155)

No special tax exemptions apply unless the company is also registered as a Non-Profit Organization (NPO).

Alternative Route: SECP Innovation Office and Regulatory Sandbox

For tech-driven microfinance or lending models (fintech, mobile apps), SECP offers:

• Innovation Office Consultation for guidance on licensing, compliance, and investor readiness

• Regulatory Sandbox Program to test models under relaxed regulatory conditions

• Ideal for companies offering peer-to-peer lending, mobile-only loans, or alternative credit scoring

This provides an easier entry point for startups to validate and scale their ideas.

Key Differences: Microfinance NBFC vs. Microfinance Bank

For most entrepreneurs, NBFC microfinance is faster and less costly to establish.

Common Challenges

• Raising capital from investors for initial licensing

• Building borrower trust and loan repayment culture

• Managing credit risk in unbanked segments

• Hiring experienced staff and training loan officers

• Complying with SECP’s strict audit and reporting requirements

• Establishing IT systems to track loans and recoveries

Opportunities in Pakistan’s Microfinance Sector

The sector presents numerous untapped opportunities, especially in:

• Women empowerment and group lending

• Rural finance and agri-loans

• Digital micro-loans through mobile apps

• Green lending for solar and clean energy products

• SME working capital and inventory finance

• Buy Now, Pay Later (BNPL) models for low-income urban customers

The government and donor agencies including PMIC, IFAD, ADB, and USAID offer grant and debt support for eligible institutions.

Conclusion

Registering a microfinance company in Pakistan is a highly regulated yet rewarding endeavor. From legal incorporation with SECP to obtaining an NBFC license, fulfilling capital and governance criteria, and launching operations with proper risk management, each step is essential to ensure regulatory compliance and sustainable financial service delivery. With rising demand for inclusive finance, a supportive policy environment, and technological advancements, microfinance companies have the potential to drive significant economic and social impact in Pakistan’s underserved regions.