Latest news with #SecuritiesandExchangeCommissionofPakistan
Business Recorder
an hour ago
- Business
- Business Recorder
Corporate board elections
Introduction: A reform that misses the mark In July 2023, the Securities and Exchange Commission of Pakistan (SECP) amended the Code of Corporate Governance through S.R.O. 906(I)/2023, introducing a new regulation (7A) that mandates separate, category-wise voting for director elections in listed companies. Ostensibly designed to streamline compliance with board diversity requirements—such as the presence of female and independent directors—this amendment has produced the opposite of good governance. Rather than fostering inclusion or transparency, these reforms have imposed severe procedural limitations on minority shareholders, undermining the time-tested cumulative voting method enshrined in the Companies Act, 2017. As a result, the amended framework risks institutionalizing majority dominance and relegating shareholder democracy to a symbolic formality. The case in point: an unwinnable election In 2024, a minority shareholder controlling 12.51 percent equity in a listed company prepared to contest upcoming board elections under Section 159(3) of the Companies Act. With seven board seats available and the company's free float limited to 25%, the shareholder aimed to secure one board seat —an achievable strategy under the earlier cumulative voting framework that allowed aggregation of votes to elect at least one director. However, the company's new voting process, aligned with Regulation 7A, subdivided the election into three separate categories: female, independent, and other directors. Critically, it rigidly allocated voting rights to each category based on the number of seats designated for that group. For the 'Other Directors' category — where the minority nominee had filed — this meant that a candidate needed at least 20.10 percent of the total votes to win a single seat. In a company where the controlling shareholders held over 75% of the voting power, the outcome was a foregone conclusion. Even with controlling 12.51% equity, the minority shareholder found the contest practically unwinnable. Facing a futile effort, the nominee withdrew his candidacy. The company subsequently announced that all remaining candidates stood unopposed — rendering the election process an administrative formality. The problem: a procedural lockout This episode is not an isolated event, but a clear illustration of the deeper structural flaws introduced by the 2023 reforms: — Voting power is fragmented: By dividing voting into fixed categories, Regulation 7A prevents shareholders from strategically allocating their full voting strength—effectively neutralizing minority influence. — Cumulative voting is undermined: While the Companies Act guarantees cumulative voting to empower minority blocs, the new mechanism bypasses this intent by introducing category-based segmentation, which is arguably inconsistent with Sections 159 and 166 of the Act. — Uncontested elections are now the norm: The separation of ballots makes it easier for controlling shareholders to fill reserved seats (e.g., for female or independent directors) without competition, thereby complying with the letter of the law while violating its spirit. — Independence is compromised: Directors elected with majority backing, regardless of being labeled 'independent,' are unlikely to offer meaningful dissent or oversight — defeating the very purpose of their designation. Global best practices: where Pakistan falls short Across jurisdictions, mechanisms like cumulative voting or slate-based minority representation are considered essential tools for equitable corporate governance. For example: — The OECD Principles of Corporate Governance recognize cumulative voting as a legitimate and effective way to ensure minority shareholders have a voice in the boardroom. — Italy and the UK have adopted dual-voting or slate-voting structures that guarantee at least one board seat to the non-controlling shareholders. — Saudi Arabia and China require cumulative voting in listed companies to prevent entrenchment of control. Pakistan's shift to a segmented voting framework moves away from these norms, replacing proportional representation with category-specific majoritarianism. In practical terms, this means the controlling shareholders not only dominate the board but now do so with the veneer of compliance and procedural legitimacy. Recommendations: restoring balance and credibility To preserve the integrity of corporate governance in Pakistan and re-empower minority shareholders, the following reforms should be considered: Restore cumulative voting across a unified slate: Reinstate the cumulative voting method as originally provided in the Companies Act, allowing shareholders to allocate votes freely among all candidates. Introduce reserved minority representation: Mandate at least one board seat to be filled exclusively through votes cast by non-controlling shareholders, ensuring true minority representation. Enhance transparency through vote disclosure: Require companies to disclose, in advance, the vote thresholds typically needed to win a seat under the new system. This would help shareholders make informed decisions and organize support. Strengthen oversight and post-election review: SECP should introduce a mandatory review of election results, including unopposed outcomes, to assess whether procedural reforms are delivering on their governance objectives. Conclusion: a call to rebalance power The intention behind SECP's 2023 amendment may have been noble—ensuring compliance with board diversity mandates. But in its current form, Regulation 7A disables one of the few levers minority shareholders have to assert their rights. The cumulative result is a system where even a shareholder with controlling 12.51% equity cannot credibly contest an election, and where the majority's grip on governance is quietly tightened. Pakistan must not let formalism replace fairness. Regulatory reform must advance both diversity and equity. Otherwise, shareholder participation risks becoming an illusion—legally permitted, procedurally blocked, and practically futile. It is time to revisit these reforms—not to abandon them—but to realign them with the foundational principles of transparency, inclusivity, and balance that underpin good governance worldwide. Copyright Business Recorder, 2025
Business Recorder
4 days ago
- Business
- Business Recorder
SECP issues concept paper on algorithmic trading
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has proposed a framework that seeks to foster innovation while safeguarding market integrity and investor protection for 'Regulating Algorithmic Trading in Pakistan'. In this regard, the SECP has released a Concept Paper titled 'Regulating Algorithmic Trading in Pakistan' on Thursday. According to the regulations, the global rise of algorithmic trading, besides offering numerous advantages in speed and efficiency, also presents a set of new challenges. To address these, the SECP's framework proposes clearly defined roles for key stakeholders. Exchanges will oversee registration, testing, and the assignment of unique identifiers for algorithmic traders. Brokers must implement strong control mechanisms, comply with audit and governance requirements, and ensure rigorous oversight of their algorithmic trading activities. Meanwhile, third-party algorithm providers will be required to adhere to applicable laws and regulatory standards. Recognising that Pakistan is in the early stages of regulating algorithmic trading, the SECP recommends a phased implementation approach. Initially, access will be limited to institutional investors, with potential expansion to retail investors in later phases, contingent upon market readiness, risk assessment, and accumulated experience. The Concept Paper is now available for public feedback on the SECP's website. Stakeholders may submit comments by June 14, 2025, via email at [email protected]. Copyright Business Recorder, 2025
Business Recorder
7 days ago
- Business
- Business Recorder
Two-day SECP session on mutual funds concludes
ISLAMABAD: The second and final day of the Securities and Exchange Commission of Pakistan's (SECP) 2025 Mutual Fund Focus Group Session, themed 'Mutual Funds as Catalysts for Financial Inclusion and Economic Growth,' concluded on Tuesday in Karachi. Building on the momentum of the first day's discussions, the session engaged a new set of industry participants. SECP Commissioner Muzaffar Ahmed Mirza opened the day with a welcome address, setting the tone for interactive presentations and expert-led discussions on innovation, regulatory evolution, and the future of mutual funds in Pakistan. Structured into eight thematic sessions over two days, the focus group provided a platform for candid dialogue on regulatory challenges, innovation priorities, digital transformation, governance practices, and investor inclusion. Discussions highlighted domestic policy gaps while benchmarking against international best practices, with comparative insights from global mutual fund markets. In his closing remarks, Zeeshan Rehman Khattak, Commissioner SECP, stated: 'This session was never intended to be a symbolic gathering. It was designed as a platform for active engagement—a space for ideas, insights, and constructive criticism to flow freely. I am pleased to say it has delivered.' Copyright Business Recorder, 2025
Express Tribune
27-05-2025
- Business
- Express Tribune
Redefining faith and finance: Pakistan's evolving Takaful industry
The Takaful industry in Pakistan has come a long way since its inception in 2006, when the Securities and Exchange Commission of Pakistan (SECP) promulgated Takaful Rules. Azeem Iqbal Pirani, Chief Operation Officer and Executive Director at EFU Life, recalled the history of Takaful in the recent Tribune Podcast held in collaboration with EFU Hemayah Takaful. EFU Life Assurance Ltd. was the first life insurance company to obtain a Takaful Window license under the SECP's regulatory framework For years, a significant portion of Pakistan's population avoided insurance products, viewing them as contrary to Shariah principles. Pirani shared that when he entered the industry, the public hesitated to engage with any form of insurance—life, general, or health. The mission was clear: to create a Shariah-compliant system that aligned with people's values and beliefs. EFU Life's introduction of Takaful aimed to bridge this gap, and while uptake is still growing, meaningful progress has been made. As per last year's report by SECP, Takaful's share was around 12 percent in the total sales of the insurance sector. The share is still modest because of two reasons, one, that people still have doubts about its religious legitimacy, and second, people are not aware of these services as yet. But SECP now has a particular mandate in expanding the user base of Takaful, aiming to take its share to 35 percent from 12 percent by 2028. Host Adeel Azhar, who has been an influential personality in the finance & insurance sector of Pakistan, agreed that lack of awareness is the main stumbling block. He cites the example of insurance in the auto-finance sector, where he said that it is high only due to SBP making it mandatory. He said that it is indeed a double challenge to convince people to take finance on Islamic principles and then also add to Islamic Insurance i.e. Takaful. Dr. Irum Saba, Director of the Center for Excellence in Islamic Finance at IBA Karachi, explained the reasons behind poor concentration of Islamic finance in Pakistan. She noted that our country has a huge population of 250 million, but the commitment of the government and the regulators is not as strong. She compared this to Malaysia, the country with a very large concentration of Islamic finance, maintaining that the government and regulators there are very much committed and awareness is accordingly much more than Pakistan. She said that in Malaysia, students, entrepreneurs, businesses, and every institution is protected by Takaful. Compared to Pakistan, she said state institutions in Malaysia are headed by people who are committed to Islamic finance, including their ministry of finance, securities commission, and central bank. She advocates that such commitment, coupled with awareness, is the key to expansion of the Takaful industry. In particular, she advocates that such awareness be spread at the level of schools, colleges, and even villages. Dr. Irum also cited the examples of other neighboring countries, where she said the financial literacy is much more prevalent than Pakistan. She quotes her experience of seeing street hawkers having QR Code Machines for payments, which she said reflects the good financial acumen of otherwise less educated people. She stressed on educating the younger generation through tools, techniques, and AI. When asked about the milestones EFU Hemayah Takaful has achieved over its 10-year history and its plan forward, Pirani said that EFU Life was the first company which obtained the Window License for its services. He mentioned that EFU not only launched a Takaful product, it also gave it a brand identity. Currently, Takaful contributes to 35 percent of EFU Life's business, which reflects its growth over the decade. One strategy that particularly worked was providing customers the option to convert the existing life insurance products into Shariah-compliant ones. This was an unparalleled offer which not only boosted the company's business but also helped in expanding Takaful penetration in Pakistan. EFU Life then moved to inclusive and digital options, which also helped expand customer base. Thanks to the growing business, the company has distributed a surplus of Rs 800 million among its customers, which now stand at 1.4 million. Responding to a question on the steps taken by academia such as IBA for connecting the academia with the industry, Dr. Irum elaborated that her center regularly conducts training, engages in research, and holds discussions and debates on Islamic finance. She mentioned that specialized training programs to impart solid understanding of Takaful were administered by expert trainers from both national and international institutions. She also stated that the center is doing research on Wakala-Waqf model of Takaful, which is applicable in Pakistan. She said that the training is also offered to companies which are seeking services for their employees from Takaful operators. In another program, the center offers training on Islamic wealth management and planning, where students are educated about how to save and invest, and when it relates to investment, the role of Takaful is also highlighted. The episode served as a compelling reflection on how Pakistan's Takaful industry is transforming. Supported by regulatory mandates, academic research, and evolving consumer awareness, Takaful is no longer a niche offering. As EFU Life and institutions like IBA continue to educate and innovate, the future of Islamic insurance in Pakistan appears increasingly inclusive, accessible, and in sync with the values of the people it aims to serve.
Business Recorder
26-05-2025
- Business
- Business Recorder
Microfinance in Pakistan
An overview Microfinance in Pakistan has emerged as a critical tool for financial inclusion, extending access to credit and essential financial services to millions who remain unbanked. The industry operates within a structured regulatory framework involving two key regulators, namely State Bank of Pakistan for micro finance banks and the Securities and Exchange Commission of Pakistan (SECP) for Non-Banking Micro Finance Companies, which oversee its activities. Additionally, certain non-financial institutions (NFIs) support the ecosystem (money lenders, shops providing buy now – pay later schemes etc.), while established forums facilitate industry discussions and collaboration, including Pakistan Micro Finance Network, Pakistan Micro Finance Investment Company, etc. The sector boasts a robust infrastructure, consisting of 12 Microfinance Banks (MFBs) and 25 Non-Bank Microfinance Institutions (NBFIs), collectively spanning 135 districts. These institutions operate through an extensive network of 4,500 branches and 3,500 branchless banking agents, ensuring accessibility even in remote areas. With a client base of approximately 12.5 million clients at the end of year 2024, microfinance is playing a significant role in uplifting small entrepreneurs, farmers, and underprivileged communities by providing them with necessary cash flows they need to manage working capital cycle, buying of assets or in many cases, meeting emergency cash needs. Out of these clients, around 6.5 million are nano-finance clients (very small loan size from Rs. 5,000 to Rs. 20,000), with the remaining 6 million classified as micro finance clients, highlighting the industry's potential for further expansion to cater to millions of people still unbanked. Microfinance ecosystem The microfinance industry in Pakistan operates under stringent audit and oversight mechanisms, with auditors and regulatory bodies ensuring transparency and compliance. Investment interest in the sector remains strong, with impact investors and venture funds actively participating in its growth as evidenced by entry of Halan Group (Egypt) and LOLC Group (Sri Lanka) in the micro finance banking sector. Currently, the sector employs approximately over 50,000 professionals. Workforce projections suggest an expansion to accommodate the growing demand. However, HR development and IT capacity enhancements are necessary to support this growth, particularly in digital finance. These two areas are considered critical for future expansion of the sector. The integration of predictive analytics and artificial intelligence in risk assessment will be crucial to improving financial sustainability. Funding sources for microfinance institutions are diverse, with contributions from institutions such as the Asian Development Bank (ADB), the World Bank, and the Pakistan Microfinance Investment Company (PMIC). Additionally, discussions with the State Bank of Pakistan (SBP) are underway to explore mechanisms allowing MFBs to lend to MFIs, thereby enhancing sector liquidity. Future strategy and growth Looking ahead, microfinance is poised for substantial growth. The number of nano-finance users is expected to reach 10 million, while the overall client base is projected to expand to between 18 and 20 million in next five to seven years. The sector's portfolio is anticipated to increase from PKR 80 billion to PKR 110 billion, underscoring the increasing demand for microfinance services. To achieve these ambitious goals, the industry will require significant funding, estimated between PKR 250-300 billion in debt and equity. Additionally, an estimated 40,000 new employees will be needed to sustain the expansion. The shift towards branchless and digital finance will further streamline service delivery and enhance financial inclusion. This also leads to a critical question: How will the resources be acquired for growth and expansion in the sector? Risk factors and sustainability Small farmers and micro-entrepreneurs are among the most vulnerable to climate change. Events like floods, droughts, and unpredictable weather patterns can destroy crops, reduce income, and make it difficult for borrowers to repay their loans. Many microfinance institutions (MFIs) offer crop or livestock insurance, but insurance alone may not be enough. The question is: Are there other risk mitigation tools that MFIs can offer besides insurance? Some possible solutions include: • Flexible loan repayment plans: Borrowers affected by climate-related losses could benefit from loan restructuring or repayment moratoriums to give them time to recover. • Weather-linked credit models: Loans that adjust based on climate patterns or harvest cycles could help reduce financial pressure on farmers. • Disaster relief funds & emergency loans: MFIs could establish special funds to provide quick assistance to borrowers affected by natural disasters. • Climate-smart agriculture support: Offering training and financial products for climate-resilient farming techniques (e.g., drought-resistant seeds, solar-powered irrigation) could help borrowers adapt to changing conditions. If these alternative risk-mitigation tools are not developed, Pakistan's microfinance sector could face increasing defaults from climate-affected borrowers. This issue may become critical in the future as extreme weather events become more frequent. Microfinance institutions (MFIs) operate differently from corporate banks that focus on large businesses and capital-intensive projects. MFIs primarily serve small businesses and individuals with tiny loan amounts, which make profitability a challenge. Most MFIs struggle due to High Operating costs at times. Consider this: Processing a Rs. 20,000 microloan by an MFI may cost more than processing a Rs. 20,000,000 business loan by a corporate banker owing to stringent field visits, verification, risk assessment and monitoring needed for the smaller loan. Further, in the micro finance segment, borrowers have irregular incomes: Unlike businesses with steady revenues, micro-entrepreneurs often have fluctuating incomes, leading to delayed or missed payments. Need for a balanced approach To ensure both financial sustainability and social impact, Pakistan's microfinance sector needs a hybrid model — one that blends social support with financial viability. Potential solutions include: • Longer-term loan products: Rather than short-term loans with high repayment pressure, MFIs could offer low-interest, long-term financing for sustainable business growth. • Blended finance: Combining donor grants, impact investments, and commercial funding could help MFIs stay financially stable while supporting vulnerable borrowers. • Technology-driven cost reduction: Digital banking, mobile wallets, and AI-based credit assessments could lower operational costs and improve efficiency. • Public-private partnerships: Government-backed microfinance programs could support businesses that struggle to access commercial loans. Comparative learning and reflection Lessons from Bangladesh and India offer interesting insights for Pakistan's microfinance sector. Both Bangladesh and India have successfully diversified their microfinance models by integrating savings, insurance, remittance services, and SME financing alongside traditional microloans. In contrast, Pakistan's microfinance sector remains largely focused on credit-based services, limiting its ability to cater to broader financial needs. • Bangladesh's example: Institutions like ASA and BRAC have diversified into agriculture finance, social enterprises, and impact-driven investments, allowing them to cross-subsidize financial services while remaining profitable. Further, it is worthwhile to note that there is only one regulatory authority in Bangladesh, i.e., Microcredit Regulatory Authority (MRA), established in 2006 (as compared to SECP in Pakistan, regulating NBMFCs and SBP, regulating MFBs). Every MFI must obtain a license from the MRA to operate. Further, Licensed MFIs are permitted to accept deposits from their members, with the MRA setting guidelines to ensure depositor safety. The MRA focuses on balancing financial inclusion with depositor protection. It has implemented regulations to prevent exploitative practices and ensure transparency in the microfinance sector. However, at the same time, it should be noted that the microfinance sector in Bangladesh has faced scrutiny due to allegations against certain prominent figures, leading to discussions about the need for stricter regulations to prevent abuse and ensure the sector's integrity. ? • India's example: Regulatory shifts have allowed MFIs to transform into Small Finance Banks (SFBs), enabling them to offer savings accounts, fixed deposits, and investment products, thereby reducing reliance on external funding. The point to learn from regional experience and past trend is to make funds available to the sector players, non-banking micro finance companies in particular. For Pakistan, regulatory support in expanding microfinance banks (MFBs) into multi-product financial institutions can help ensure long-term sustainability. Encouraging partnerships with FinTech, mobile money operators, and insurance providers could lead to product diversification that better serves low-income communities. Microfinance clients are inherently vulnerable, and ensuring long-term financial stability requires a combination of contingency planning and patient capital. Additionally, integrating microfinance into corporate structures remains a critical question—how can microfinance institutions sustain their social mission while ensuring financial profitability? Key reflections include: • Can microfinance be integrated into corporate financial structures without losing its core objective? • How can sustainability be maintained amid economic fluctuations? • What lessons from Bangladesh and India can be applied to strengthen Pakistan's microfinance sector? Conclusion In Pakistan, political instability, inflationary pressures, and climate risks significantly impact microfinance repayment cycles and institutional sustainability. Learning from Bangladesh and India, Pakistan's MFIs should focus on developing risk-mitigation strategies, enhancing liquidity management, and offering climate-adaptive financial solutions to sustain operations in volatile economic conditions. Pakistan's microfinance sector has achieved significant milestones, yet there remains a long road ahead. Addressing funding gaps, expanding digital finance, mitigating climate risks, and learning from international experiences will be crucial in shaping the future of microfinance in the country. With sustained investment, innovation, and strategic coordination, the industry can further its mission of financial inclusion and economic empowerment. Copyright Business Recorder, 2025
