Microfinance Institutions Ordinance, 2001

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 THE MICROFINANCE INSTITUTIONS ORDINANCE, 2001 
 
 
 
 
CONTENTS 
PART I 
PRELIMINARY 
 
1. Short title, extent and commencement 
2. Definitions 
3. Applications of other laws 
PART II 
ESTABLISHMENT AND WINDING UP 
4. Restrictions on establishment and operations 
5. Name 
6. Functions and powers 
7. Prohibition and restrictions 
8. Principal Office 
9. Area of operation 
10. Capitalization 
11. Winding up 
PART III 
LICENSING 
 
12. Existing microfinance institutions 
13A. Suspension or cancellation of a licence 
 

 
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PART IV 
REGULATION AND SUPERVISION 
14. Management and administration 
15. Accounts 
16. Audit 
17. Returns 
18. Liquidity and reserves 
19. Depositors’ protection fund 
20. Power to call for information 
21. Inspection and investigation 
22. Powers to give directions 
22A. Power of the State Bank to remove Directors or other managerial persons from offices 
22B. Power of the state Bank to supersede Board of Directors of microfinance banks 
22C. Limitations 
22D. Prosecution of directors, chief executive officers or other officers 
PART V 
MISCELLANEOUS 
23. Penalties 
24. Continuance of charge and priority 
25. Restrictions on removal of records and documents 
26A. Declaration of fidelity and secrecy 
27. False information  
28. Cognizance of offences 
29. Indemnity 
30. Power to make rules 
31. Power to make regulations 
32. Removal of difficulties 
 
 
  
 
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THE MICROFINANCE INSTITUTIONS ORDINANCE, 2001 
ORDINANCE No. LV of 2001 
An Ordinance to regulate the establishment, business and operations of microfinance institutions. 
WHEREAS it is expedient to promote the establishment of microfinance institutions for   
providing   organizational, financial   and   infrastructural   support   to   poor   persons, part icularly 
poor women, for mitigating poverty and promoting social welfare and economic justice through 
community building and social mobilization and to provide for matters connected therewith or 
ancillary thereto; 
AND WHEREAS it is essential to regulate mi crofinance institutions to protect the depositors 
and customers and to safeguard these institutions against political and other outside interference; 
 AND WHEREAS the President is satisfied that circumstances exist which render it necessary 
to take immediate action; 
NOW, THEREFORE, in pursuance of the Proclamation of Emergency of the fourteenth day of 
October, 1999, and Provisional  Constitution Order No.1 of 1999, read with the Provisional 
Constitution (Amendment) Order No.9 of 1999, and in exercise of all powers enabling him in that 
behalf, the President of the Islamic Republic of Pakistan is pleased to make and promulgate the 
following Ordinance:— 
PART I 
PRELIMINARY 
1. Short title, extent and commencement. —(1) This Ordinance may be called the 
Microfinance Institutions Ordinance, 2001. 
(2) It extends to the whole of Pakistan  
(2) It shall come into force at once. 
2. Definitions. In this Ordinance, unless there is anything repugnant in the subject or context,— 
(a)   “auditor” means any person who is appointed in accordance with the provisions 
of this Ordinance for the audit of the accounts of a microfinance institution; 
(b)     “Banking Companies Ordinance” means the Banking Companies Ordinance,  
1962 (LVII of 1962); 
(c)     “company” means a company incorporat ed under the Companies Ordinance,  
1984 (XLVII of 1984), or any other law for the time being in force; 
(d) “customer” means any person or group of persons availing the services of a 
microfinance institution; 
 
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(e) “deposit” means the deposit of money, repayable on demand or otherwise, 
accepted by a microfinance institution from the public for the purpose of 
providing microfinance services; 
(f) “depositor”  means  a  person  in  whose  name  a  deposit  is  held  by  a 
microfinance institution; 
(g) “license” means the license issued by the State Bank and the expression 
“licensed” should be construed accordingly; 
(h) “member”  means  the  member  or  shareholder  who  has  contributed  or 
subscribed to the capital of a microfinance institution; 
1
[(i) “microfinance institution” means an institution, which extends micro credit and 
allied services to the poor th rough sources other than public savings and 
deposits]; 
1
[(ia) “microfinance bank” means an institution licensed by State Bank under this 
Ordinance to establish and operate as microfinance bank;] 
(j) “microfinance  services”  means  the  financial  and  other  related  services 
specified in section 6, the value of which does not exceed such amount as 
the State Bank may, from time to time, determine; 
(k) “poor persons” means persons who have meager means of subsistence and 
whose total income during a year is less than such minimum limit as the 
State Bank may, from time to time, prescribe; 
(l)      “prescribed” means prescribed by rules [and regulations] made under this 
Ordinance; 
(m)  “specified area” means the district, province or other specified area within 
which a microfinance institution is licensed to operate; and 
(n)     “State Bank” means the State Bank of Pakistan established under the State 
Bank Act, 1956 ( XXXIII of 1956). 
3. Applications of other laws .__ (1) The provisions of this ordinance shall be in addition to, 
and, save as hereinafter provided, not in derogation of, any other law for the time being in force. 
2. Save as otherwise provided in this Ordinance, the Banking companies ordinance any other 
law for the time being in force relating to banking companies or financial institutions shall not apply 
to microfinance institutions licensed under this ordinance and microfinance institution shall not be 
deemed to be a banking company for the purposes of the said ordinance, the state Bank of Pakistan 
Act, 1956 (XXXIII of 1956), or any other law for the time being in force relating to banking companies. 
 
1Subs. AND Ins.  by the Finance Act, 2006 (3 of 2006), s. 18 for “clause (i)”. 
2 New clause (ia) ins. ibid.  
 
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3. save as expressly provided in this ordinance, the provisions of this ordinance shall have 
effect notwithstanding anything contained in any rules, regulations, m emoranda or articles of 
association of a microfinance institution or in any resolution passed by such institution in its general 
meeting or by its Board of Directors, whether the same be applied, executed or passed before or after 
the commencement of this ordinance and any provision contained in any rules, regulations, 
memoranda, articles or resolutions aforesaid shall, to the extent of its inconsistency become or be void 
and of no legal effect.  
PART II 
ESTABLISHMENT AND WINDING UP 
4. Restrictions on establishment and operations.—company, shall be established as a 
microfinance institution 
2. No microfinance institution shall commence, or carry on, the business of taking deposits 
unless and until such institution has been licensed in accordance with the provisions of this Ordinance 
5. Name.___ (1) No person other than a licensed microfinance bank shall use with its name the 
words “Microfinance Bank” or “MFB” or its derivatives or any words or letters which convey that it is 
a microfinance bank.  
(2)  Any  person  or  company  to  whom  license  has  not  been  granted  under  this Ordinance 
or the license granted has been cancelled, contravenes, or attempts to contravene or  abets the 
contravention of sub-section (1), the chief executive by whatever name called, a Director, a Manager 
and other officer of the company, and the individual and every member of the association or body of 
individuals shall be deemed to be guilty of  such contravention and shall be punishable with 
imprisonment for a term which may extend to three years or with fine which may extend to one 
million rupees or with both.”]. 
6. Functions and powers.—(1) A microfinance institution shall, in accordance with prudential 
regulations and subject to the terms and conditions of the license issued by  the state bank, render 
assistance to micro -enterprises and provide microfinance services in a sustainable manner to poor 
persons, preferably poor women, with a view to alleviating poverty. 
 (2) without prejudice to the generality of the foregoing provisions, the powers and functions 
of microfinance institutions shall be__ 
(a)    to provide financing facilities, with or without collateral security, in cash or 
in kind, for such terms and subject to such conditions as may be prescribed, 
to poor p ersons for all types of economic activities including housing, but 
excluding busin ess in foreign exchange transactions 
1
[except to receive 
remittances from abroad payable only in Pakistan Rupees to beneficiaries in 
Pakistan subject to rules and regulations and authorization issued by State 
Bank of Pakistan from time to time]; 
(b)     to accept deposits; 
 
1Added by the Finance Act, 2007 (4 of 2007), s.21, (w.e.f. 1-7-2007). 
 
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(c)     to accept pledges, mortgages, hypothecations or assignments to it of any 
kind of movable or immovable property for the purpose of securing loans 
and advances made by it; 
(d)  to undertake the management, control and supervision of any Organization, 
enterprise, scheme, trust fund or endowment fund for the b enefit and 
advancement of poor persons; 
(e)     to buy, sell and supply on credit to poor persons industrial and agricultural 
inputs, livestock, machinery and industrial raw materials, and to act as agent 
for any Organization for the sale of such goods or livestock; 
(f)      to invest in shares of anybody corporate, the objective of which  is to provide   
microfinance services 1[and technical, vocational, education, business 
development and allied services to the poor and micro enterprises] to poor 
persons; 
(g)     to provide storage and safe custody facilities; 
(h)     to carry out survey and research, and to issue publication and maintain 
statistics relating to the improvement of economic condition of poor persons; 
(i)      to provide professional advice to poor persons regarding investments in small 
business and such cottage industries as may be prescribed; 
(j)      to encourage investments in such cottage industries and income generating   
projects for poor persons as may be prescribed 
(k)  to provide services and facilities to customers to hedge various risks relating to 
microfinance activities;  
(l)     to render m anagerial, marketing, technical and administrative advice to 
customers and assisting them in obtaining services in such fields; 
(m)    to borrow and raise money and open bank accounts; 
(n)     to purchase, take on lease, or otherwise acquire, sell, exchange, surrender, 
lease, mortgage, dispose of and deal in any movable and immovable property 
and rights of all kinds for and on behalf of its customers for the purpose of 
promoting   development   opportunities, building of assets, resource allocation, 
promotion of markets, and adoption of better technology for economic growth 
and development; 
 
 
 
1Ins. by the Finance Act, 2006 (3 of 2006), s.18. 
 
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(o)     to establish subsidiaries, whether wholly or partly owned, and to appoint 
agents in various locations for various activities which it may consider 
necessary for the proper discharge of its functions; 
 
(p)     to pay, receive, collect and remit money and securities within the country; 
(q)   to acquire, maintain and t ransfer all m ovable and immov able p roperty 
including residential premises, for carrying on its business; 
(r)      to open account or make any agency arrangement with, and to act as agent or 
correspondent of, any bank or financial institution; 
(s)     to invest its surplus funds in Government 
1
[and such other marketable securities 
as State Bank may from time to time notify]; 
(t)      to impose and receive fees, charges, profits or return for its services; 
(u)    to mobilize and provide financial and technical assistance and training to 
micro enterprises; 
(v)     to undertake mobile banking to expedite transactions and reduce costs;  
(w)    to establish trust and endowment funds; 
(x)     to receive grants from the government and any other sources permitted by the 
State Bank; and 
(y)     to generally do and perform all such acts, deeds and things as may be necessary, 
incidental or conducive to the fulfillment of their functions and  the attainment 
of their objectives. 
7. Prohibition and restrictions.___ (1) A microfinance institution shall not undertake or transact 
any kind of business other than that authorized by, or under, this ordinance.  
(2) In performance of its functions under this Ordinance, a microfinance institution shall have 
proper regard to the economic and commercial merits of any or the transactions or activities it plans 
to undertake or assist. 
(3) Where a microfinance institution is required by any authority to undertake or assist 
a micro enterprise or other such activities which it considers economically or otherwise unsound, 
the microfinance institution shall not undertake or assist such activity until  and unl ess the said 
authority has provided adequate guarantee to the microfinance institution or indemnify any losses 
that it may incur in the undertaking of such activity. 
 
1Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “securities”. 
 
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(4) No microfinance institution shall create a floating charge on the undertaking or any of 
its assets or part thereof, unless the creation of such floating charge is certified in writing by the State 
Bank as not being detrimental to the interest of the depositors of such institution. 
(5) Any such charge created without obtaining the certificate of the State Bank shall be 
invalid. 
(6) Any microfinance institution aggrieved by the refusal of a certificate under sub- section 
(4) may, within thirty days from the date on which such refusal is communicated to it, prefer an appeal 
to the Central Board of the State Bank whose decision thereon shall be final. 
8. Principal Office.___ (1) The principal office of a microfinance institution shall be situated in 
the specified area and shall not be changed without prior approval of the state Bank. The microfinance 
institution may, with the approval of the state Bank, establish branch offic es at such other place, or 
places, in the specified area as it may think fit.  
(2)  A  microfinance  institution  shall  furnish  to  the  State  Bank  an  annual  plan indicating 
the  place  where  new  branches  will  be opened  or  the  names  of agents  to  be appointed together 
with the details of their duties and functions. 
(3) A microfinance institution shall give at least thirty days’ advance notice to the State 
Bank for opening of a new branch or appointment of an agent. 
(4) Unless otherwise advised by the State Bank, the opening of the new branch or appointment 
of an agent shall be deemed to be licensed at the expiry of thirty days of the notice given to the State 
Bank under sub-section (3). 
9. Area of operation. A microfinance institution shall be licensed to operate in an area 
which may consist of,— 
(a)    a district; 
1
[(aa)  a region comprising up to five adjacent districts within the same 
Province or any oth er area wherein this Ordinance is applied with 
necessary adaptations as the case may be;]. 
(b)    a province; or 
(c)    the whole of Pakistan 
10. Capitalization.___ 2[(1) Power to prescribe paid -up capital reuirements  for microfinance 
banks shall vest in State Bank of Pakistan and no microfinance bank shall operate unless it has a 
minimum paid-up capital as state Bank may, from time to time, prescribe. The State Bank may prescribe 
different minimum paid-up capital requirements for microfinance banks operating at district, regional, 
provincial, and national level. 
1 New clause (aa) ins.by the Finance Act, 2006 (3 of 2006), s.18 
2Subs. by the Finance Act, 2007, (4 of 2007),s.21, for, “sub-section (1)”. 
 
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Explanation.__ For the purpose of this sub-section the expression “district” shall include the 
Islamabad capital territory and such other territories as specified by the Federal Government may, by 
notification in officer Gazette, specify.] 
(2) Not less than fifty-one per cent of the paid up capital of a microfinance institution shall be 
subscribed by the promoters or sponsor members and the shares subscribed to be the promoters or 
sponsor members shall remain in the custody of state bank and shall neither be transferable nor 
encumbrance of any kind shall be created thereon without prior permission, in writing, of the state 
Bank.  
11. Winding up. The provisions of Banking companies ordinance for winding up of banking 
companies shall, mutates mutandis, apply to microfinance institutions of the purpose of their winding 
up. 
LICENSING 
1[12. Existing microfinance institutions.___ (1) Any person performing the functions of a non-
deposit taking microfinance institution may make an application to the state bank on such forms 
accompanying such information and fee, as may be prescribed, for issuance of a license to set up 
microfinance bank and take deposits. 
(2) The State Bank may, on receipt of the application, make such enquiries as it considers 
necessary and either grant a license as for a specified area as permissible under this ordinance, subject 
to such conditions as the State Bank may think fit to impose or for reasons to be recorded in writing, 
reject the application for the license. 
(3) Before granting the license, the State Bank shall satisfy itself by an inspection of the books 
of the microfinance institution, programme, project or otherwise, etc, that— 
(a)     the micro finance institution, project or programme, etc., enjoys a good 
financial health and is and will be in a position to meet its liabilities; and 
(b)  the affairs of the microfinance institution are not being, and are not likely to 
be, conducted in a m anner detrimental to the interests of its  members and 
present or future customers. 
(4) Where an application of a non-deposit taking microfinance institution for grant of license 
to take deposits is rejected, the concerned microfinance institutions may continue operations as a non- 
deposit taking micro finance institution. 
(5) If the State Bank rejects such an application for grant of licence to take deposits, the 
applicant may, within thirty days from the date of the order of the State Bank, prefer an appeal to the 
Central Board of the State Bank and the order passed by the Central Board in this respect shall be 
final.] 
 
 
1 Sub by the Finance Act, 2006 (3 of 2006), s.18  for “section 12”. 
 
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1[13A. Suspension or cancellation of a licence.___ (1) The State Bank may suspend or cancel 
a license granted to a microfinance bank if the microfinance bank.— 
(a)  at any time fails to comply with any of the conditions imposed upon it under 
sub-section (2) of section 12 or sub-section (2) of section 13, as the case may 
be; 
(b)  at any time fails to pay its liabilities or in the opinion of State bank of Pakistan 
the affairs of the microfinance bank are conducted in a manner detrimental 
to its depositors; or 
(c)  has furnished false or misleading information in its application for a licence; 
or 
(d)  has gone into liquidation, suspended its business activities or ceased to carry 
on business as microfinance bank in Pakistan: 
Provided that before suspending or canceling a licence under clause (a) 
or clause (b), the State Bank, unless it is of opinion that the delay may be 
prejudicial to the interest of the micro finance bank’s depositors or the public, 
shall grant to the mi cro finance bank on such terms as it may specify, an 
opportunity of taking the necessary st eps to comply with  or fulfill such 
conditions. 
(2) No  license shall be suspended or cancelled under sub-section (1) unless and until the  
microfinance bank is called upon by a notice in writing by the State Bank to show cause within fifteen 
days as to why its licence should not be suspended or cancelled 
(3) In the event of suspension or cancellation of a license the microfinance bank concerned 
shall be notified forthwith and, from the date of such notification, shall cease to transact any business 
other than that required to wind up its affairs with the approval of the State Bank. The State Bank 
shall publish notice of such suspension or cancellation in one leading Urdu language newspaper and 
one English language newspaper in addition to its publication in the official Gazette. 
(4) The provisions of sub-section (1) shall not prejudice the rights or claims of any person 
against the micro finance bank or of the micro finance bank against any person. 
(5) A micro finance bank aggrieved by the decision of the State Bank for suspension or 
cancellation of its licence may, within thirty d ays from the date on which such decision is 
communicated to it, apply for review to the Central Board of the State Bank. 
 (6) The decision of the State Bank, subject to the result of review by the Central Board of 
the State Bank under sub-section (5) shall be final.] 
 
 
1Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “section 13”. 
 
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PART IV 
REGULATION AND SUPERVISION 
14.  Management  and  administration: (1) The general superintendence and management 
of the affairs of a microfinance institution shall vest in its Board of Directors which shall manage its 
business and affairs in accordance with the principles of good governance. 
(2)  There  shall  be  a  chief  executive  officer  who  shall  work  full  time  and  be responsible 
for the day-to-day administration of microfinance institution. 
(3) The State Bank shall ensure that the persons serving on the Board of Directors and the 
chief executive officer of a microfinance institution are persons of integrity and have good 
financial reputation. 
15. Accounts.___ (1) A microfinance institution shall maintain porper books of accounts and, 
at the expiration of teach calendar year, prepare annual statement of accounts including the profit and 
loss account and balance sheet as may be prescribed. 
(2) A microfinance institution shall, in respect of such accounts, comply with such 
general directions as the State Bank may, from time to time, issue. 
16. Audit.___ (1) The accounts of a microfinance institution shall maintain proper books of 
accounts and, at the expiration of each calendar year, prepare annual statement of accounts including 
the profit and loss account and balance sheet as may be prescribed. 
(2)      The auditor or auditors shall be appointed for such terms and on such remuneration, to 
be paid by the microfinance institution, as the Board of Directors of such institution may fix: 
Provided that the auditors once appointed shall not be removed before 
1
[five] years without 
the prior approval of the State Bank and no auditor shall serve as external auditor of a microfinance 
institution consecutively for more than five years. 
(3) Every auditor, appointed under sub-section (2), shall be given a copy the annual balance  
sheet  and  other  accounts  of  the  microfinance  institution  who  shall  examine  it, together with 
the accounts and vouchers relating thereto, and shall have a list delivered to him of all books kept 
by the microfinance institution, and shall, at all reasonable times, have access to the books of 
accounts and documents of the mi crofinance institution, and may, in relation to su ch accounts, 
examine any director or officer of the microfinance institution. 
(4) The auditors shall report to the Board of Directors of the microfinance institution upon the 
annual accounts and balance sheet and in their report they shall state whether, in their opinion, the 
balance sheet contains all necessary particulars and is properly drawn up so as to exhibit a true and 
correct view of the state of affairs of the microfinance institution and, in case they have called for any 
explanation or information from the microfinance institution, whether it has been given and whether 
it is satisfactory. 
1 Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “Three”. 
 
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(5) The audited financial statements shall be published within three months of close of its 
financial year and microfinance institution shall cause its accounts to be published in a daily 
newspaper having wide circulation in the specified area. 
(6) A microfinance institution shall submit audited financial statements along with auditors’ 
report to the State Bank within three months of the close of its financial year.1 
2
[Provided th at in exceptional circumstances the State Bank may, for the reasons to be 
recorded, extend such period up to a period of another one month.]. 
(7) Nothing in this Ordinance shall apply to the preparation of accounts by a microfinance 
institution and its audit in respect of any accounting year which has expired p rior to the 
commencement of this Ordinance, and notwithstanding the other provision of this Ordinance such 
accounts shall be prepared, audited and submitted in accordance with the law in force immediately 
before such commencement. 
17. Returns.___ (1) A microfinance institution shall furnish to the State Bank such returns, 
reports and information as may be prescribed. 
(2) Without limitation to the foregoing, a microfinance institution shall,— 
(a)     maintain a register of its members, Board of Directors and the chief executive 
officer and provide information thereof to the State Bank at such time and in 
such manner as may be prescribed; 
(b)  maintain accounts and have the same audited at such time and in such manner 
as may be prescribed; 
(c)  submit its annual report and audited accounts to the State Bank and publish the 
same for general information at such time and in such manner as may be 
prescribed; and 
(d)    furnish to the State Bank such particulars with regard to accounts and other 
records as the State Bank may from time to time require. 
(3) The State Bank, or any officer duly authorized by it in this behalf, may at all reasonable 
times inspect the books of account and other records of a microfinance institution, the securities, cash 
and other properties held by such institution, and all documents relating thereto. 
18. Liquidity and reserves .___ (1) A microfinance institution shall maintain investment in 
liquid assets, i.e. cash, gold and unencumbered approved securities, valued at a price not exceeding 
the lower of the cost and the current market price, which shall not at the close of business on any day 
be less than such percentage of the total of its time and demand liabilities, as may be notified by the 
state bank from time to time: 
 
1
Subs. by the Finance Act, 2006 (3 of 2006),s.18 for “fullstop”. 
2
Proviso added ibid. 
 
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Provided that the state bank may separately specify the applicable percentage either in general 
or in relation to any class of microfinance institution in particular. 
Explanation.__ (1) For the purpose of this section, the expression “unencumbered approved 
securities of a microfinance institution lodged with another microfinance institution or institution for 
an advance or any other credit management to the extent to which such securities have not been drawn 
against or availed of, and the expression “ liabilities” shall not include the paid up capital or reserves 
or any credit balance in the profit and loss account of the microfinance institution or any such 
liabilities as may be notified by the state bank for the purposes of this section. 
b) In computing the amount provided for in clause (a) any balances maintained in Pakistan 
by a microfinance institution in a current account with the State Bank or its agent or both 1* * * 
shall be deemed to be cash maintained. 
2
[(c) The State Bank shall monitor the liquidity position through such returns and systems as 
may be prescribed by it from time to time.]. 
3
[(2) A microfinance bank shall maintain by way of cash reserve in cash in current account, 
opened with the State Bank or its agent, a sum equivalent to five per cent of its deposits or such 
percentage as State Bank may from time to time notify. The State Bank shall monitor the reserve 
position through such returns and systems as may be prescribed by it from time to time.] 
Explanation.__ For the purpose of this section the expression “liabilities” shall not include the 
paid up capital, the reserves or any credit balance in the profit and loss account of a microfinance 
institution, the amount of any loan taken from the state bank and the a mount received as loan in 
Pakistan currency by a microfinance institution from the Federal Gov ernment out of a foreign 
currency loan contracted by the Government or the amount of foreign currency loans obtained by the 
microfinance institution directly from any foreign agency but  should  include  the  amount  of  any 
other  rupee  loan  taken  from  the  Federal Government. 
(3) A microfinance institution shall create and maintain a Statutory Reserve Fund to which 
shall be credited each year, a sum equivalent to such percentage of its aftertax profit as may be 
prescribed. No appropriation from the Statutory Reserve Fund shall be made without prior written 
approval of The State Bank. A microfinance institution shall also create other reserves as required 
by the State Bank from time to time. 
19. Depositors’ protection fund .___  (1) A microfinance institution shall, as required by the 
state bank, establish and maintain depositors’ protection fund or scheme for the purpose of providing 
security  or guarantee to persons depositing  money in such institution. 
(2) Five per cent of the annual after tax profits of a microfinance institution and profits 
earned on the investments of the fund shall be credited to the depositors’ protection fund and such 
fund shall either be invested in Government securities or deposited with State Bank in a remunerative 
account. 
 
1 The certain words omitted by the Finance Act, 2006 (3 of 2006),s.18. 
2 Subs. by Act.3 of 2006, s.18, for “paragraph (c)”. 
3 Subs. ibid., for “sub-section (2)”. 
 
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(3) The depositors’ protection fund shall be used to make payment to the individual depositors 
with aggregate deposits of up  to ten thousand rupees in case of liquid ation of the mi crofinance 
institution. 
(4) The depositors’ protection fund shall be operative with effect from the expiry of five years 
from the date of first Annual Balance Sheet of the microfinance institution and shall remain 
unencumbered at all times. 
20. Power to call for information. Where it appears to the state bank that a person is carrying 
on the business of a microfinance institution in contravention of section 4, the state bank may,__ 
(a)  direct such person or any other person who is, or has at any time, been dealing, 
doing business or associating in any m anner with such person, to give or 
furnish to the State Bank within a sp ecified period such books, accounts, 
information, documents or records relating to such microfinance institution’s 
business as may be within the custody, possession or control of such person; 
(b)     authorize any person to enter and search any premises and seize books, 
accounts or other documents or records relating to such business; 
(c)     inspect and examine any of the books, accounts, documents or records referred 
to in clause (a); and 
(d) exercise as far as may be applicable the powers conferred on the State Bank 
under section 22. 
21. Inspection and investigation .___ (1) The state Bank may, at any time, inspect books of 
accounts and records of any microfinance institution to evaluate its financial viability and may, of its 
own or on recipt of complaint investigate the affairs of such institution. 
(2) The inspection or investigation shall be carried out by such officer of the State Bank 
or by such other person as the State Bank may authorize. 
(3) It shall be the duty of every officer and employee of a microfinance institution or any other 
person dealing with or connected with the op erations of the microfinance institution to produce to 
any officer, making an inspection or investigation under this section, hereafter in this section called 
the inspecting officer, all such books, accounts and other documents in his custody or power and to 
furnish him with such statements and information relating to the affairs of the microfinance institution 
within such time as the inspecting officer may require. 
(4) The inspecting officer may examine on oath any officer or  employee of  the 
microfinance institution in relation to its business and may administer an oath accordingly. 
(5) The State Bank shall supply to the microfinance institution a copy of its report on the 
inspection made under this section. 
  
 
Page 15 of 19 
 
(6) The State Bank shall systematically monitor  and evaluate the performance of a 
microfinance institution to ensure that it is complying with the applicable criteria and prudential rules 
and regulations: 
Provided that if any officer or any employee fails to produce any books of account or other 
documents or to furnish any statement or information which under sub-section (3) it is his duty to 
produce or furnish or to answer correctly any question relating to the business of the microfinance  
institution which he is asked  by an  inspecting officer, such  officer  or employee shall be liable 
to fine as the State Bank may determine to be recovered from the salary of such officer or employee 
and, in the event such failure persists, the State Bank may order removal of such officer or employee 
and the microfinance institution shall comply with such order forthwith. 
22. Powers to give directions.___ (1) Where the State Bank is satisfied that,  
(a)     in the public interest; or 
(b)   to prevent the affairs of a microfinance institution being conducted in a manner 
detrimental to the  interest of the depositors or in a m anner prejudicial to the 
interest of a microfinance institution; or 
(c)     in furtherance of monetary or financial sector policy; or 
(d)  to secure the proper management of a microfinance institution, it is necessary 
to issue directions to microfinance institutions generally or to any microfinance 
institution in particular, it may, from time to t ime, issue s uch directions as it 
may deem fit and the microfinance institutions or the microfinance institution, 
as the case may be, shall comply with such directions. 
(2) The State Bank may, on representation made to it or of its own motion, modify or cancel 
any direction issued under sub-section (1), and in so modifying or canceling any direction may impose 
such condition, as it thinks fit, subject to which the modification or cancellation shall have effect. 
1
[22A. Power of the State Bank to remove Directors or other managerial persons from 
offices.__ (1) Where the State Bank is satisfied that__ 
(a)    association of any chairman or director or chief executive by whatever name 
called or other officer of a microfinance bank not being lower in rank than a 
branch manager, is or is likely to  be detrimental to the interests of the 
microfinance bank or its depositors or is otherwise undesirable; or 
(b)     in the public interest; or 
(c)     to prevent the affairs of a mi crofinance bank being conducted in a manner 
detrimental to the interest of its depositors or in a manner prejudicial to the 
interests of the microfinance bank; or 
 
1New section 22A, 22B, 22C ins. by the Finance Act, 2006 (3 of 2006), s.18 
 
Page 16 of 19 
 
(d)  to secure the proper management of any microfinance bank, it is necessary 
so to do; the State Bank may, for reasons to be recorded in writing, by order, 
remove from office, with effect from such date as may be specified in the 
order, any chairman or director or chief executive officer by whatever name 
called or other officer of the microfinance bank. 
(2) No order under sub-section (1) shall be made unless the chairman or director or chief 
executive or other officer has been given a reasonable opportunity of making a representation to the 
State Bank against the proposed order: 
Provided that if, in the opinion of the State Bank, any delay shall be detrimental to the public 
interest or the interest of the microfinance bank or its depositors, the State Bank may, at the time  of  
giving  the  opportunity  aforesaid  or  at  any  time  thereafter  and  pending  the consideration of 
the representation aforesaid, if any, by order direct that- 
(a)  the chairman or, as the case may be, director chief executive officer or other 
officer, shall not, with effect from the date of the order,— 
(i)  act as such chairman or director or chief executive or other officer 
of the microfinance bank; or 
(ii)  in any way, whether directly or indirectly, be concerned with, or 
take part in the management of the micro finance bank; and 
(b)  any person authorized by the state bank in this behalf shall act as such 
chairman or director or chief executive of the microfinance bank  
(3) Where any order under sub-section (1) is made in respect of a chairman, director, chief 
executive or other officer of a microfinance bank, he shall forthwith cease to be a Chairman or, as the 
case may be, a director chief executive officer or other officer of the microfinance bank and shall 
not in any way, whether directly or indirectly, be concerned with, or take part in, the management 
of the microfinance bank or any other microfinance bank for such period not exceeding three years 
as may be specified in the order. 
(4) Any person appointed as chairman director or chief executive officer under sub-section 
(2) shall— 
(a)  hold office during the pleasure of the State Bank subject to such conditions as 
may be specified in the order of his appointment and, subject thereto, for 
such period, not exceeding three years as the State Bank specify in such order; 
and 
(b)  not incur any obligation or liability for anything, which is done or intended to 
be done in his capacity as such chairman, director or chief executive. 
(5) No p erson removed from office un der sub -section (1) shall be entitled to claim any 
compensation for the loss or termination of office. 
  
 
Page 17 of 19 
 
22B. Power of the state Bank to supersede Board of Directors of microfinance banks.___ 
(1) Where the state Bank is satisfied that__ 
(a)    the  association of the Board of Directors, by whatever name called, of a 
microfinance bank, is or is likely to be detrimental to the interests of the 
microfinance bank or its depositors or otherwise undesirable; or 
(b)     for all or any of the reasons mentioned in sub-section (1) of section 22A, it is 
necessary so to do, the State Bank may, for reasons to be recorded in writing, 
by order, supersede the Board of Directors of a microfinance bank with effect 
from such date and for such period as may be specified in the order. 
(2) The period of supersession specified in an order under sub-section (1) may from time to 
time be extended by the State Bank and the total period of supersession shall in no case exceed three 
years. 
(3)  All orders and duties of the Board of Directors shall, during the period of supersession, 
be exercised and performed by such persons as the State Bank may from time to time appoint in 
this behalf 
(4)  The provisions of sub-sections (2), (3), (4), and (5) of section 22A shall, apply to an 
order made under sub-section (1) or sub-section (3). 
22C. Limitations.___ (1) No order under section 22A or section 22B- shall be made except 
by the governor of the state bank on a report by a standing committee set up by the state bank for the 
purpose.  
(2) Any person or micro finance bank aggrieved by an order made by the Governor of the 
State Bank under section 22A or section 22B may make an appeal to the Central Board of Directors 
of the State Bank whose decision shall be final. 
(3) No action taken under section 22A or section 22B or sub-section (2) shall be called 
in question by or before any court, tribunal or other authority 
22D. Prosecution of directors, chief executive officers or other officers. Notwithstanding 
anything contained in section 22A the State Bank may direct prosecution of a director or chief 
executive officer by whatever name called or other officer who, in its opinion, has knowingly acted 
in the manner causing loss of depositors’ money or of the income of the microfinance bank. 
Explanation.__ For the purpose of this section a director chief executive officer or other officer 
shall be deemed to have acted knowingly if he has departed from established banking practices and 
procedures or circumvented the regulations or related restrictions laid down by the State Bank of 
Pakistan from time to time.] 
PART V 
MISCELLANEOUS 
23. Penalties.___ (1) Whoever carries on the business of a microfinance institution without 
having been licensed to do so or who carries on such business after the license therefore has been 
 
Page 18 of 19 
 
suspended or cancelled shall be punished with imprisonment for a term which shall not be less than 
five years. 
(2)  Any  person  who  willfully  withholds  or  fails  to  deliver  any  document  or information 
or makes a statement in any return, balance sheet or other document or in any information  required  
or  furnished  under,  or  for  the  purpose  of  any  p rovision  of,  this Ordinance which to the 
knowledge of such person is false in any material respect, shall be punishable with imprisonment for 
a term which may extend to one year, or with fine which may extend to one hundred thousand rupees, 
or with both. 
(3) Any person who contravenes any other provision of this Ordinance or does not comply 
with any requirement of this Ordinance or any rule, regulation, order, instruction, condition made, 
given or imposed hereunder shall be liable to such fine as the State Bank may, from time to time 
determine. 
(4) If any officer of a microfinance institution, mismanages the affairs of the microfinance 
institution or misuses his position for gaining direct or indirect benefit for himself or any of his family 
members, he shall be punishable with imprisonment for a term which may extend to three years and 
shall also be liable to fine which may extend to one hundred thousand rupees, and shall be ordered, 
by the court trying the case, to deliver or refund within a time to be fixed by the court any property 
acquired or gained by him in his own name or in the name of his family members by using his 
position or, in default, to suffer further imprisonment for a term which may extend to six years. 
(5) A microfinance institution, which fails to maintain liquid assets and reserves in accordance 
with the provisions of this Ordinance, shall be punished with a fine equivalent to one per cent of the 
shortfall for every day in which the failure occurs. 
24. Continuance of charge and priority.—Where a charge over any property has been, 
or is, created by any person in favour of a microfinance institution to secure any of the services 
extended by the microfinance institution to such person, such charge shall continue to remain valid 
and shall maintain its priority in favour of the microfinance institution against all charges created by 
such person in favour of any other person subsequent to the original date of registration of such 
charge. 
25. Restrictions on removal of records and documents.—No microfinance institution shall 
remove from the specified area, to a place outside the specified area, any of its records and documents 
relating to its business without the prior permission in writing of the State Bank. 
Explanation.__ In this section the expression “records” includes ledgers, day books, cash 
books, books of accounts, and all other books, maintained either on paper books or on electronic or 
magnetic devices, used in the business of a microfinance institution; and the expression “document” 
includes vouchers, cheques, bills, pay orders, securities for advances and any other documents 
supporting entries in the books of accounts, or claims by or against, a microfinance institution. 
1
[26A. Declaration of fidelity and secrecy.—(1) Every member, director, auditor and staff 
member of the microfinance bank shall, before entering upon his office and performance of duties, 
make a declaration of fidelity and secrecy in the form as State Bank may prescribe. 
 
1
New section 26A ins. by the Finance Act, 2006 (3 of 2006),s.18. 
 
Page 19 of 19 
 
(2) Whoever contravenes the declaration of fidelity and secrecy s hall be punishable with  
imprisonment for a term which may extend to six months, or with fine which may extend to one 
hundred thousand rupees, or up to the extent of loss caused, whichever is higher, or with both. 
27. False information. Whoever in any application for obtaining assistance or in any balance 
sheet, statement of profit and loss, declaration or any other document submitted to the microfinance 
institution for the purpose of obtaining any financial aid sought or granted under this Ordinance, willfully 
makes false statement or knowingly permits any false statement to be made or to remain, or uses or 
permits to be used any financial facility for any purpose  other  than  that  for which  it  is  granted  by 
the  microfinance  institution shall  be punishable with imprisonment for a term which may extend to six 
months, or with fine which may extend to one hundred thousand rupees, or with both. 
28. Cognizance of offences .__ (1) No court shall take cognizance of an offence under this 
ordinance except on complaint in writing made by an officer of the state bank authorized in this behalf. 
(2) Notwithstanding anything in the code of criminal procedure, 1898, (Act V of 1898),__ 
(a)     no court other than that of a Judicial Magistrate of the first class shall try an 
offence under this Ordinance; and 
(b)  it shall be lawful for the Judicial Magistrate to pass any sentence authorized by 
this Ordinance. 
29. Indemnity.___ No suit or other legal proceeding shall lie against the federal by government, 
the state bank or nay officer of the federal government or the state bank for anything which is in good faith 
done, or intended to be done, under this ordinance or of any rules, regulations or orders made there under. 
30. Power to make rules.___ (1) the state bank may, with the approval of the federal government, 
by notification in; the official Gazette, make rules for carrying out the purposes and provisions of this 
ordinance. 
1
* * * * * *  * 
31. Power to make regulations. The State Bank may make regulations, not inconsistent with the 
provisions of this Ordinance and the rules, to provide for all matters for which provision is necessary or 
expedient for the purpose of giving effect to the provisions of this Ordinance and efficient conduct of 
the affairs of a microfinance institution. 
32. Removal of difficulties (1) Subject to sub-section (2), if any difficulty arises in giving effect 
to any of the provisions of this ordinance, the federal government may make such order, not inconsistent 
with the provisions of this ordinance, as may appear to it to be necessary for the purpose of removing the 
difficulty.  
(2) No order under sub-section (1) shall be made after expiry of two years from the commencement 
of this Ordinance.  
 
1Sub. Section (2) omitted by the Finance Act, 2006 (3 of 2006),s.18.