ISLAMABAD: The finance ministry informed the Islamabad High Court (IHC) on Friday that the State Bank of Pakistan (SBP) had deferred repayment of principal amount of small and domestic loans for a year and subsidised payroll loan.

The finance ministry, in its written reply submitted to the IHC in a public interest litigation related to repayment of small and domestic loans, said that the relief measures taken by the SBP included reduction in the policy rate, deferment of repayment of principal amount of small loans for one year and five per cent subsidy on payroll loan for three months.

The case has been instituted on an application filed by a citizen, Rafiqur Rehman, who is facing hardship in repayment of instalments of Rs75,000 loan he has obtained from the Rural Support Programmes Network (RSPN), a microfinance entity.

The court has converted his handwritten application, seeking deferment of repayment of small loans of microfinance entities till the lockdown ends, into a petition.

The applicant adopted before the court that he was among numerous people who had obtained small domestic loans from the RSPN, non-governmental organisations and microfinance banks.

Under the prevalent situation in the country caused by the lockdown imposed due to Covid-19 pandemic, he said, a majority of the borrowers could not pay instalments of the loans and were being harassed by the officials of the RSPN, NGOs and banks.

IHC Chief Justice Athar Minallah, during the previous hearing, appointed senior lawyers Umer Ijaz Gillani and Haseeb Mohammad as amici curiae to assist the court.

Mr Gillani in his report told the court that according to the latest estimations, over 7.1 million families in Pakistan were receiving microfinance services. The overall volume of the loan portfolio is around Rs392 billion. Some of the largest recipients of microfinance services are small farmers who use it as bridge finance.

The report stated that microfinance institutions in Pakistan were a relatively recent phenomenon. For a long period of our national history, the poor people have remained outside the formal banking system.

The circulars already issued by the SBP and the Securities and Exchange Commi­ssion of Pakistan (SECP) were quite sufficient to address the issues raised in the petition, the report said. In principle, as soon as the regulatory circulars were issued, the RSNP should have informed its customers about the availability of a rescheduling or restructuring facility. If this had been done, chances were that the present incident where the microfinance institution (MFI) was trying to recover its money during the Covid 19 emergency would never have happened, it added.

Since the existing circulars adequately addressed the situation, the petition could be converted into a representation to the MFI concerned which, in turn, would be bound to decide it within 15 days, the report said.

“While it is likely that the MFI concerned would reschedule the petitioner’s debt, it is important to remember that this decision can be made only by the MFI itself. Nobody else can exercise that authority. The regulator can only make policies regarding MFIs where the courts can only judge whether the policy is being applied evenly. Also, in case an MFI commits an illegality in enforcing the regulatory directive, the forum of first resort should be the regulator itself; only if both the MFI and the regulator fail in their duty to help out borrowers, should recourse be made to the extraordinary remedy of the judicial review,” the report concluded.

The RSPN’s lawyer told the court that as per the government policy, the institution had informed some 650,000 borrowers that the repayment of loans had been deferred.

The court adjourned the case for further arguments till April 24.

Meanwhile, the SBP has announced on its official Twitter account that borrowers availing consumer finance for auto, housing and personal loans and credit cards, who were regular in their payments up till Dec 31, 2019, could request banks to defer payment of principal amount for one year without fee or increase in mark-up. However, it said that they would continue to service the mark-up amount.

Published in Dawn, April 18th, 2020