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Non-Banking Finance Companies (NBFCs), also known as Non-Banking Financial Institutions (NBFIs), provide services similar to traditional banks but do not hold a banking license. Unlike banks, these institutions are not subject to banking regulations or oversight by federal and provincial authorities.
NBFCs are defined as companies that are predominantly engaged in financial activities, where more than 85% of their consolidated annual gross revenues or consolidated assets are financial in nature. Common examples of NBFCs include investment banks, mortgage lenders, insurance companies, hedge funds, private equity funds, and peer-to-peer lenders.
NBFCs offer various financial services but cannot accept traditional demand deposits, such as those in checking or savings accounts. This limitation excludes them from conventional regulatory oversight, which applies to traditional banks.
Kakakhel Law Associates assists clients in establishing Non-Banking Financial Companies (NBFCs), helping them navigate the legal processes involved. These financial institutions provide services such as:
In Pakistan, the following laws govern Non-Banking Finance Companies (NBFCs):
As per Rule 4, any person who wishes to establish an NBFC must apply to the Securities and Exchange Commission of Pakistan (SECP) on the prescribed Form -I of the rules, accompanied by all required documents and a non-refundable fee. The permission is usually granted in writing to form the NBFC, valid for a period of six (6) months, which can be extended to nine months in special cases. During this period, the NBFC must be incorporated, and an application for a license should be submitted to the SECP.
The NBFC, or any other company subject to eligibility under Schedule I, must submit separate applications to the SECP for the grant of a license to carry out each form of business. The application must be made on Form II along with the non-refundable processing fee, as specified by the SECP.