FINANCIAL REPORTING GUIDELINES FOR NON- GOVERNMENTAL ORGANIZATIONS (NGOs)/ NOT FOR PROFIT ORGANIZATIONS (NPOs) ENGAGED IN MICROFINANCE

The Council in its 216th meeting held on May 5, 2010 has approved the ‘Financial Reporting Guidelines for NGOs/ NPOs Engaged in Micro Finance’ (The Guidelines).

Background

In Pakistan, the poorer population segments were generally not considered eligible for credit facilities by the Banking sector, as these persons could not meet the collateralized lending and other criteria. The developments in Pakistan vis-à-vis poverty alleviation, donor interest and the Federal Government’s exhibited interest in tackling poverty provided the necessary fillip to the use of microfinance as a tool for economic empowerment. Among different kinds of institutions involved in microfinance are, Microfinance Banks (MFBs), Microfinance Institutions (MFIs) and NGOs/NPOs (that include rural development programs).

The MFBs and MFIs operating in the country are companies regulated by State Bank of Pakistan and are required to maintain and prepare their financial statements in accordance with the requirements of the Microfinance Institutions Ordinance 2001 and the Companies Ordinance 1984. The NGOs/NPOs that do not have the status of a company, and are using micro finance as a tool for Socio-economic empowerment and poverty alleviation, have no prescribed accounting frame work for the preparation of their respective financial statements.

It was therefore considered necessary by the Institute of Chartered Accountants of Pakistan (ICAP) to recommend accounting framework for such organizations. In order to address the matter, these guidelines have been developed and are being issued. Some parts of CGAP’s (Consultative Group to Assist the Poor) consensus guidelines have been adopted, with its permission.

These guidelines are recommendatory in nature and apply to the financial statements of NGOs/ NPOs engaged in microfinance. Compliance with the guidelines is intended to enhance the confidence of users basing their economic decisions on the NGOs/ NPOs’ financial statements.

The Guidelines can be downloaded from the Institute’s website.