The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of SAFCO Support Foundation

Rating Type Entity
(28-Mar-22 )
(23-Apr-21 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A3 A3
Outlook Stable Stable
Rating Watch - Yes

SAFCO Support Foundation ('SAFCO' or the 'Foundation') is a Microfinance Institution (MFI) governed by the Securities & Exchange Commission of Pakistan under Section 42 of the Companies Act, 2017. The Foundation is licensed to operate under NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies and Notified Entities Regulations 2008. It has been in operations since 2009. The key element is that MFIs are not permitted to mobilize deposits, while they are also not backed by any stakeholder equity due to their status of "Companies Limited by Guarantee". These two elements, in combination, provide funding constraints, while they also delimit the boundaries of risk. SAFCO is a not-for-profit organization, hence, the source of funding comprises a) internal generation of profits, b) loans and c) grants. The Foundation's profitability culminates into integral capital generation at a decent rate. Second major source of funding is borrowings, for which the Foundation majorly relies on local avenues primarily including PMIC, with some foreign portion. Governance structure takes strength from the body of members and board of directors. The ratings also incorporate the vulnerability in business due to low market share and limited geographical presence. Recently, the Foundation has enhanced GLP which has led to slight improvement in markup earned. However, net markup income declined on account of higher cost of borrowing. Consequently, total income remained stagnant at PKR 284mln (6MFY21: PKR 288mln). NPLs increased with the expiration of SBP’s deferment period. The Foundation prudently recorded higher provisions to provide cushion against the current and potential NPLs. Provisioning against NPLs along-with higher non-markup expenses caused net profitability to dilute. However, due to sound management decisions, the Company is on track to surpass its past performance. The Institution's financial risk profile displays a comfortable outlook with fine profitability margins despite a fall in asset quality. Hereby, liquidity profile of the Foundation remains one of the finest in the industry.
The ratings are dependent on the Foundation's aptness to sustain positive performance indicators amidst growth in business volumes. The ratings would also monitor the impact of technological progression on the operational and risk efficacy of the Foundation.

About the Entity
SAFCO Support Foundation was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2009 as a Public Company Limited by Guarantee under Section 42 of the Companies Ordinance, 1984 (now Companies Act, 2017). It is also licensed by the SECP under Non-Banking Finance Companies Rules, 2003. The overall control of the Foundation vests with a seven-member Board of Directors. Mr. Muhammad Ismail Kumbhar is the Chairman of the Board, while Mr. Muhammad Suleman is the CEO of the Foundation.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.