The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Sindh Microfinance Bank Limited

Rating Type Entity
(29-Mar-22 )
(09-Apr-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - Yes

The ratings capture the aptness of the Bank as a growing institution in the microfinance sector. The Bank's business model incorporates appropriate mitigant controls to keep its risk profile adequate. Reasoning with the market conditions, asset infection ratio stood at ~1% as at end-Dec'21. The net profitability of the bank has diluted in CY21 (CY21: PKR 27mln; CY20: PKR 53mln). The primary factor behind the dip is the shortfall in disbursements (over few months). Afterwards, rise in GLP was recorded (CY21: PKR 920mln; CY20: PKR 525mln), therefore it is expected that the Bank will be able to improve the similar growth trajectory in profitability. The design of the lending portfolio represents concentration in the flagship product "Sujag Aurat" (Visionary Women), focused on women entrepreneurship and financial inclusion. The Bank's funding needs are currently being fueled through a mixture of internal and external sources. A major share of the funding has been obtained from State Bank of Pakistan on a partially low cost. Whereas, deposit mobilization has also shown slight rise during CY21. The Bank has presence in Sindh with plans to go national. As the equity of SMFB is expected to cross PKR 1bln this year and with that the Bank will be able to apply for a National Level License in CY23. A risk-averse approach towards expansion is the key essential, with funds being raised with a cautious approach. The ratings draw comfort from the Bank's association with the Government of Sindh. The financial risk profile is reflected by sanguine liquidity, adequate profitability and low investment in non-earning assets.
The ratings are dependent upon the bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact.

About the Entity
Sindh Microfinance Bank was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2015 and commenced operations in May, 2016. The Bank is a wholly-owned subsidiary of Sindh Bank. The head office of the bank is located in Karachi. Currently, the Bank operates in the province of Sindh with a network of 18 branches and 62 micro-credit centers (service centers) spread across the province.
Board of Directors comprises of seven members; two members are representative of the Sindh Bank. Mr. Shams-ud-din Khan is the Chairman of the Board. He was formerly associated with Pak-Kuwait Investment Company (PKIC) and has an overall experience of over ~40 years. Mr. Shoaib Arif, the CEO, is a microfinance industry veteran having an overall experience of more than ~20 years. He is accompanied by a team of professionals.

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.