The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintain Entity Ratings of Pakistan Microfinance Investment Company Limited

Rating Type Entity
(25-Jun-22 )
(25-Jun-21 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch Yes Yes

The ratings of Pakistan Microfinance Investment Company Limited (PMIC) reflect its strong equity base, well-conceived business plan, and strong ownership structure. Pakistan Poverty Alleviation Fund (PPAF), Karandaaz Pakistan - funded by UK's Department for International Development (DFID) - and KfW, a German government-owned development bank – have contributed to the institution’s capital in addition to providing subordinated loans (PPAF, Karandaaz Pakistan & KfW). PMIC’s target market includes 42 institutions - 31 NBMFIs and 11 MFBs. Of these, the company has developed relationships with 21 MFIs and 4 MFBs and gross financing stood at PKR 25.4bln as of end-Dec’21. Cumulative provisioning witnessed a marginal uptick to PKR 1.24bln (end-Dec20: PKR 1.18bln). It is crucial to hold the asset quality, going forward. This is important, as multiple challenges surround the underlying microfinance universe, to which the company caters. Although on the credit concentration side, the risk remains high, the management is closely monitoring affairs in underlying microfinance players and is confident that the ensuing challenges would be managed. Going forward, high-interest rates along with the surge in inflation, and attrition in disposable income of end borrowers will require prudent management of affairs by the microfinance sector in the upcoming year. The Company's net revenue recorded a slight improvement of 5.4% while the net profitability inched up by 18.2%YoY, supplemented by an additional gain on derivatives. Rating Watch captures the heightened need to exercise vigilance on the exposures that the Company has taken. The proactive measures taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from the pandemic. Vigilance is required as the loan repayment cycle remains amid variants of the post-pandemic continue to re-emerge.
The ratings are dependent on maintaining portfolio quality. Upscaling of the Microfinance Products and stability in the experienced management team, the Company’s ability to sustain credit quality is considered important; maintaining a strong control environment remains central to the Company’s performance and hence the ratings.

About the Entity
PMIC, incorporated in August 2016, is licensed to carry out Investment Finance activities as a Non-Banking Financial Company (NBFC) under the NBFC Rules 2003 and NBFC Regulations 2008. The strong sponsors, PPAF (49%), Karandaaz (38%), and KfW (13%), strengthen the financial profile of PMIC, enabling it to meet its objectives of enhancing the liquidity of the microfinance sector. The Company operates through its head office in Islamabad. The board of PMIC comprises seven members, including representatives each of PPAF, Karandaaz Pakistan, and KFW Development Bank. There are two independent directors on the board including the chairman, providing additional independent oversight. The board is chaired by Mr. Naveed A. Khan, a former leading banker, having more than 30 years of experience in various senior positions. Mr. Yasir Ashfaq is the CEO of the company and is leading the Company since August 2017. He has more than 25 years of experience in commercial & investment banking, development, and the microfinance sector. He is a Fellow Member of ICMA and also has a Master’s in Economics from the University of Sydney. Mr. Safwat Khalid is serving as CFO of the company. He is CA from ICAP with an experience of more than 20 years mainly in the banking and financial service sector.

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.