The Pakistan Credit Rating Agency Limited
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Wajeeha Asghar

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PACRA Assigns Initial Rating to Khushhali Microfinance Bank Limited | PPTFC | Tier-I

Rating Type Debt Instrument
(07-Sep-22 )
Action Initial
Long Term A-
Short Term -
Outlook Stable
Rating Watch -

The assigned rating of the instrument of Khushhali Microfinance Bank Limited ( or "KMBL" or the "Bank") takes comfort of the prominent position of KMBL as the leading provider of microcredit services in the microfinance sector of Pakistan. Currently. KMBL is having a market share of ~ 18% at Dec'21 (Dec'20: 19%) in the gross loan portfolio. The rating draws comfort from the bank's association with Unite Bank Limited (UBL) - the second largest private sector Bank in Pakistan with a strong and well-diversified domestic franchise. The rating incorporates the uncertainty involving the financial risk profile of the bank as around 40% of the total performing portfolio is categorized as rescheduled in light of SBP’s directions to relax repayment terms for borrowers effected by the COVID-19. Hence, the rating will remain sensitive to the recovery of both amounts placed under deferred loan and accrued mark-up category which has also increased by 27% as at Dec'21 as compared to last year. The uncertainty in the portfolio during restructured tenure has impacted profitability. The Bank issued PPTFC-Tier I, amounting to PKR 1,500mln to strengthen capital adequacy further. While the liquid investments (majorly in Gov. securities) are 24% of total assets. Three major shareholders are considering the aggregate stake sale to a consortium of renowned strategic investors; the divestment process completed by Jun'22.
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. Meanwhile, the bank’s propensity to protect its performance indicators amidst constrained business environment, is imperative.

About the Entity
Khushhali Microfinance Bank Limited (or "KMBL" or the "Bank") (previously Khushhali Bank Limited) incorporated in 2000 with proclamation of Khushhali Ordinance by Government of Pakistan. Subsequently, it was transformed into a public limited company in 2008. With its headquarters based in Islamabad and a total network of 240 footprint across Pakistan, Khushhali Microfinance Bank (KMBL) operates under the supervision of the State Bank of Pakistan (SBP). The Bank is owned by United Bank Limited (30%), Rural Impulse Fund (24%), Responsibility Global MF (20%), Shore cap II Limited (14%), ASN-NOVIB (10%) and Bank AL-Habib (2%). The Bank is governed by eight members Board and Chaired by Mr. Ameer Karachiwalla. With over 30 years of experience, Mr. Aameer is a Chartered Accountant from the Institute of Chartered Accountants of England & Wales.

About the Instrument
KMBL issued Rated, Privately Placed Listed/ DSLR, Unsecured, Subordinated, Tier I Term Finance Certificates (TFC) of up to PKR 1,500mln to contribute towards the bank’s Tier I capital for complying with the Capital Adequacy Ratio (CAR) requirement prescribed by the SBP for Microfinance Banks. The instrument is perpetual. However, call option exists. The profit will be payable semi-annually, with the rate of 6MK+4%. The instrument is subordinated to the payment of principal and profit to all other claims except common shares.

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.