The Pakistan Credit Rating Agency Limited
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Muhammad Usman

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PACRA Assigns Initial Rating to Kashf Foundation | PPTFC

Rating Type Debt Instrument
(01-Oct-19 )
Action Initial
Long Term A
Short Term -
Outlook Stable
Rating Watch -

Kashf Foundation is a renowned Microfinance Institution (MFI); it has been in operations since 1996. MFIs are governed by SECP regulations mainly NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies and Notified Entities Regulations 2008 and others. The key element is that MFIs are not permitted to mobilize deposits. While this provides funding constraints, it also delimits the boundaries of risk. Kashf Foundation is a not-for-profit organization. Hence, the source of funding comprises a) internal generation of profits, b) loans and c) grants. Profitability of the foundation is sanguine and hence integral generation of capital is occurring at a very good rate. Second major source of funding is borrowings. The foundation has diversified its borrowing to both local and foreign institutions. In September 2019, a Privately Placed Term Finance Certificate (PPTFC), of PKR 2,000mln, was issued. Governance structure takes strength from the body of members and board of directors, who, in their own right, are reputable individuals. The induction process reflects alignment of the incumbent members to the institution itself, a self-propelling drive to contribute. The quality of board discussions is an evidence to this assertion. Design of the not-for profit MFI itself is the right recipe for longevity. There are examples in the world around, providing assurance. The ratings incorporate strong business profile of the foundation demonstrated by continued enhancement in business volumes. The foundation has been closely focusing on technological developments to uphold the growth with an integrated systems. Overall financial risk profile displays comfortable outlook.
The ratings are dependent on the foundation's aptness to sustain positive asset health indicators amidst growth in business volumes. Meanwhile, sustenance of improved margins are imperative. The ratings would also monitor the impact of technological advancement on the operational and risk efficacy of the foundation.

About the Entity
Kashf Foundation ("Kashf") was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2007 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 in eight member Board of Directors. Dr Attiya Inayatullah is the Chairman of the board. Ms. Roshaneh Zafar is the founder and CEO of the foundation.

About the Instrument
Kashf Foundation issued a PPTFC of PKR 2,000mln, on 30th September 2019. The instrument has a tenor of four years, inclusive of a grace period of one year. The principal on the instrument shall be repaid in 12 equal quarterly installments, starting from the 15th month of the first draw-down, carrying a mark-up rate of 3 months KIBOR plus 2.25%. The instrument is secured against first pari passu charge over all present and future current assets, along with a 25% margin. Additionally, Kashf Foundation has established a Redemption Reserve Account, in favor of the Trustee for the benefit of the investors, in which an amount equivalent to the one outstanding installment is available throughout the life of the instrument from the issue date.

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.