Muhammad Harris Ghaffar
PACRA Assigns Positive Outlook to Kashf Foundation
The rating emanates from the prominent profile of the Kashf Foundation (herein referred to as “The Foundation” or “the MFI”) in the Microfinance sector of Pakistan (herein referred to as "MFIs"). SECP is the Regulatory body for MFIs and they are governed through NBFC Rules, 2003 and NBFC Notified Entities Regulations, 2008. Kashf Foundation is a not-for-profit organization. The PAR(Portfolio at risk) of the MFI stood at 0.5% and has augmented the credit risk profile of the MFI. The rating takes comfort from a consistent upward-sloping growth trajectory in the GLP during a time span of three years. The Kashf Karobar Karza is their foremost product and predominately contributed to the markup earned and net profitability of the MFI. The MFI primary source of funding is borrowing with an optimal mix of local and foreign financing which also includes the issuance of PKR 2.5bln PPTFC bond to further augment their Gross Loan Portfolio (GLP) growth. The MFI has executed CCS ( Cross-Currency Swaps) and FRAs (Forward Rate Agreements) to mitigate the foreign exchange risk in foreign borrowings. The optimization of operational costs with respect to their total disbursement of the portfolio has strengthened the profitability matrix coupled with spiral markup and non-markup income. The consistent appreciable growth in the net profitability of the Company during the time span of two years which ultimately beefed up the net equity levels provides comfort to the ratings of the Foundation. The liquidity profile of the Foundation remains one of the finest in the industry. The Board of the MFI is more of an advisory nature and all members, who, in their own right, are reputable individuals. The board is actively involved in making the strategic choices and setting the direction of the company and the board ensure to follow the best practices of corporate governance. The induction process reflects the alignment of the incumbent members to the institution itself, a self-propelling drive to contribute. The quality of board discussions is evidence of this assertion. The MFI has a stable and experienced senior management team which is supported by clear reporting lines as per a formalized organogram and a satisfactory monitoring process. The integration with the head office to assess the real-time status of recoveries and disbursements coupled with technological advancement has escalated the control environment. The restriction on the mobilization of deposits has demarcated and supplemented the risk absorption capacity while triggering the funding constraints. Despite the hyperinflationary environment and other microeconomic challenges specifically the consistent surge in KIBOR which ultimately elevated the cost of funds for MFIs, the portfolio at risk (PAR) > 30 days of MFIs has shown an improvement and reduced to 3.0% (4QCY22: 4.2%) mainly on the back of the recoveries in the flood-impacted portfolios. The industry's loan portfolio requires prudent management mainly on the back of the consistent surge in the policy rate. However, going forward the impact of gross lending rate on the financial risk profile specifically on NPLs (Non-performing Loans) is being evaluated in due course of time.
The outlook on the ratings is "positive" which reflects the prospective transition to the higher ratings. The essential elements are demonstration of robust capital adequacy, framework around liquidity position, and risk profiling of earning advances, amongst other things.
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). The Board comprises of 10 members. Dr. Hafiz Ahmed Pasha is the Chairman of the board. Ms. Roshaneh Zafar is the founder and CEO of the foundation.