PACRA Upgrades the Entity Ratings of Sindh Microfinance Bank Limited

The rating upgrade of Sindh Microfinance Bank reflects its sustained financial profile, consistent profitability, low infection ratio, robust capital adequacy, and well-structured recovery procedures. The Bank, following prudent and essential principles of microfinance, lays and in fact practices a low-cost structure which is integral to its sustained profile and overall performance. Additionally, a strategic plan to expand its distribution network nationally and the backing of financially strong sponsors, supported by the provincial government, further reinforce the assigned rating. The Bank currently holds a small market share in terms of Gross Loan Portfolio (GLP) but is experiencing rapid growth with plans to further enhance its lending portfolio. In line with its business strategy the Bank is prioritizing the adoption of digital platforms to remain competitive, with a focus on enhancing accessibility and user experience. The Bank is actively expanding its customer outreach through: 1) a branch network, 2) women-centric and financially sustainable loan projects 3) digitized processes, and 4) broadening the fund base through deposit mobilization and debt funding. In CY23, the Bank's markup earned surged by 102% YoY to PKR 949.3mln (CY22: PKR 470mln; 9MCY24: PKR 989mln), primarily driven by significant growth in advances, especially the Shujag Aurat Loan, which yielded a portfolio return of 50%.
During 9MCY24, PAT increased to PKR 125mln (9MCY23: PKR 71mln), underscoring consistent profitability over nine years—a distinction unmatched in the microfinance sector. Gross micro-credit advances rose by 22% YoY to PKR 2,087mln in 9MCY24 (9CY23: PKR 1,701mln), reaffirming the Bank's growth trajectory. In line with its business strategy, the credit portfolio remains heavily concentrated in the Shujag Aurat Loan. The Bank’s capital adequacy ratio (CAR) stood at 43.98% as of the end Sep'2024 (Dec'2023: 47.21%) yet still indicating a strong position. On the funding side, deposits grew by ~46%, reaching PKR 1.9bln (Dec'23: PKR 1.3bln), largely driven by term deposits constituting 82% of the total. Despite this, a high deposit concentration (~90%) poses liquidity risks, for which effective management in the form of Parent Bank support and better liquidity management by the Asset Liability Committee would remain imperative. With paid-up capital at PKR ~1 billion as of Sep'2024, SMFB comfortably meets the SBP's minimum capital requirements for provincial operations. Equity stood at PKR ~1.2bln (CY23: PKR ~1.1bln). As per management, the Bank has applied for a nationwide operations license from the State Bank of Pakistan, which is expected to be granted shortly.
Going forward, the rating would remain dependent on the maintenance of liquidity position, holding profits to strengthen the equity and dilution in depositor's concentration while ensuring the continuous sustainability of the Bank.

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 21 branches and 83 micro-credit centers (service centers) spread across the province. The Board of Directors comprises seven members; four members are representatives of the Sindh Bank.