Sindh Microfinance Bank Limited (the "Bank") was incorporated with the Securities and Exchange Commission of Pakistan on March 27, 2015 under Section 32 of the Companies Act, 2017 got license to operate as a Microfinance Bank (MFB) from the State Bank of Pakistan (SBP) on October 16, 2015.

The Bank is a wholly owned subsidiary of Sindh Bank Limited, with its registered office located at 39/F, 2nd Floor, Muhammad Ali Cooperative Housing Society, Karachi.

The Bank's principal business is to provide microfinance services to the poor and underserved segments of society, as outlined in the Microfinance Institutions Ordinance, 2001. Operating primarily in the province of Sindh, the Bank has a network of 21 branches and 83 service centers. Its lending portfolio is largely concentrated in its flagship product, "Sujag Aurat" (Visionary Women), specifically designed to empower women. Other key products include Fisheries Loan and Livestock Loan.

The Bank is a wholly owned subsidiary of Sindh Bank Limited (the Holding Bank), which is owned by the Government of Sindh through its finance department.

As the Bank is a wholly owned subsidiary of Sindh Bank Limited, the ownership structure of the Bank is deemed sound and stable.

The Bank was incorporated as part of the Government of Sindh's initiative to step into the financial sector, for its betterment and growth. Apart from Sindh Bank and Sindh MFB, other entities of the project include Sindh Modaraba, and Sindh Insurance. Sindh Bank has a network of over 330 branches and presence in 169 cities across Pakistan, demonstrating to be a successful commercial bank on a timeline basis.

The sponsor's financial muscle is robust. Sindh Bank's equity at the end of Sep 2024 stood at PKR 27bin and its net advances were recorded at PKR 92bln.

The overall control of the Bank rests with a seven-member Board of Directors (BOD), including the President/CEO. The Board comprises three independent directors and three non-executive directors. Additionally, there are four sub-committees under the Board to oversee various functions.

The Board members collectively possess extensive expertise in financial and banking services. Mr. Baqir Hussain, the Chairperson of the Board, brings 30 years of diverse experience, having served in prestigious and reputable financial institutions. Mr. Dilshad Hussain, Non-executive director, is a Certified Management Accountant (CMA) and holds MBA degree in Finance and Accounts. With over 30 years of experience in financial institutions, he has been associated with Sindh Bank since 2011. Mr. Riaz Ahmed, Non-Executive Director, is an expert in Information Technology, specializing in Core Banking Software and Alternative Delivery Channels (ADC). He brings more than 25 years of experience in IT operations. Dr. Ghulam Mustafa Suhag, Independent Director, is a seasoned Public Civil Servant with over 26 years of experience in civil services. He has been serving as Managing Director of Sindh Technical Education and Vocational Authority (STEVTA) since September 2021. Mr. Abdul Quddus Khan, Independent Director, is an Islamic Microfinance professional with over 35 years of experience, including holding various positions at the Bank of Khyber. He is credited with successfully implementing the Government Initiative Microfinance Scheme. Mr. Sikandar Abbasi, Independent Director, brings 32 years of experience in Commercial, Islamic, and Development Banking, Management Consulting, Strategic Planning, Board Advisory, Learning & Development, and Education. He previously served as Senior Director & Country Head Consulting at Syed Husain & Co., Chartered Accountants, an independent firm associated with Moore Stephens International Limited, UK.

The Board exercises its oversight via four committees, namely (i) Audit Committee (ii) Risk Management & Compliance Committee (iii) HR & Compensation Committee and (iv) IT Committee. Attendance of Board of directors during the meetings was good and minutes were properly documented.

Riaz Ahmed & Co. Chartered Accountants are the External Auditors of the bank. They expressed an unqualified opinion on the financial statements of the Bank for the year ending on December 31, 2023.

The Bank's organizational structure is divided into various departments, with all department heads reporting directly to the CEO, while the Head of Internal Audit reports directly to the Audit Committee. The Bank's operations are distributed across the head office, branches, and micro-credit centers (also referred to as financial centers).

The management team is led by Mr. Shoaib Arif, the CEO, a seasoned microfinance practitioner with over two decades of experience. His extensive career includes serving as Chief Operating Officer at ASA Pakistan Limited, one of the largest microfinance players in Pakistan, and as Chief Executive Officer at ASA Kabul-Afghanistan. Additionally, he held the position of Chief Operating Officer at Network Microfinance Bank for five years. Mr. Arif holds a Master’s Degree in Economics The CEO is assisted by an experienced management team. Mr. Omar Niaz Rizvi, CFO & Company Secretary, is a Fellow Chartered Certified Accountant (FCCA) and a member of the Institute of Corporate Secretaries of Pakistan. He has over a decade of experience in the microfinance industry, with expertise spanning Finance, Operations, Risk, Treasury, Corporate Finance, and Financial Reporting. Mr. Fahad Saif Khan, Head of Operations and Risk Management, brings 17 years of experience, distinguished by strategic leadership and the development of robust fraud prevention mechanisms.

The Bank has a systematic decision-making process. Multiple management committees are formed to monitor performance and assure adherence to policies and procedures.

The Bank's core banking software is low in cost and high in quality, & offers advance technology and high availability on both centralized and distributed environments and is highly secure.

The Bank is advancing with a well-structured risk control framework by implementing procedures and limits at the root level of operational activities. This framework ensures stable progress, enabling the management to achieve operational efficiency while gradually expanding the business size. The Bank operates a three-tier administrative and monitoring system comprising Area, Region, and Head Office levels.

The Bank is prioritizing the adoption of digital platforms to remain competitive, with a focus on enhancing accessibility and user experience. It has implemented PIBAS software as its core banking solution, which offers various applications, including security, centralized limits, reconciliations, and other functionalities. The system also provides real-time surveillance of branches and financial centers. Additionally, the Bank has developed an in-house software, “TAFSEEL”, which is near finalization. This software will facilitate digital onboarding and promote a paperless environment, further improving operational efficiency.

The Microfinance Banking (MfB) sector ("Sector") continues to grapple with long-standing challenges in the form of declined asset quality, negative profitability and weakened Capital Adequacy Ratio (CAR) mainly driven by the historical impact of the COVID-19 pandemic in CY20 to the hazard of floods in Jul-Aug'22 followed by the economic slowdown in CY23, the Sector's resilience has been repeatedly tested. During 6MCY24, the deposit base of MfBs increased by 6.7% to stand at PKR 637bln. The GLP of the Sector recorded a marginal uptick of 1.4% to stand at PKR 413.8bln. Whereas, the infection ratio jumped to 10.5% from 6.6% in CY23. The reported loss of the Sector soared to PKR 12.1bln from PKR 8.1bln in CY23. Consequently, the Sector's equity base declined to PKR 22.6bln from PKR 37.4bln, resulting in the declined CAR of the Sector clocking in at 5.7% from 7.6% in CY23 falling far below the regulatory threshold of 15%. These factors cumulatively raise serious and persistent concerns about the performance of the Sector. Despite challenging conditions, Sindh Microfinance Bank successfully remained profitable and maintained its Capital Adequacy Ratio (CAR) well above the regulatory requirements.

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. 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.

The Bank's markup earned rose by 102% YoY to PKR 949.3mln in CY23 (CY22: PKR 470mln; 9MCY24: PKR 989mln), driven primarily by the significant growth in advances, particularly in the Sujag Aurat Loan, which yielded a portfolio return of 50%. The net markup income also saw a substantial increase of ~79%, reaching PKR 620mln (CY22: PKR 345mln; 9MCY24: PKR 621mln). The portfolio yield remained at 50%, with the investment yield reported at 48% for CY23.

The rise in non-markup expenses by 31.2%, stood at PKR 359.5mln (CY22: PKR 274mln, 9MCY24: PKR 364mln). This is mainly due to a significant increase in compensation and depreciation expenses which relates to IFRS-16. The Bank recorded a provision of PKR 129mln (CY22: PKR 14mln) & taxes reported as (CY23: PKR 39.3mln; CY22: PKR 16mln), translated into a PAT of PKR 91.4mln (CY22: PKR 41mln). During 9MCY24, the PAT inclined to PKR 125mln (9MCY23: PKR 71mln).

Going forward the Bank will focus to increase its loan portfolio, with a cautious approach. The remarkable stability of the bank is evidenced by its consistent profitability over the span of nine years, a feat unmatched by any other microfinance institution. In alignment with its expansion initiatives, the Bank has formally applied to the State Bank of Pakistan for the license to operate bank nationally.

The Bank has an effective loan disbursement and recovery monitoring system which has the necessary checks and independent verification required to make a critical assessment. During the year, Sindh MFB's gross micro-credit advances reported a rise of 46% on a YoY basis (CY23: PKR 1,927.37mln; CY22: PKR 1,321mln). Hence, the Bank reclaimed its previous growth trajectory. The Bank's credit portfolio is majorly concentrated on its single product "Sujag Aurat Loan". At end-Sep 24, the net advances inclined to PKR 2,087mln.

The Bank's investment in government securities witnessed a rise to PKR 144.4mln at end-Dec 23 (at end-Dec 22: PKR 54.78mln), and exposure lies within the T-bills. Also, Sindh MFB invested in the TDRs of PKR 500mln. At end-Sep 24, the investments inclined to PKR 1,064mln.

At end-Dec 23, the Bank reported a borrowing of PKR 721mln, the bank obtained borrowing from the SBP under the Line of Credit Scheme of PKR 310mln and PKR 150mln from PMIC (at end-Dec 22: PKR 310mln from SBP line of Credit scheme). At end-Sep 24, the borrowings inclined to PKR 551mln.

At end-Dec 23, Sindh MFB's deposits increased to PKR 1,323mln (at end-Dec 22: PKR 600mln), similarly, institutional deposits also increased to PKR 1,049mln (at the end Dec 22: PKR 331mln). At end-Sep 24, the deposits inclined to PKR 1,937mln.

As the Bank established its lean book, its capital adequacy ratio (CAR) stood at 47.21% as of Dec 23 compared to 63.4% as of end-Dec 22. At end-Jun 24, the CAR of the Bank reported at 42.72%.