Draft PR
The Pakistan Credit Rating Agency Limited

Mahina Majid

Applicable Criteria

  • Methodology | MicroFinance Institutions (Jun 17)
  • Correlation between long-term and short-term rating scale (Jun 17)
  • Criteria Modifiers (Jun 17)
  • , ()

Related Research

  • Sector Study | Microfinance Banks (Feb 17)
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PACRA Maintains Ratings of FINCA Microfinance Bank Limited
 Rating Type Entity Debt Instrument
 Action Maintain Initial Maintain Initial
 Long Term A A A A
 Short Term A1 A1  -
 Outlook Stable Stable Stable Stable
 Rating Watch - - - -

The ratings reflect association of FINCA Microfinance Bank (FINCA) with a global microfinance organization – FINCA International. This affiliation has supported FINCA not only in terms of building a wholesome strategy but also in establishing strong system and controls. FINCA is a major player in Pakistan’s microfinance sector (Sep’17: 7% share in total gross loan portfolio of micro finance providers). Extended branch network and introduction of deposit exclusive branches led the bank to aggressively mobilize deposits. The bank intends to build a stable and diverse deposit base. Given that the current deposit landscape is very competitive, building a granular (as well as low cost) deposit base is challenging. Accordingly, FINCA intends to build inroads using digital platform. Meanwhile, it has running finance lines from various banks to support funding base. Sustained quality of assets, led to better operational efficiencies; hence, improving the core profitability. FINCA is in process of digitalizing its operations and strengthening its technology infrastructure, along with offering mobile wallet to its customers. In this regard, it has stepped into branchless banking domain as well. FINCA’s branchless banking app, SIMSIM, has increased its outreach to over 112,000 customers. Strong banking practices with extended branch network acclaims FINCA’s efforts to provide long term solutions to their customers.

The rating is dependent upon FINCA’s ability to sustain its operational profitability while improving its market position. With growing loan book, related risks mainly credit quality need close monitoring. Successful execution of business strategy by the management team remains important.
About the Entity
FINCA Microfinance Bank commenced its operations in 2013 and operates with a network of 113 branches. The bank is majorly owned by FINCA International (86.4%), through FINCA Microfinance Cooperatief U.A; a commercial arm registered in Holland. Kashf Holdings, the initial founder of the bank, holds ~5.2% stake in the bank. The remaining stake is distributed among i) International Finance Coorporation (4.8%), ii) Triodos Fair share fund (2.7%) and iii) Accumen Fund Pakistan (0.8%). FINCA, offers a diversified range of financial products and services. With its upheld standard of services, FINCA scores the position of first bank of the country being awarded the “Smart Certification”.

About the Instrument
FINCA is in the process of issuing a privately placed Term Finance Certificates of PKR 1.5bln. The instrument is being issued in three equal instalments within the availability period of nine months ending in Aug18. First tranche of PKR 500mln has been issued in Nov’17. It has a tenor of 5 years from first instalment and shall be redeemed in 16 equal quarterly instalments starting from 15th month of the first drawdown. Profit will be paid quarterly at a mark-up of 3M Kibor + 1.50%. The instrument is secured against first pari passu charge over all future and present current assets along with 25% margin. In addition to this, a Debt Payment Account would be maintained which would be funded in three equal instalments with an amount equal to principal and profit payment due at the end of each quarterly payment.
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.