First Habib Modaraba

CREDIT RATING REPORT | Sep-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
19-Sep-25 AA+ A1+ Stable Maintain -
20-Sep-24 AA+ A1+ Stable Maintain -
22-Sep-23 AA+ A1+ Stable Maintain -
23-Sep-22 AA+ A1+ Stable Maintain -
23-Sep-21 AA+ A1+ Stable Maintain -
About the Entity

First Habib Modaraba ('the Modaraba'), established in 1985 and listed on the Pakistan Stock Exchange, is a perpetual, multi-purpose Modaraba engaged in Islamic modes of financing, mainly Diminishing Musharaka. Habib Metropolitan Modaraba Management Company (Pvt.) Limited, is a wholly owned subsidiary of Habib Metropolitan Bank and is the management company of the Modaraba. The Modaraba Management Company holds ~10% stake in the Modaraba as controlling stake. The Board is chaired by Mr. M. Shams Izhar, possessing professional experience of over 36 years. All the Board members have vast experience in banking and finance. The CEO, Mr. Muhammad Shoaib Ibrahim has been associated with the Modaraba since its inception. He is supported by experienced team members.

Rating Rationale

First Habib Modaraba's ('the Modaraba') assigned ratings reflect its sound asset quality supported by prudent risk management, strong business and financial profile, and a streamlined governance framework. Additional comfort is derived from the Modaraba’s affiliation with a renowned sponsoring entity, Habib Metropolitan Bank Ltd. The presence of industry veterans in the management structure, along with the implementation of a robust internal control system, is considered pivotal for the Modaraba's operational efficiency. The Modaraba continues to lead the market and has demonstrated a prudent growth strategy by offering a diversified portfolio of Shariah-compliant products, which primarily includes Diminishing Musharakah. The primary focus remains on vehicles and plant & machinery financing. Despite a reduction in the policy rates, the Modaraba’s topline gathered support through a strategy revamp with an increase in the business volumes. The Modaraba targets low-risk clients, supported by a comprehensive risk management framework. Moreover, exploring digital lending opportunities to enhance its outreach and operational efficiency, along with continued strategic initiatives to expand into new sectors, has further strengthened the overall outlook. The Modaraba continues to maintain robust profitability. Its funding strategy remains anchored in Musharakah-based Certificates of Investment (CoIs), offered in tenors of 3 months, 6 months, and 1 year. This, along with substantial credit lines through shariah compliant financing from different Islamic banks/windows, reflects confidence in the Modaraba's financial strength. Growth in the funding base has strengthened the liquidity profile. Maintaining a Capital Adequacy Ratio (CAR) of ~20% depicts strong capital buffers. The Modaraba is evolving its long-term strategic vision to remain competitive in the increasingly challenging financial landscape. Moroever, sustaining the highest ratings among the entire Modaraba sector across the country bodes well.

Key Rating Drivers

The ratings are contingent upon the management’s continued ability to maintain the Modaraba’s competitive position while delivering consistent profitability. They also rely on the preservation of a stable financial profile. Any material shift in the risk profile could negatively affect the ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

First Habib Modaraba

rating analysis

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Profile
Structure

First Habib Modaraba (“the Modaraba”) has been established as a Non-Banking Islamic Financial Institution. The Modaraba is listed on the Pakistan Stock Exchange, denoted by the trading symbol “FHAM”.


Background

The Modaraba was established in 1985 as a perpetual, multipurpose modaraba, carrying out operations primarily in the Islamic mode of leasing business, based on the principles of Islamic Shari'a. Habib Metropolitan Modaraba Management Company (Pvt.) Limited is the management company of the Modaraba.


Operations

The Modaraba offers Musharakah based Certificate of Investment (CoM), Istisna, Ijarah and Diminishing Musharaka financing which is primarily for vehicles and plant & machinery.


Ownership
Ownership Structure

The major shareholding of the Modaraba is held by H4 Management Private Limited (~53.45%), which was previously known a Habib Management Private Limited. Whereas ~10% shareholding is held by the Modaraba management company (Habib Metropolitan Modaraba Management Company). The remainder of shareholding is distributed between various individuals, corporations, financial institutions and other parties.


Stability

The Modaraba is proceeding on a path of growth, in terms of business scale and size of financial assets on sound footing. Modaraba has adopted a generally prudent approach in its prospective expansion plans. The Modaraba is aiming to grow its market share by adding new sectors and sound customers as well as looking to tap into and explore digital-based lending space through technological advancement.


Business Acumen

Aside from Habib Metropolitan Bank Limited, the sponsor holds a strategic stake in various sectors. The ownership of Habib Metropolitan Bank has proven beneficial for the Modaraba, achieving numerous milestones and establishing a strong position in the sector, demonstrating robust sponsor acumen.


Financial Strength

Habib Metropolitan Bank is the sponsor of the Modaraba and has an asset base of over PKR 1.6bln and advances of over PKR 525mln as of FY25, carrying a strong financial profile


Governance
Board Structure

The Board of the Modaraba is structured with six members, composed of two Independent Directors, three Non-Executive Directors, and one Executive Director, the CEO of the Modaraba. The Board of Directors of the Modaraba comprises professionals having vast experience in the banking and finance sectors.


Members’ Profile

The Board's Chairman, Mr. M. Shams Izhar, posses professional experience of over 37 years in banking with specialization in corporate governance and risk management.


Board Effectiveness

The Board has established two Board-level committees, namely; the Audit Committee and Human Resource Committee, chaired by independent directors. The Board's performance is mandated by SECP Regulations and offers supervisory efficacy, as evidenced by the holding of periodic meetings.


Financial Transparency

M/s. BDO Ebrahim and Co. Chartered Accoutants, the external Auditor of the Modaraba has expressed an unqualified opinion on the Modaraba’s financial statements for FY24.


Management
Organizational Structure

A lean organization has been implemented by the Modaraba, with reporting lines ultimately converging toward the CEO of the Modaraba, the Internal Audit department being an exception as it reports directly to the Audit Committee.


Management Team

The Modaraba is led by Mr. Shoaib Ibrahim as the Chief Executive Officer. He is a veteran of the Non-Banking Islamic Financial industry, being the previous chairman of the NBFI and Modaraba Association, with a career spanning over 3 decades. Mr. Tehsin Abbas serves as both the CFO and Company Secretary of the Modaraba, bringing with him an experience of 3 decades with the Modaraba. The management team comprises seasoned and loyal professionals.


Effectiveness

The Modaraba has established a comprehensive Code of Conduct, setting high standards for conduct and compliance with various stakeholders. Three Management Committees oversee operations: Credit, Market Investment, and Assets & Liability Management holding regular meetings for operational discussions.


MIS

The Modaraba has in-house developed ERP-based MIS (ERP-I) for efficient and timely reporting. Current MIS can be classified into three categories based on periodicity – Daily, Weekly and Monthly.


Risk Management framework

The Modaraba's management actively seeks opportunities to meet its strategic goals while ensuring RMF is properly implemented. The Modaraba fosters strong interdepartmental communication on risk factors and promotes a culture of collaborative decision-making across all departments.


Business Risk
Industry Dynamics

With the current economic indicators showing recovery along with the inflation of ~4.5 % in FY25 [~23.8% in FY24], lowest in almost a decade, increases the expectation of an rise in lending and borrowing activities, further boosted by declining interest rates, are anticipated to positively contribute to business growth and earning prospectives. Towards the end of CY24, total advances by banks to NBFCs reached PKR 1.8trn, marking a sharp increase  in comparison to end of CY23 which were PKR 289.0bln, indicating an increased appetite for liquidity along with positive sentiments of the banking sector in NBFC's operational performance.


Relative Position

The Modaraba has established itself as one of the leading players in the Modaraba industry, acquiring a share of ~53% based on total assets and Equity share of ~28.74% as of 6MFY25.


Revenues

The Modaraba's key revenue generators were positively impacted by the recovering macroeconomic environment. Total disbursements reached PKR 15.2bln during FY24, ~51% increase in Income from advances, being a strong indicator of market demand for the modaraba's financing solutions. Income from investments and other earning assets saw enhancement of ~16% in FY24 in comparison to SPLY. As a result, total income was PKR 1,946mln during FY24 [PKR 1,442mln during FY23], showing a solid ~35% YOY growth, a major portion of it earned through motor vehicle financing. The Modaraba advances book held a healthy mix of Pharmaceutical, Services, and Food & Allied sector. During 9MFY25, Income from advances reached PKR 3,810mln from PKR 3,744mln during 9MFY24, increasing by ~1.8%, maintaining upward trend. Total Income during 9MFY25 declined by ~2.3% in comparison to SPLY.


Performance

During FY24, the Modaraba achieved a ~32% YoY growth, reporting a PAT of PKR 690mln (FY23: PKR 520mln), showcasing its ability to maintain stable and growing profitability. During 9MFY25, the Modaraba reported a PAT of PKR 656mln (9MFY24 during PKR 658mln).


Sustainability

The Modaraba firmly believes that sustainability is what strives to maximize efficiency and has been an advocate for it since its inception. Shariah governance, reducing environmental impact, community support, and focus on inclusive growth all are integral pillars of sustainability for the Modaraba. Given its strong risk management framework, business is conducted with low-risk customers.


Financial Risk
Credit Risk

The Modaraba credit risk is primarily managed through a comprehensive credit policy, which is pre-approved by the Board of Directors (BoD). Net non-performing advances/Equity was 18.1% in 9MFY25 from ~15.7% SPLY [~17.1% in FY24 from ~12% in FY23]. The Modaraba’s gross financing/funding posted at ~124% in FY24 from ~130% in FY23, [~117.8% in 9MFY24 from ~125.7% SPLY] indicating a sound trend..


Market Risk

The Modaraba has developed a comprehensive investment policy that contains provisions for the activities of the overall investment portfolio as well as per scrip exposure. The Modaraba's investment portfolio continues to be dominated by highly rated entity investments. The Modaraba's has a clear focus on its primary operations of financing, which is clearly visible through their Investments/Equity ratio that stood at ~5% during 9MFY25.


Liquidity and Funding

The Modaraba has issued COMs for 3-month, 6-month, and 1-year periods. However, the overall portfolio is tilted towards 3 months maturity, which depicts market confidence in the Modaraba.The liquidity position of the Modaraba is as; Liquid Assets / Total Funding ratio 9MFY25: ~4.8% from ~1.8% SPLY, indicating an improvement in liquidity. The Modaraba obtains primary funding from Certificates of Musharika (CoM). The Modaraba's total funding stood at PKR 25,358mln during 9MFY25 from PKR 17,860mln SPLY (FY24: PKR 19,915mln from FY23: KR 14,893mln).


Capitalization

The Modaraba had a healthy capital structure with a CAR of ~20% in FY25 and FY24, reflecting a robust capital position relative to its risk weighted assets, indicating its substantial ability to absorb any potential losses. The Modaraba reported an equity base of PKR 5,109mln during FY24 from PKR 4,614mln in FY23, reporting a ~11% increase. The Modaraba reported an equity base of PKR 5,529mln as of 9MFY25 in comparison to PKR 5,080mln in SPLY.
 
 

Sep-25

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First Habib Modaraba

financial summary

(PKR mln)

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Mar-25
9M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Total Finance-net 29,881 24,719 19,380 16,464
2. Investments 263 206 145 93
3. Other Earning Assets 982 176 87 118
4. Non-Earning Assets 620 433 360 233
5. Non-Performing Finances-net 1,002 876 568 255
Total Assets 32,749 26,410 20,540 17,163
6. Funding 25,358 19,915 14,893 12,396
7. Other Liabilities 1,862 1,386 1,033 790
Total Liabilities 27,220 21,301 15,926 13,186
Equity 5,529 5,109 4,614 3,977
B. INCOME STATEMENT
1. Mark Up Earned 3,922 5,382 3,607 1,630
2. Mark Up Expensed (2,579) (3,505) (2,288) (934)
3. Non Mark Up Income 52 70 103 144
Total Income 1,395 1,946 1,422 840
4. Non-Mark Up Expenses (320) (416) (319) (231)
5. Provisions/Write offs/Reversals (145) (333) (332) (114)
Pre-Tax Profit 930 1,197 771 495
6. Taxes (274) (507) (251) (113)
Profit After Tax 656 690 520 382
C. RATIO ANALYSIS
1. PERFORMANCE
a. Non-Mark Up Expenses / Total Income 23.0% 21.4% 22.4% 27.5%
b. ROE 16.4% 14.2% 12.1% 9.8%
2. CREDIT RISK
a. Gross Finances (Total Finance-net + Non-Performing Advances + Non-Performing Debt Instruments) / Funding 117.8% 124.1% 130.1% 132.8%
b. Accumulated Provisions / Non-Performing Advances N/A N/A N/A N/A
3. FUNDING & LIQUIDITY
a. Liquid Assets / Funding 4.8% 1.8% 1.5% 1.9%
b. Borrowings from Banks and Other Financial Instituties / Funding 15.8% 15.9% 5.0% 6.0%
4. MARKET RISK
a. Investments / Equity 4.8% 4.0% 3.1% 2.3%
b. (Equity Investments + Related Party) / Equity 1.9% 1.6% 0.9% 2.3%
5. CAPITALIZATION
a. Equity / Total Assets (D+E+F) 16.9% 19.3% 22.5% 23.2%
b. Capital formation rate (Profit After Tax + Cash Dividend ) / Equity 11.0% 10.2% 7.7% 2.6%

Sep-25

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First Habib Modaraba

rating scale

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Sep-25

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First Habib Modaraba

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
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  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
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  5. Monitoring and Review
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    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
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  6. Probability of Default
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