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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Mar-23

Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of SAFCO Microfinance Company (Private) Limited

Rating Type Entity
Current
(28-Mar-23 )
Previous
(28-Mar-22 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

SAFCO Microfinance Company (Private) Limited ('SMCPL' or the 'Company') is a Microfinance Institution (MFI) governed by the Securities & Exchange Commission of Pakistan under Section 16 of the Companies Act, 2017. The company is licensed to operate under NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies, and Notified Entities Regulations 2008. It has been in operation since 2009. The key element is that MFIs are not permitted to mobilize deposits, this element provides funding constraints. SAFCO is a for-profit organization, hence, the source of funding comprises a) Shareholders' equity, b) loans, and c) Internal generation of profits. The company's profitability culminates in integral capital generation at a decent rate. The second major source of funding is borrowings, for which the company majorly relies on local avenues primarily including PMIC, with some foreign portion. The ratings also incorporate the vulnerability in business due to low market share and limited geographical presence. Recently, the company has enhanced GLP, leading to an improvement in markup earned. However, total income declined on account of the exchange losses and higher costs of borrowing and remained stagnant at PKR 468mln at the end-June'22 (FY21: PKR 492mln). The Quantum of NPLs has increased on a YoY basis, where the company prudently recorded higher provisions to provide a cushion against the current and potential NPLs. Provisioning against NPLs along with higher non-markup expenses caused net profitability to dilute.
The Institution's financial risk profile displays a stable outlook with fine profitability margins despite a fall in asset quality. Going forward, the sustainability of profits along with asset quality are key essentials.

About the Entity
SAFCO Microfinance Company (Private) Limited (hereby referred to as “SMCPL” or ‘‘Company’’) was incorporated in May 2009 originally as a public company, limited by guarantee, but has now transformed into a private company limited by shares, and registered under Section 16 of the Companies Ordinance, 1984 (now Companies Act, 2017). It is licensed by the Securities and Exchange Commission of Pakistan, under the Non-Banking Finance Companies Rules, 2003. The overall control of the company vests with a seven-member Board of Directors. Mr. Muhammad Ismail Kumbhar is the Chairman of the Board, while Mr. Muhammad Suleman is the CEO of the company.

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.