Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of AGAHE Pakistan
Rating Type | Entity | |
Current (28-Apr-23 ) |
Previous (29-Apr-22 ) |
|
Action | Maintain | Upgrade |
Long Term | BBB- | BBB- |
Short Term | A3 | A3 |
Outlook | Stable | Stable |
Rating Watch | - | - |
AGAHE Pakistan, a Microfinance Institution (MFI), operates under the regulatory purview of the Securities & Exchange Commission of Pakistan (SECP) under Section 42 of the Companies Act, 2017. Licensed to function under NBFC (Establishment and Regulations) Rules, 2003, and Non-Banking Finance Companies and Notified Entities Regulations 2008, AGAHE Pakistan has been in operation since 2016. However, as MFIs are not allowed to mobilize deposits, and are considered "Companies Limited by Guarantee," the institution faces funding constraints and limited risk-taking capacity. As a not-for-profit organization, AGAHE Pakistan's funding sources include loans, grants, and internal profits. Over recent years, the Institution has notably increased its Gross Loan Portfolio (GLP), which led to a surge in earned markup, and consequently, a significant increase in net markup income. During FY22, the total income of the institution witnessed an upswing to PKR 364 million (FY21: PKR 220 million), leading to an improvement in its bottom line. The institution relies on diverse borrowing avenues, including the National Bank of Pakistan (NBP), State Bank of Pakistan (SBP), Pakistan Microfinance Investment Company (PMIC), and a financing agreement with the Pakistan Poverty Alleviation Fund (PPAF) for Revolving Fund, which strengthens its funding base. The Institution's cost of funds remained under control. However, the stability in its rating reflects substantial growth in GLP and profitability, but at the cost of increased Non-Performing Loans (NPLs) and deterioration in asset quality. With the sizable increase in key policy rate YoY harnessing of NPLs remain vital. Despite the governance structure being derived from the General Body of Members and the Board of Directors, the institution faces business vulnerability due to its limited geographical presence in Southern Punjab. Moreover, the liquidity profile of the Institution remains suppressed. Room for growth exists in the technological domain.
The Institution's ratings also take into account its commendable performance during the recent economic slowdown. The Institution's ability to maintain positive performance indicators, such as recouped infection ratios, increased Gross Loan Portfolio (GLP), and profitability, despite the challenging circumstances, has been reflected in the ratings. Additionally, the Institution has a presence in eight districts of Punjab, with more than 40 cumulative branches. The sustainability of positive performance indicators amidst business volume growth is critical for the Institution's ratings. The ratings will monitor the Institution's expansion and the impact of technological progress on its operational and risk efficacy. Therefore, sustaining growth momentum is vital for the Institution's future prospects.
About
the Entity
Incorporated in 2016, AGAHE Pakistan is a public company limited by guarantee, governed by Section 42 of the Companies Ordinance, 1984 (now the Companies Act, 2017). The Institution is also licensed by the Securities & Exchange Commission of Pakistan (SECP) under the Non-Banking Finance Companies Rules, 2003. The Institution is overseen by a Board of Directors, consisting of seven members, with Mr. Abid Aman Barki serving as the Chairman. The CEO of the Institution is Mr. Barak Ullah, who leads a team of experienced professionals.