PACRA Assigns Initial Entity Ratings to ASA Microfinance Bank (Pakistan) Limited (Formerly ASA Pakistan Limited)

ASA Microfinance Bank (Pakistan) Limited ('ASA MFB' or the 'Company') is focused on providing small, socially responsible financial services to low-income entrepreneurs. The assigned rating incorporates the Company’s association with ASA International Group Plc, which is listed on the London Stock Exchange. ASA International is one of the world’s largest international microfinance institutions with a presence in 13 countries across Asia & Africa. The Company has been able to devise a sound strategy and established a strong footprint over the years represented by a strong growth in lending operations with the advances portfolio comprising of clean unsecured lending surging by ~21% in CY22 to stand at ~PKR 17,779mln following a notable growth of ~44% in CY21. The Company secures ~6% market share in terms of GLP and ~12% market share in terms of women borrowers amongst the microfinance banks and institutes as of end-Dec`22. The recent growth recorded in the GLP is a result of enhanced outreach secured by the Company. The same growth pattern is projected in the future as well; wherein the need to curb infection remains vital. During CY22, ASA MFB recorded a sizable improvement of ~40% in markup income, due to volumetric growth in advances and improvement in spreads. The net profitability is also depicting a growth trend over the years and reflected a surge of ~25% in CY22 with the mark-up expense being the limiting factor. Given the strong growth in income vis-à-vis expense base, the OSS depicted improvement and is considered to be sound. Overall profitability indicators of the Company compare favorably to the industry. The Company has one of the highest equity base amongst competitors while the parent company has also injected ~PKR 750mln in CY22 to further support the business growth. ASA MFB has acquired the Microfinance Bank license from SBP; however, final approval is awaiting from SBP’s end for the commencement of banking operations. With the Company presently not having the ability to raise deposits, the operations are funded by a mix of borrowings & equity; in addition, more than 90% of borrowings are foreign currency denominated. ASA MFB has managed its exchange risk through hedging using forward contracts. With liquid assets limited to less than 10% of the aggregate borrowings, the rating reflects low liquidity indicators of the Company. The Company’s operations so far remained concentrated to Sindh & Punjab, wherein the branch network has been further reinforced to 345 in 2022 and expansion is underway for KPK and Balochistan.
The assigned rating is contingent upon the Company’s capacity to effectively mitigate emerging risks under the prevailing circumstances to preserve its business and financial risk profile. At the same time, the Company's ability to safeguard its performance indicators in a challenging business environment is crucial.

About the Entity
ASA Microfinance Bank (Pakistan) Limited (formerly ASA Pakistan Limited) is a for-profit, Microfinance Institution, incorporated in 2008 under section 32 of the company’s ordinance, 1984. The Company received MFB license but will start operating as MFB after approval of COB from SBP. The Company is 99.99% owned by ASA International Holding, based in Mauritius. ASA International Group Plc, which is listed on the London Stock Exchange, possesses 100% shareholding of ASA International Holding. ASA International Group Plc operates in South Asia, South East Asia, West Africa, and East Africa. In total, the group has a presence in 13 countries. The Company’s Board of Directors comprises seven members, which include three independent and four non-executive directors.