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

The rating reflects SAFCO Microfinance Company Private Limited's (SMCPL) transformation from a non-profit organization to a for-profit private company, a wholly-owned subsidiary of SAFCO Support Foundation (SSF). The prime focus of the company is to provide small, socially responsible financial services to low-income entrepreneurs. The loan portfolio consists of a total of 10 loan products mainly relating to the following segments; Enterprise, Livestock, Agriculture, SME, Personal, School Improvement, solar, housing, auto financing & Islamic financing.SMCPL, having been active since 2009, boasts an extensive presence throughout Sindh Province, comprising a network of 58 branches. These branches have played a crucial role in extending microfinance services to over 700,000 unbanked and low-income entrepreneurs, with a notable focus on supporting women entrepreneurs, who make up 59% of the beneficiary base. Moreover, SMCPL microfinance initiatives have significantly impacted rural communities, with 80% of its beneficiaries being smallholder farmers. The institution relies on diverse borrowing avenues, majorly from PMIC, along with some commercial bank, national and international lenders. The industry's loan portfolio requires prudent management mainly on the back of the consistent surge in the policy rate. However, going forward the impact of gross lending rate on the financial risk profile specifically on NPLs (Non-performing Loans) is being evaluated in due course of time. The restriction on the mobilization of deposits has demarcated and supplemented the risk absorption capacity while triggering the funding constraints. Despite the hyperinflationary environment and other microeconomic challenges specifically the consistent surge in KIBOR which ultimately elevated the cost of funds for MFIs, the portfolio at risk (PAR) > 30 days stood at 4.4% in 6MFY24 (FY23: ~4.3%) mainly on the back of the recoveries in the flood-impacted portfolios. As per the management accounts, the company's Gross Loan Portfolio (GLP), stood at ~PKR 3.7bln as of 6MFY24 (FY23: ~PKR 3.9bln). However, during 6MFY24, SMPCL recorded a sizeable improvement of ~58% in markup income, due to volumetric growth and improvement in spreads. SMCPL's witnessed a profit of ~PKR157mln in 6MFY24 (FY23: negative PKR 128mln). The same growth pattern is projected in the future as well; wherein the need to curb infection remains vital. SMCPL board is actively involved in making strategic choices and setting the direction of the company and the board ensures to follow the best practices of corporate governance. The Company has a stable and experienced senior management team which is supported by clear reporting lines as per a formalized organogram and a satisfactory monitoring process.
The ratings also incorporate the vulnerability in business due to low market share and limited geographical presence. 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
SMCPL, initially established in May 2009 as a public company limited by guarantee has transitioned into a private company limited by shares. Registered under Section 16 of the Companies Ordinance, 1984 (now Companies Act, 2017), SMCPL is licensed by the SECP under the NBFC Rules, 2003. A six-member Board governs the company, with Fazal Noor as Chairperson and M. Suleman as CEO (known internally as 'man of the last mile').