HBL Microfinance Bank Limited ("HBL MfB" or the "Bank") was incorporated in November 2001 as a nationwide microfinance bank and started business in February 2002 after receiving the license from the State Bank of Pakistan. The Bank was created through a structured transformation of the credit and savings section of the Aga Khan Rural Support Programme (AKRSP), a development initiative pioneering microfinance in Gilgit-Baltistan and Chitral since 1982. As of end-Sep25, the Bank operates 225 business locations, including branches and permanent booths (end-Dec24: 225), with its head office based in Islamabad. The Bank provides a diverse range of products and services for low-income wage earners and the self-employed, focusing on microlending segments such as Agriculture, Livestock, Micro-enterprise, Housing, Nano Loans, Solar Finance, and more.

The Bank's ownership is primarily held by HBL with a shareholding of 90.83% as at end- Sep25, followed by the Aga Khan Agency for Microfinance (AKAM) at 5.51%, Aga Khan Rural Support Programme (AKRSP) at 2.03%, and Japan International Cooperation Agency (JICA) with 1.63%. This ownership structure is expected to remain stable in the near term. The Aga Khan Development Network (AKDN), which sponsors HBL, AKAM, and AKRSP, is a group of agencies focused on development in areas such as environment, health, education, architecture, culture, microfinance, rural development, and disaster management. AKDN aims to improve the quality of life for underserved communities by fostering self-reliance. The sponsor's business expertise is considered strong, with HBL, the direct sponsor, recognized as one of Pakistan's largest banks by deposits and advances.

The Board of Directors (Board) of HBL MfB comprised nine members as of Sep25, including the Chairman and President/CEO, and six nominee directors—four representing HBL, two representing the other shareholders—along with two independent directors. Ms. Maya Inayat Ismail has been appointed as the Chairperson of the Bank, succeeding Mr. Rayomond H. Kotwal, who resigned from his directorship in Jan25, becoming the first woman to chair an institute in the AKDN Network worldwide. Ms. Maya Inayat Ismail brings over 25 years of experience in the financial sector, with a strong focus on financial services institutions, managing strategic partnerships, and strategy formulation to benefit people at the grassroots level. Moreover, during the period under review, two changes occurred in the Bank’s Board composition. Ms. Sobia Chughtai, currently holds the role of Head of Corporate Risk at HBL, resigned from her position as a Board member of the Bank. To fill these casual vacancies, two new representatives from HBL — Mr. Aamir Israr Kureshi, Head of Products, Transaction Services, and Solution Delivery at HBL, bringing over 30 years of banking experience across global institutions, including Standard Chartered and Citibank, with expertise in strategic policy, credit risk, and digital transformation,  holding an MBA from IBA and a Bachelor’s in Economics from Pepperdine University, USA, and Mr. Armughan Ahmed Kausar, Head of Konnect and Mass Segment at HBL, having over 25 years of international experience in financial services, including roles at Big 4 auditing and accounting firms and Goldman Sachs in the UK and the Middle East and have specialization in GRC framework implementation joined the Board. The Board comprises seasoned professionals with diverse expertise and strong technical acumen, bringing with them several decades of collective banking experience that adds significant strategic value to the Bank. The Board has six committees: (i) Human Resource Committee, (ii) Risk & Compliance Committee, (iii) Audit Committee, (iv) Information Technology Committee, (v) Financial Inclusion & Sustainability Committee, and (vi) Board Remuneration Committee. During 9MCY25, the Board held six meetings with satisfactory attendance. KPMG Taser Hadi & Co. are the external auditors of the Bank. They expressed an unqualified opinion on the financial statements for the year ended December 31, 2024. The internal audit department reports directly to the Audit Committee.

The Bank operates with a horizontally structured organization, comprising 11 departments that report directly to the Chief Executive Officer. Each reporting line and job description is clearly defined. Mr. Muhammad Amir Khan, the CEO and President, has been with the Bank since 2012 and has over 30 years of experience in commercial and consumer banking. He is supported by a skilled and experienced team. Mr. Ali Raza Anjum, the Chief Operating Officer, has also been with the Bank since 2012. He brings 30 years of diverse experience in business, treasury, risk management, compliance, credit, internal audit, banking operations, finance, and human resources, having held senior management positions in prominent commercial and microfinance banks. Mr. Rizwan Maqsood, the Chief Financial Officer, has been with the Bank since 2009. He brings more than two decades of extensive experience. He has managed a variety of functions, including financial strategy, planning, management, reporting, treasury, analysis, accounting, auditing, and assurance. Mr. Junaed Rayaz, the Chief Risk Officer of the Bank, has 30 years of diverse experience in the banking industry, focusing on credit and market risk management, fraud prevention, and portfolio optimization. Furthermore, during the period under review, two key management changes took place. Ms. Mahwush Mushtaq Malik was appointed as the Company Secretary & General Counsel in May’25, taking over from Mr. Rizwan Maqsood, who held the position with acting charge, in addition to his role as CFO, for over six months. Ms. Mahwush brings over 15 years of legal experience in Pakistan and the U.S., including a decade at HBL and prior roles at the World Bank and top law firms, with strong expertise in banking law, AML, and regulatory compliance. Additionally, Mr. Malik Adeel was appointed as Head of Compliance in Dec’24, succeeding Mr. M. Ali Akram, who was looking after the position in acting capacity. Mr. Adeel brings over 20 years of experience in banking operations and compliance, having served at Citibank, MCB, and Faysal Bank, and contributed to FATF-related initiatives with the Government of Pakistan. Both appointments strengthen the Bank’s legal, control, and compliance framework. The Bank has set up various management committees to ensure operational efficiency and has implemented a robust Management Information System (MIS) infrastructure to facilitate effective decision-making. The dedicated risk management department regularly monitors credit, operational, and market risks, convening monthly to ensure adherence to the risk profile approved by the Board. The Bank's IT infrastructure, which supports core banking and other essential systems, is located in a state-of-the-art data center at its Head Office. The Core Banking System (CBS) in use is Oracle's Flexcube, which has been enhanced with features to address changing business needs and stringent regulatory requirements.

The Microfinance Banking sector (the "Sector") continues to face persistent stress from weak asset quality, recurring losses, and a declining Capital Adequacy Ratio (CAR). Successive shocks — including economic slowdown, high inflation, and elevated interest rates during the first half of CY24 — have strained borrower repayment capacity, particularly in agriculture and livestock. During the year, a significant credit crunch occurred in the country due to floods, which is expected to further impact the microfinance sector in the near future. During 6MCY25, the total assets of the sector stood at PKR 891.4bln (CY24: PKR 1,068.5bln), mostly invested in government securities. Advances were reported at PKR 414.7bln (CY24: PKR 421.2bln), primarily financed through borrowings and deposits. Despite this, the Sector posted losses for the sixth consecutive year, amounting to PKR -1.8bln (6MCY24: Loss of PKR 12.1bln). Consequently, the sector's equity base declined to PKR 15.8bln (CY24: PKR 37.2bln), resulting in the CAR falling to -1.6% (CY24: 2.6%), well below the regulatory threshold of 15%. During 9MCY25, the Bank reported a deposit share of 21% and a GLP share of 16%. Markup income increased by 10% to PKR 27.9bln (9MCY24: PKR 25.3bln), while the markup expenses decreased by 30% to PKR 13.9bln (9MCY24: PKR 19.8bln) due to lower deposit expenses. Consequently, the NIMR increased by 154% to PKR 14bln (9MCY24: PKR 5.5bln). The non-markup income rose by 30.3% to PKR 1.9bln (9MCY24: PKR 1.5bln), mainly attributable to higher fee and commission income and gains on securities. The credit loss allowance (net of write-off recovery decreased to PKR 4.6bln (9MCY24: PKR 5.4bln). Overall, the Bank reported a profit before tax of PKR 1.3bln and a profit after tax of PKR 0.8bln (9MCY24: loss before tax of PKR 6.5bln and loss after tax of PKR 4.0bln), while the CAR improved to 19.6% (CY24: 17.1%).

As of end-Sep’25, gross advances increased by 7.6% and stood at ~PKR 97.1bln (end-Dec’24: PKR 90.3bln), while Non-Performing Loans (NPLs) were reported at PKR 7.3bln (Dec’24: PKR 7.2bln). These higher NPLs were mainly attributed to last year’s credit crunch in South Punjab amid the wheat crisis. To strengthen risk resilience amid higher NPLs, the Bank has adopted a cautious lending approach by entering into multiple risk-sharing arrangements, prominently being an unfunded 50% credit risk-sharing facility amounting to USD 80mln with an international risk-sharing agency, International Finance Corporation (IFC), for a period of six years. Specialized risk-sharing arrangement with Economic Transformation Initiative Gilgit Baltistan (ETIGB) has also been entered into, amounting to PKR 1bln, and the Bank is also in negotiations with other agencies, i.e., NCGCL. Consequently, the Bank's infection ratio stood at 7.5% (end-Dec’24: 8%). The investment portfolio of the Bank decreased by 12.8% and was reported at PKR 63.4bln (end-Dec’24: PKR 72.7bln), primarily comprising government securities. The deposit base increased by 6.5% and stood at PKR 130.5bln (end-Dec’24: PKR 122.6bln), whereas total borrowings declined by 26.5% and stood at PKR 32.3bln (end-Dec’24: PKR 43.9bln), followed by subordinated debt of PKR 3.5bln. The net advances-to-deposit ratio (ADR) was reported at 66% (end-Dec’24: 67.6%). The Bank liquidity profile, as evident from the liquid assets to borrowings and deposits ratio, declined to 59.1% (end-Dec’24: 71.6%). The Bank’s equity base increased by 18.8% and stood at PKR 18.3bln (end-Dec’24: 15.4bln), supported by a PKR 2.0bln injection in share capital by the parent bank (the HBL). Backed by enhanced liquidity, robust capitalization, and prudent portfolio management, the Bank solidified its overall financial strength and resilience.

In March 2024, the Bank issued privately placed, unsecured, subordinated, and rated Tier 2 Capital Term Finance Certificates ("TFCs" or the "Instrument") amounting to PKR 1,500mln. These TFCs, with a 10-year tenor, may be listed, to enhance the Bank’s Tier II capital and strengthen the Capital Adequacy Ratio (CAR). Profit is being paid semi-annually in arrears at a rate of 6MK + 200 bps per annum, calculated on a 365-day basis on the outstanding principal. Principal redemption will occur as a bullet payment at maturity. The issuer ("HBL MfB") may, with prior SBP approval, call the TFCs at par (in full or partially) on any profit payment date after five years from the issue date, provided at least 30 calendar days' notice is given to investors. Once announced, the call option is irrevocable. Additionally, the call option may only be exercised if HBL MfB is compliant with SBP's Minimum Capital Requirement (MCR) and CAR requirements. In line with the lock-in clause for Tier II issues, neither profit nor principal on the TFCs may be paid, even at maturity, if such payment would cause a shortfall in the Bank's MCR or CAR, or increase any existing shortfall in MCR and CAR. The TFCs also include a loss-absorption clause, allowing SBP, in the event of a point of non-viability, to fully and permanently convert the TFCs into common shares of the Bank.

The instrument will rank pari passu with other Tier II instruments and superior to any Additional Tier I instruments.

The instrument is unsecured.