The Pakistan Credit Rating Agency Limited
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Muhammad Usman

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PACRA Maintains Entity Ratings of FINCA Microfinance Bank Limited

Rating Type Entity
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect association of the bank with a global microfinance organization – FINCA International. This affiliation supports FINCA Microfinance Bank in terms of building a wholesome strategy and also in establishing robust systems and controls. FINCA is a mid-tier player in Pakistan’s microfinance sector (End-Jun'19: ~11% share in total gross loan portfolio (GLP) and ~10% share in total microfinance deposits). The bank intends to build a stable and diverse deposit base. However, given the current business scenario, FINCA has also availed borrowings from SBP, under the line of credit (LoC) arrangement, to underpin its funding needs. The bank's liquidity profile, net of borrowings, reflects a stretch. FINCA's current paramount focus is pivoted around boosting its Capital Adequacy, which hovers near the benchmark. Resultantly, room to grow in GLP is squeezed. Augmentation of the same is desirable to create room for sustainable growth. The bank has stepped into the digital banking domain, however, the mix is currently small. Asset health impairment has risen to ~2.3% at End-Jun'19 (End-Dec'18: 1.9%). Average loan size of the bank is on the higher side in relation to its peers, which needs to be in check amidst rising industry's infection ratio. The bank's GLP has witnessed a dip in its growth pace, owing to overall market conditions, coupled with its efforts to keep its CAR above the benchmark.
The ratings are dependent upon the bank's ability to uphold its business profile amidst the changing market environment. Maintenance of asset quality is pertinent. Meanwhile, improved net liquidity profile remains imperative.

About the Entity
FINCA Microfinance Bank commenced its operations in 2013 and operates with a network of 135 branches. The bank is majorly owned by FINCA International (86.4%), through FINCA Microfinance Cooperatief U.A; a commercial arm registered in Holland. Kashf Holdings holds ~5.2% stake in the bank. The remaining stake is distributed among i) International Finance Corporation (4.9%), ii) Triodos Fair share fund (2.7%) and iii) Accumen Fund Pakistan (0.8%). FINCA, offers a diversified range of financial products and services. In Sep'19, Mr. Farid Ahmad Khan replaced Mr. Mudassar Aqil as the CEO of the bank. Mr. Farid is a seasoned professional, having 25 years of global experience in financial services. Before joining FINCA, he was associated with the asset management wing of a leading commercial bank in Pakistan.

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.