The Pakistan Credit Rating Agency Limited
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Raniya Tanawar

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PACRA Assigns Initial Entity Ratings to Thardeep Microfinance Foundation

Rating Type Entity
Action Initial
Long Term BBB
Short Term A3
Outlook Stable
Rating Watch -

Thardeep Microfinance Foundation ('Thardeep' or the 'Foundation') is a Microfinance Institution (MFI) governed by the Securities & Exchange Commission of Pakistan under Section 42 of the Companies Ordinance, 1984 (now Companies Act, 2017). The Foundation is licensed to operate under NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies and Notified Entities Regulations 2008. It has been in operations since 2016, with early footprints as Thardeep Rural Development Programme (TRDP). The key element is that MFIs are not permitted to mobilize deposits, while they are also not backed by any stakeholder equity due to their status of "Companies Limited by Guarantee". These two elements, in combination, provide funding constraints, while they also delimit the boundaries of risk. Thardeep is a not-for-profit organization, hence, the source of funding comprises a) internal generation of profits, b) loans and c) grants. The Foundation's profitability culminates into integral capital generation at a decent rate. Second major source of funding is borrowings, for which the Foundation majorly relies on both local and foreign avenues including PMIC & SIMA. Governance structure takes strength from the sponsoring members who are also the board of directors. The foundation is relatively sound on technological grounds as it follows a complete paperless regime. While this is considered positive, the ratings also incorporate the concentration of business at regional level and vulnerability in business due to low market share. Therefore, credit risk remains high, as was reflected in Dec'19 higher Portfolio at Risk (PAR) owing to geographical concentration. Profitability margins, consequently, remained thin. Additionally, the growing impact of economic slowdown lately exacerbated by the global pandemic spread is further expected to deteriorate the overall risk profile of the Microfinance Sector, particularly with reference to the quality of assets and risk absorption capacity. Currently, the Institution's financial risk profile displays a comfortable outlook.
The ratings are dependent on the Foundation's aptness to sustain positive performance indicators amidst growth in business volumes. Meanwhile, the propensity of the business to guard itself against the current economic turmoil is imperative.

About the Entity
Thardeep Microfinance Foundation was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2016 as a Public Company Limited by Guarantee under Section 42 of the Companies Ordinance, 1984 (now Companies Act, 2017). It is also licensed by the SECP under Non-Banking Finance Companies Rules, 2003. The overall control of the Foundation vests with a seven member Board of Directors. Dr. Naseer Muhammad Nizamani is the Chairman of the Board, while Mr. Sono Khangharani is the CEO of the Foundation.

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.