The Pakistan Credit Rating Agency Limited
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Ahmad Saad Siddiqi

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PACRA Assigns Preliminary Rating to NRSP Microfinance Bank Limited | Tier II TFC - PKR 1,000 Million

Rating Type Debt Instrument
Action Preliminary
Long Term A-
Short Term -
Outlook Stable
Rating Watch -

The Instrument shall be unsecured and subordinated as to payment of principal and profit to other indebtedness of NRSP, including all deposits but will rank pari passu with other Tier II instruments and superior to any Additional Tier 1 instruments and is not redeemable before maturity without prior approval of the SBP. Since its inception, NRSP MFB has been serving increasing number of customers and has cemented its position in the industry amongst the top five players of the microfinance sector in terms of its financing portfolio. During CY20, the Bank recorded its GLP at PKR 28,992mln and a customer base of ~340,000 in comparison to the GLP of PKR 27,769mln and slightly above 350,000 customer base in CY19. While the advances book reflects muted growth, there is consolidation in the customer base. This reflects a cautionary approach adopted by the Bank in the wake of COVID-19. The Bank's market share is at 9% in the microfinance sector in terms of GLP. Expansion in GLP has been supplemented by sustained upswing in geographical outreach and footprint through branch network expansion which has progressively grown from 67 branches in CY15 to 154 branches as of CY20. The current profitability indicators depict quite healthy improvement. The Bank booked a net profit of PKR 793mln in 2020 as against PKR 84mln in the comparative year. This was primarily enabled by expansion in net interest income. Hence, despite low level of provisioning, net mark-up income after provisioning grew significantly. The sponsors have extended support, both in technical and financial forms, to the Bank historically with expression of explicit intention from NRSP to provide financial support in form of capital injection, as and when required. KfW, in the past, has provided support in area of capacity building while IFC has contributed towards international exposure visits.
The rating is dependent upon the Bank's compliance with the agreed terms.

About the Entity
NRSP Microfinance Bank Limited was incorporated as a public limited unlisted Company in October 2008 under Section 32 of the repealed Companies Ordinance, 1984 (now Companies Act 2017). The Bank obtained license from SBP on February 18, 2009 to operate, on a nationwide basis, as a microfinance bank under Microfinance Institutions Ordinance, 2001. The Bank was established to mobilize funds for providing microfinance banking and related services to low income, underserved and marginalized segments of the society for mitigating poverty and promoting social welfare through providing access to financial markets at micro level. National Rural Support Programme (NRSP) is a majority shareholder with shareholding of ~52%. Other institutional shareholders include International Finance Corporation (IFC), Kreditanstalt für Wiederaufbau (KfW), Acumen Fund USA and Acumen Capital Markets LLP.

About the Instrument
NRSP Microfinance Bank Limited has mandated Askari Bank Limited and JS Bank Limited to raise financing to the tune of PKR 1,000 Million, inclusive of a GSO of up to PKR 300 Million. The Issue shall have a tenor of seven (07) years from the date of its issuance and shall be redeemed in four (04) equal quarterly instalments during the last year of the Issue. Profit will be payable quarterly in arrears calculated on the outstanding Issue Amount. The first such profit payment will fall due three (03) months from the Issue Date. The funds so raised through this TFC Issue will contribute towards NRSP MF Bank’s Tier II Capital for complying with the CAR requirements as prescribed by SBP for Microfinance Banks.

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.