Muhammad Noor Ul Haq
PACRA Maintains Entity Ratings of Thardeep Microfinance Foundation
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. 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 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 Jun'20 higher Portfolio at Risk (PAR) owing to geographical concentration. Hike in NPLs led to net provisioning expense being recorded; maintaining asset quality intact remains essential. Higher provisioning expense significantly impacted the profitability. However, post June recoveries picked up pace. Rating Watch encompass ramifications emerging from Covid-19 outbreak and nationwide lockdown imposed for few months. Covid-19 had posed challenges to the microfinance sector, almost all segments of the economy, were negatively impacted. Meanwhile, for mitigating the affect of Covid-19, the central bank has taken well-tailored and comprehensive actions including reduction in key policy rates and deferment of repayment obligations for a defined period. Most of the urban workforce is employed by micro and small enterprises that rely on either informal credit or credit through microfinance institutions (MFIs). Moreover, the urban flooding in Sindh further enhanced challenges for some players in the sector.
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.
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.