The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of Kashf Foundation

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

Kashf Foundation is a renowned Microfinance Institution (MFI); it has been in operations since 1996. MFIs are governed by SECP regulations mainly NBFC (Establishment and Regulations) Rules, 2003, Non-Banking Finance Companies and Notified Entities Regulations 2008 and others. The key element is that MFIs are not permitted to mobilize deposits. While this provides funding constraints, it also delimits the boundaries of risk. Kashf Foundation is a not-for-profit organization. Hence, the source of funding comprises a) internal generation of profits, b) loans and c) grants. Inflationary pressures reduced the demand of loans coupled with the higher charge of provision suppressed the profitability of the foundation. Second major source of funding is borrowings. The Foundation has diversified its borrowing to both local and foreign institutions and has issued a (PPTFC) of PKR 2bln with a green shoe option of PKR 1bln to fuel growth. Governance structure takes strength from the body of members and board of directors, who, in their own right, are reputable individuals. The induction process reflects alignment of the incumbent members to the institution itself, a self-propelling drive to contribute. The quality of board discussions is an evidence to this assertion. Kashf has stable and experienced senior management team which is supported by clear reporting lines as per a formalized organogram and satisfactory monitoring process. The ratings incorporate strong business profile of the Foundation demonstrated by continued enhancement in business volumes. The Foundation has been closely focusing on technological developments to uphold the growth with an integrated systems. 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. Hike in NPLs led to net provisioning expense being recorded; maintaining asset quality intact remains essential, going forward. Rating Watch encompass ramifications emerging from Covid-19 outbreak and nationwide lockdown imposed for few months.
The ratings are dependent on the foundation's aptness to sustain positive asset health indicators amidst growth in business volumes. The ratings would also monitor the impact of technological advancement on the operational and risk efficacy of the Foundation.

About the Entity
Kashf Foundation ("Kashf") was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2007 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 in eight member Board of Directors. Dr Attiya Inayatullah is the Chairman of the board. Ms. Roshaneh Zafar is the founder and 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.