The Pakistan Credit Rating Agency Limited
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Ahmad Saad Siddiqi

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

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

The Instrument is unsecured and subordinated as to payment of principal and profit to other indebtedness of NRSP, including all deposits but ranks 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 1HCY21, the Bank recorded 329,507 loans amounting to PKR 29,740mln (CY20: 343,619 loans amounting to PKR 29,290mln). While the advances book reflects muted growth, there is consolidation in the number of outstanding loans. This reflects a cautionary approach adopted by the Bank in the wake of COVID-19. The Bank's market share is at 8% 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 1HCY21. The current profitability indicators depicts a slight downfall. The Bank booked a net profit of PKR 237mln in 1HCY21 as against PKR 338mln in the comparative year. This was primarily due to a fall in mark-up income. Additionally, high level of provisioning also contributed to a decline in net income. 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Microfinance Bank Limited was incorporated as a public limited unlisted Company in October 2008 under Section 32 of the repealed Companies Ordinance, 1984 (now Companies Act 2017).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 ~57%. Other institutional shareholders include International Finance Corporation (IFC), PROPARCO and Acumen Fund USA.

About the Instrument
NRSP Microfinance Bank Limited has mandated Askari Bank Limited, JS Bank Limited and PAK Oman Investment Company Limited to raise financing to the tune of PKR 1,000 Million, inclusive of a GSO of up to PKR 300 Million. The Bank has issued the instrument amounting to PKR 770 million while partially exercising the green shoe option of PKR 70 million. The Issue has 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 is payable quarterly in arrears calculated on the outstanding Issue Amount. The first such profit payment is falling due three (03) months from the Issue Date, which is July 9th 2021. The funds so raised through this TFC Issue are contributing 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.