Ahmad Saad Siddiqi
PACRA Maintains Entity Ratings of AGAHE Pakistan
AGAHE Pakistan ('AGAHE' or the 'Company') is a Microfinance Institution (MFI) governed by the Securities & Exchange Commission of Pakistan (SECP) under Section 42 of the Companies Act, 2017. The Company 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. 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. AGAHE Pakistan is a not-for-profit organization, hence, the source of funding comprises a) loans (b) grants and (c) internal generation of profits. Profitability of the company is growing at a moderate pace, therefore, internal generation of capital is occurring at a modest rate too. The company relies on diversified avenues for borrowings primarily from Commercial Banks and PMIC. Governance structure is derived from the General Body of Members and the Board of Directors. The ratings also incorporate the vulnerability in business due to market share (GLP: PKR 850mln - End-Jun'21) and limited geographical presence in the Southern Punjab region. Moreover, with the expiration of SBP’s deferment scheme period, the Institution witnessed a significant upsurge in non-performing loans. The impact of economic slowdown lately exacerbated by the global pandemic spread had cast a rippling effect on different sectors of the country. Microfinance industry is expected to absorb the impact as disbursement, recoveries and liquidity patterns were influenced.
Positive Outlook reflects significant growth in gross loan portfolio and profitability, along with the financing agreement with PPAF for Revolving Fund. This fund has been provided initially for a period of four years (likely to be further extended for similar periods on recurring basis on the completion of initial term) under the Interest Free Loan (IFL) Program. The Revolving Fund will be part of funds and reserves and will be treated as part of equity, thereby increasing the equity base of the Company. Despite the repercussions associated with the COVID-19 pandemic, fresh finances have been offered by commercial lenders. AGAHE Pakistan has entered into new arrangements which represents the trust they have in the Institution.
The ratings are dependent on the Company's aptness to uphold its business and financial risk profile under the prevailing volatile macro-environment. Sustenance of growth momentum is imperative. Meanwhile, “Watch” reflects the need to oversee the risk profile of the Company against unavoidable challenges, particularly emanating from economic meltdown and repercussions due to COVID-19.
AGAHE Pakistan was incorporated in 2016 as a Public Company Limited by Guarantee under Section 42 of the Companies Ordinance, 1984 (now the Companies Act, 2017). It is also licensed by the SECP under the Non-Banking Finance Companies Rules, 2003. The overall control of the company vests with a seven member Board of Directors. Mr. Abid Aman Barki is the Chairman of the Board, while Mr. Barak Ullah is the CEO of the company. He is accompanied by a team of experienced professionals.