Press Release

VIS Assigns Initial Ratings to CSC Empowerment & Inclusion Programme

Lahore, February 22, 2024: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-3’ (Triple B Minus / A-Three) to CSC Empowerment and Inclusion Programme (CEIP or “the Institution”). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-3’ denotes satisfactory liquidity and other protection factors qualifying entity as investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. Outlook on the assigned rating is ‘Stable’.
CEIP, a non-government organization (with limited liability and not having share capital) is licensed to provide microfinance services to the impoverished communities in Punjab. The ratings assigned to CEIP take into account the elevated business risk profile of the microfinance sector as the prevalent weak macroeconomic environment with ongoing inflation is putting a drag on clients’ disposable incomes and repayment capacities. The overall medium-term outlook on the sector is not favorable owing to accumulation of non-performing loans, stressed profitability indicators, timeline equity erosion and increasing non-complaint capital adequacy ratios among players.
As per the financial risk assessment, ratings reflect improvement in profitability metrics and some asset quality indicators coupled with support available from PMIC and PPAF on the funding front. Despite slight dip in spreads, CEIP’s profitability indicators exhibited an upward trajectory during the outgoing year on account reduced provisioning expense incurred as majority of the non-performing portfolio was provided for and subsequently written-off during FY22. Given the management intends to expand its operations going forward; the impact of the same on marginal operating self-sufficiency and overall profitability metrics will remain critical for ratings. Ratings also factor in the ongoing efforts of the management to tap international funding avenues; the same will assist the Institution in sustaining growth momentum and alleviating pressure on spreads through reduction in high average cost of funding. On the other hand, liquidity position weakened over time as indicated by reduction in liquid assets compared to outstanding obligations. Nevertheless, given CEIP is non-deposit taking, the associated risk with deposit withdrawals does not exist, therefore, the current level of liquidity is deemed adequate. In addition, the ratings take note of the relatively moderate capital adequacy ratio and management plans to bolster it to create prudent room for growth. However, given the Institution’s entire microcredit portfolio being virtually unsecured, not backed by any tangible assets like gold or property, the credit risk is on a higher side. Going forward, ratings will remain constrained on account of the sponsor support not falling within the legal structure of the company and contingent upon managing spreads, improving operational self-sufficiency, asset quality and liquidity indicators while continuing healthy disbursement activities. VIS will continue to regularly monitor the overall financial health of the Institution, going forward.
For further information on this rating announcement, please contact the undersigned at 042-35723411-13 (Ext: 8008) or email at info@vis.com.pk



Maimoon Rasheed
Director

VIS Entity Rating Criteria: Non-Bank Financial Companies
https://docs.vis.com.pk/docs/NBFCs202003.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .