Press Release

JCR-VIS Upgrades Entity Ratings of FINCA Microfinance Bank Limited

Karachi, April 30, 2014: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the entity ratings of FINCA Microfinance Bank Limited (FINCA MFB), formerly Kashf Microfinance Bank Limited, from ‘BBB+/A-3’ (Triple B Plus/A-Three) to ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned rating is ‘Stable’.

The assigned ratings take into account the sponsor profile of FINCA MFB. Being part of a global network, FINCA MFB stands to benefit from multi-jurisdictional experience. The Board of Directors of FINCA MFB has recently approved equity injection of US$ 1.5m to meet projected growth targets and maintain capitalization in line with the internal criteria. This is likely to materialize in the last quarter of the on-going year. Future equity support is also considered likely, if required. In line with global FINCA practices, changes have been witnessed in the management structure. Management team comprises experienced professionals.

With a deposit led funding strategy, market share of the bank improved in the out-going year. Given that concentration in deposit base is on the higher side, sizeable liquidity may need to be maintained till such time the bank is able to achieve broad based deposit mix. In the on-going year, the bank is looking to mobilize commercial borrowings to diversify its sources of funding.

The bank has developed expertise in cash flow based individual loans and mainly targets urban markets. This business model is distinct from what is largely practiced by other micro-finance banks currently. Going forward, the bank plans to diversify its operations into agriculture financing to some extent. Asset quality indicators have so far remained within prudent limits.

With deployment of equity in earning assets and higher microcredit portfolio, core earnings augmented during FY13. Spreads of the bank have remained strong despite increase in cost of deposits as yield on advances portfolio is high due to a predominantly EMI based loan portfolio. High overheads had so far constrained profitability; the bank has been able to marginalize pre-tax loss in the out-going year. Further increase in core lending activities may allow the bank to rationalize its overheads ratio, which is currently considered on the higher side, despite having improved on a timeline basis. 2014 is expected to be the first fully profitable year since the bank’s inception.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA (sobia@jcrvis.com.pk) or Mr. Maimoon Rasheed (maimoon@jcrvis.com.pk) at 021-35311861-70 and 042-36610681-84 or fax to 021-35311873.



Faheem Ahmad
President & CEO

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 2014 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .