SAFCO Microfinance Company (Private) Limited

CREDIT RATING REPORT | Mar-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
28-Mar-25 BBB A3 Stable Maintain -
28-Mar-24 BBB A3 Stable Maintain -
28-Mar-23 BBB A3 Stable Maintain -
28-Mar-22 BBB A3 Stable Maintain -
23-Apr-21 BBB A3 Stable Maintain YES
About the Entity

SMCPL, initially established in May 2009 as a public company limited by guarantee has transitioned into a private company limited by shares. Registered under Section 16 of the Companies Ordinance, 1984 (now Companies Act, 2017), SMCPL is licensed by the SECP under the NBFC Rules, 2003. A six-member Board governs the company, with Fazal Noor as Chairperson and M. Suleman as CEO (known internally as 'man of the last mile').

Rating Rationale

SAFCO Microfinance Company Private Limited (SMCPL) continues its journey as a for-profit microfinance institution, building upon its successful transformation from a non-profit entity last year. The company remains committed to fostering financial inclusion by providing socially responsible financial solutions tailored for low-income entrepreneurs. Its diverse loan portfolio encompasses nine specialized products, strategically designed to support key economic segments, including Enterprise, Livestock, Agriculture, SME, Personal Finance, School Improvement, Solar Energy, Housing, and Auto Financing. SMCPL, active since 2009, has established a strong presence across Sindh Province with a network of 66 branches. These branches serve as key enablers in extending microfinance services to unbanked and low-income entrepreneurs. Through its widespread reach, the company continues to drive financial inclusion and economic empowerment across the region. Moreover, SMCPL microfinance initiatives have significantly impacted rural communities, with 80% of its beneficiaries being smallholder farmers. The institution maintains a diversified funding base, with a primary reliance on PMIC, supplemented by commercial banks and both domestic and international lenders.
Previously, the sector's performance was adversely affected by various macroeconomic challenges, including high inflation and elevated policy rates, which collectively eroded individuals' purchasing power. However, in the first half of FY25, the sector has shown signs of recovery, driven by a decline in inflation and borrowing rates, leading to an improvement in consumer sentiment. This progress is reflected in the growth of its Gross Loan Portfolio (GLP), which reached approximately PKR 4.732bln as of 6MFY25, compared to ~PKR 4.07bln in FY24. Similarly, improvement of the portfolio at risk (PAR) > 30 days, which declined to 3.08% in 6MFY25 from ~3.6% in FY24. The company continued its expansion efforts, increasing its total branch network to 66 in 6MFY25 from 61 in FY24, which contributed to overall growth. Consequently, the total number of borrowers rose to 137,238 in 6MFY25, up from 118,157 in FY24, reflecting sustained portfolio expansion and increased market penetration. Financial performance also showed significant improvement, with net earnings surging to approximately PKR 218 million in 6MFY25, compared to PKR 71 million in FY24. The same growth pattern is projected in the future as well. SMCPL's Board remains actively engaged in strategic decision-making and steering the company’s direction while adhering to best practices in corporate governance. Backed by a stable and experienced senior management team, the company operates with well-defined reporting structures as per a formalized organogram, ensuring effective oversight and a robust monitoring framework.

Key Rating Drivers

The ratings reflect the business’s vulnerability due to its low market share and limited presence. Maintaining positive performance amid growth is crucial. Future ratings will assess expansion strategy, technological impact, and sustained growth as key factors for long-term prospects.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

SAFCO Microfinance Company (Private) Limited

rating analysis

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Profile
Structure

SAFCO Microfinance Company (Private) Limited (“SMCPL” or “the Company”) was incorporated in May 2009 as a public company limited by guarantee. It has since transitioned into a private company limited by shares and is registered under Section 16 of the Companies Ordinance, 1984 (now the Companies Act, 2017). The Company operates under a license from the Securities and Exchange Commission of Pakistan (SECP) in accordance with the Non-Banking Finance Companies (NBFC) Rules, 2003.


Background

SMCPL, a for-profit private limited company, operates as a subsidiary of SAFCO Support Foundation (SSF), a non-profit entity registered under Section 42 of the Companies Act, 2017. The Company is registered with the Securities and Exchange Commission of Pakistan (SECP) under Section 16 of the Companies Act, 2017, and holds a license to offer investment and financial services under the regulatory framework governing Non-Banking Finance Companies (NBFCs).


Operations

SMCPL operates at the provincial level, with a network of 66 branches across 11 regions in Sindh, supported by a workforce of over 650 employees. The Company’s head office is located in Hyderabad. Its loan portfolio comprises ten diverse products catering to various segments, including Enterprise, Livestock, Agriculture, SME, Personal, School Improvement, Auto Financing, Housing Finance, Islamic Finance, and emergency lending.


Ownership
Ownership Structure

SMCPL is predominantly owned by SAFCO Support Foundation (SSF), which holds a 99.99% stake in the Company. The remaining shares are held by four board members—Muhammad Fazal Noor, Ismail Kumbhar, Faheem Ali, and Muhammad Suleman, each holding one share.


Stability

SMCPL has a well-structured succession plan in place, ensuring leadership continuity and stability, which is expected to be maintained in the future.


Business Acumen

The board members' extensive experience in the microfinance industry, combined with their diverse skill sets, equips them to effectively navigate market complexities and drive the Company toward sustainable growth and long-term success.


Financial Strength

The Company's potential to secure financial support from its members remains strong, as its for-profit structure ensures that members derive monetary benefits from its profitability, fostering continued engagement and commitment.


Governance
Board Structure

SMCPL's Board of Directors consists of six members, including four independent directors who provide objective oversight, ensuring robust governance. The remaining two directors hold nominated positions, contributing to strategic decision-making.


Members’ Profile

The Board members bring extensive expertise to the sector, most notably Mr. Fazal Noor, the Chairman, who possesses 26 years of invaluable experience in agricultural education and sustainable development, strengthening the Company’s strategic direction.


Board Effectiveness

During FY24, the Board convened multiple meetings, with a strong attendance record demonstrating active participation. The Board operates through four specialized sub-committees: the Audit Committee, Credit & Risk Committee, Human Resource Committee, and Social Performance Management Committee, ensuring effective governance and oversight.


Transparency

Yousuf Adil Chartered Accountants, a Category A firm as per the SBP Panel, serve as the external auditors for the Company. They issued an unqualified opinion on the financial statements for the year ended June 2024, reflecting sound financial reporting and compliance. Additionally, the Company has an internal audit department that operates independently and reports directly to the Audit Committee, ensuring robust internal controls and governance.


Management
Organizational Structure

SMCPL's operational structure comprises nine departments, all of which report directly to the Managing Director, Mr. Syed Sajjad Ali Shah, ensuring streamlined decision-making and efficient management. However, the Internal Audit department functions independently and reports directly to the Audit Committee, reinforcing transparency and strong governance through independent oversight.


Management Team

SMCPL benefits from a highly skilled and diverse management team, bringing a strong blend of expertise and experience. Leading the organization, CEO Mr. Muhammad Suleman leverages his extensive 38-year career across various sectors since joining the Foundation in 2014. The rest of the management team is equally well-qualified, with complementary skill sets that enhance strategic execution and support Mr. Suleman’s leadership in driving the Company's growth and sustainability.


Effectiveness

The Company follows a structured and well-defined decision-making process. A Management Committee, encompassing various functions, is in place to ensure strategic alignment and operational efficiency. Chaired by the Managing Director, the committee includes all department heads, facilitating collaborative decision-making and effective execution of company objectives.


MIS

The Management Information System (MIS) is fully integrated with key operational frameworks, including the Human Resource Management System, Financial Information System, and E-Appraisal system. This seamless integration ensures real-time data availability, enhancing decision-making efficiency and strategic planning.


Risk Management framework

A comprehensive risk management policy is in place to effectively mitigate operational and credit risks. The Company has a structured loan approval process, with defined approval limits assigned to each approving authority, including the Branch Manager, Area Manager, Manager Operations, and Credit Committee, ensuring disciplined credit evaluation and risk control. The company implements robust risk management practices through branch tagging and customer tagging. Additionally, SMCPL’s risk framework undergoes an independent review by the Frankfurt School of Finance & Management, ensuring adherence to global best practices and regulatory standards.


Technology Infrastructure

SMCPL is actively investing in its technological infrastructure to enhance automation and improve operational efficiency across departments, ensuring streamlined processes and greater scalability.


Business Risk
Industry Dynamics

As of FY24, Pakistan’s microfinance industry, comprising Microfinance Institutions (MFIs), Microfinance Banks (MFBs), and Rural Support Programs (RSPs), continued its growth trajectory. The Gross Loan Portfolio (GLP) expanded by ~9.4% to PKR 597.6 billion from PKR 546.1 billion in CY24, with MFIs and RSPs contributing PKR 137.44 billion and an active borrower base of 3.13 million. The sector comprises 24 specialized microfinance institutions. The Portfolio at Risk (PAR 30) ratio remained stable at ~4.47% in 4QFY24, marginally improving from 4.48% in 3QFY24. Despite inflationary pressures, total disbursements increased by PKR 4.7 billion to PKR 154 billion in 4QFY24, though the average loan size declined by ~PKR 3,229 to PKR 14,493, reflecting a shift towards smaller loan amounts. HBL Microfinance Bank maintained its lead with a GLP of ~PKR 101 billion, followed by UBank at ~PKR 75 billion. The industry’s sustained expansion highlights its resilience and critical role in advancing financial inclusion and economic development in Pakistan.


Relative Position

SMCPL remains a relatively small player in the microfinance sector, with active borrowers reaching 137,238 in 6MFY25, up from 118,157 in FY24. As of end-FY24, the Company holds an estimated market share of ~3.23% in terms of Gross Loan Portfolio (GLP) & 4.37% in terms of active borrowers, reflecting its modest positioning within the broader industry. Despite its limited scale, SMCPL has established a strong and stable relationship with its borrower base, reinforcing customer loyalty and portfolio quality.


Revenue

During 6MFY25, SMCPL generated a markup income of ~PKR 1.01bln (FY24: ~PKR 1.4bln; FY23: ~PKR 1.06bln), resulting in a net markup earned of ~PKR 476mln (FY24: ~PKR 545mln; FY23: ~PKR 442mln). The Company's business strategy focuses on maintaining a balanced investment portfolio, including term deposits and bank placements, to optimize liquidity and earnings stability.


Profitability

During 6MFY25, non-markup expenses stood at PKR 211mln (FY24: ~PKR 709mln; FY23: ~PKR 526mln). Provisioning expenses were recorded at PKR 28mln in 6MFY25 (FY24: ~PKR 59mln; FY23: ~PKR 75mln). The institution's bottom line saw a significant improvement, reaching PKR 218mln in 6MFY25 (FY24: PKR 71mln; FY23: a net loss of PKR 128mln).


Sustainability

SMCPL aims to strengthen its market position by expanding its geographic footprint and enhancing operational capacity. The Company has strategic plans to increase its branch network, enabling broader outreach and sustained growth in the microfinance sector.


Financial Risk
Credit Risk

SMCPL has established an authority matrix across branch, area, regional, and head office levels, aligned with loan size thresholds. A Credit Committee serves as the apex body for approving the highest loan slabs and resolving complex cases. During 6MFY25, the Gross Loan Portfolio (GLP) reached PKR 4.732bln (FY24: ~PKR 4.07bln; FY23: ~PKR 3.74bln). The true infection ratio improved to 3% as of 6MFY25 (FY24: 4%; FY23: 6%), reflecting enhanced portfolio quality.


Market Risk

As of 6MFY25, SMCPL's investment portfolio primarily consists of Short-Term Deposit Receipts across various banks, totaling PKR 1,390mln (FY24: ~PKR 757mln; FY23: ~PKR 462mln), reflecting the Company's strategy to maintain liquidity and optimize returns.


Funding

As of 6MFY25, SMCPL's total long-term borrowings stood at PKR 6.69bln (FY24: ~PKR 5.69bln; FY23: ~PKR 4.53bln), indicating a steady increase in debt financing to support portfolio expansion and operational growth. The rising borrowings suggest the Company's ongoing efforts to enhance its lending capacity, although prudent debt management will remain crucial to maintaining financial stability.


Cashflows & Coverages

As of 6MFY25, SMCPL's current ratio stood at 2.58, underscoring its strong liquidity position and robust short-term solvency.


Capital Adequacy

SECP has no minimum requirement for NBFI, unlike SBP which requires MFBs to maintain their CAR at 15%. Apart from any regulatory requirement to meet minimum ratios, the Company has to satisfy the covenants of loans. The Company must comply with those covenants. As of 6MFY25, total funds and reserves stood at PKR 998mln (FY24: PKR 780mln; FY23: PKR 618mln), reflecting a strong capital base and financial stability.
 
 

Mar-25

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SAFCO Microfinance Company (Private) Limited

financial summary

(PKR mln)

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Dec-24
6M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
Management Audited Audited Audited
A. BALANCE SHEET
1. Total Finances - net 4,581 4,078 3,744 3,674
2. Investments 1,390 757 462 546
3. Other Earning Assets 1,028 870 519 683
4. Non-Earning Assets 994 993 683 469
5. Non-Performing Finances-net 151 14 (23) (1)
Total Assets 8,144 6,712 5,386 5,371
6. Deposits 0 0 0 0
7. Borrowings 6,698 5,694 4,534 4,284
8. Other Liabilities (Non-Interest Bearing) 448 238 234 160
Total Liabilities 7,146 5,932 4,768 4,444
Equity 998 780 618 923
B. INCOME STATEMENT
1. Mark Up Earned 1,019 1,473 1,068 948
2. Mark Up Expensed (543) (928) (627) (376)
3. Non Mark Up Income 1 177 84 (103)
Total Income 477 722 526 468
4. Non-Mark Up Expenses (211) (709) (580) (398)
5. Provisions/Write offs/Reversals (28) 59 (75) (7)
Pre-Tax Profit 238 72 (128) 63
6. Taxes (20) (1) (0) 0
Profit After Tax 218 71 (128) 63
C. RATIO ANALYSIS
1. Performance
Portfolio Yield 36.8% 32.0% 24.6% 26.7%
Minimum Lending Rate 34.9% 38.5% 32.8% 24.2%
Operational Self Sufficiency (OSS) 130.4% 104.3% 89.9% 102.4%
Return on Equity 49.0% 10.1% -16.6% 7.1%
Cost per Borrower Ratio 3,569.1 6,027.3 4,811.3 3,214.1
2. Capital Adequacy
Net NPL/Equity 15.1% 1.7% -3.8% -0.1%
Equity / Total Assets (D+E+F) 12.3% 11.6% 11.5% 17.2%
Tier I Capital / Risk Weighted Assets N/A N/A N/A N/A
Capital Adequacy Ratio N/A N/A N/A N/A
Capital Formation Rate [(Profit After Tax - Cash Dividend ) / Equity] 55.9% 11.4% -13.9% 7.3%
3. Funding & Liquidity
Liquid Assets as a % of Deposits & Short term Borrowings N/A N/A N/A N/A
Demand Deposit Coverage Ratio N/A N/A N/A N/A
Liquid Assets/Top 20 Depositors N/A N/A N/A N/A
Funding Diversification (Deposits/(Deposits+Borrowings+Grants)) 0.0% 0.0% 0.0% 0.0%
Net Advances to Deposits Ratio N/A N/A N/A N/A
4. Credit Risk
Top 20 Advances / Advances 0.5% 0.6% 0.5% 0.4%
PAR 30 Ratio 3.2% 3.6% 5.5% 4.4%
Write Off Ratio 0.0% 0.0% 0.0% 0.0%
True Infection Ratio 3.2% 3.6% 5.5% 4.4%
Risk Coverage Ratio (PAR 30) 0.0% 91.0% 110.7% 100.8%

Mar-25

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SAFCO Microfinance Company (Private) Limited

rating scale

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Mar-25

www.pacra.com

SAFCO Microfinance Company (Private) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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  3. Conduct of Business
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Mar-25

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