First Pakistan Microfinance Fund

To bring a systematic change in the MFI industry of Pakistan by connecting the local capital markets with the intermediate sized microfinance institutions to meet their needs of local currency, scaled, and long-term financing. This in turn will promote growth of this sector and the country by directly impacting financial inclusion, women empowerment and employment rates.

FIRST PAKISTAN MICROFINANCE FUND
Investee Companies Pool of 6 to 8 Intermediate Sized MFIs
Tenor 5 year
Issue Size PKR 5 Billion or US$ 36 Million
Security Secured by the Proportionate Receivables of Each Investee
Drawdown Period 1 Year in Four Equal Disbursements
Guarantee 10% Cash Reserve from each MFI (PKR 500mn), 2% in Second-Loss (PKR 100mn), and 18% in Third-Loss protection (PKR 900mn).
Listing This fund issued in the form of TFC will be listed on Pakistan Stock Exchange
Credit Rating The overall structure will be rated by the rating agency.
Pricing 3 Month KIBOR + (3.5% – 4%) p.a. Varying based on the risk categorization of MFI

Structure of the Fund

The First Pakistan Microfinance Fund would result in connecting some larger financial players in the Pakistan’s thriving capital markets including Arif Habib (largest broker dealer), leading commercial banks and other investors, with the intermediate sized MFIs.

Key Highlights of the First Pakistan Microfinance Fund

Strategic and Social Focus
Objective to create a systematic change in the MFI sector in Pakistan by providing increased access to local currency financing to the intermediate sized MFIs;
Broadening the MFI field in the country by including insurance companies, mutual funds and large corporate conglomerates as investors in this sector, by designing the fund structure as a liquid instrument and listed on the stock exchange;
Promoting financial inclusion with a women focus and also addressing youth unemployment. The pool of 8 MFIs will be able to disburse ~450,000 loans cumulatively over the fund life;
Creating a council of MFIs, Investors and Guarantors to better track the women financial inclusion, MSME financing and youth employment.
Very Limited Credit Risk
Strong operational track record of more than 10 years. The MFIs have survived even the worst floods and drought situations in their main areas of operations, which is a testimony of their strong operational infrastructure;
Excellent asset quality with weighted average PAR>30 of 0.57% relative to the overall industry average of 1.45%. In addition the loan loss coverage of PAR>30 portfolio is more than 9 times on an average basis;
No prior history of defaults on private debt.
Strong equity level relative to the loan portfolio of these MFIs at around 30%, most of which comprises of internally generated profits over time;
Low correlation between the MFI sector and the economy’s performance in general, which implies operational stability for the overall MFI sector.
Diversified Portfolio
Excellent geographic diversification with operations spread across 68 districts mainly in three provinces;
Good mix of sector exposure in MSME, agriculture & livestock, personal consumption, and other sectors;
Granular average loan size of USD 310(PKR. 42,751) vis-à-vis industry average loan size of USD.372(PKR 51,262);
Good diversity in lending methodology of overall portfolio MFIs comprising of group lending(53%) vis-à-vis individual lending(47%).