Lahore, April 27, 2023 (PPI-OT): Union Microfinance Company (the Company) is a public company limited by shares and was incorporated in Pakistan as a Non-Banking Finance Company on July 27, 2021, under the license issued in terms of rule 5(6) of the Non-Banking Finance Company Rules 2003 and Companies Act, 2017. It has been licensed by the Securities and Exchange Commission of Pakistan to provide microfinance services to small businesses, farmers, and women entrepreneurs across the country. As an MFI, Union Microfinance Company faces funding constraints as it cannot mobilize deposits. The company relies on shareholder equity, loans, and internal profits to fund its operations.

The Company has been recently incorporated and started operations which is explaining the limited footprint established. Consequently, in the first six months of FY23, the company experienced a loss of PKR 18 million. Union Microfinance Company borrows from commercial banks and the Pakistan Microfinance Investment Company, but its limited income leads to high costs of funds. However, the company has had no non-performing loans so far.

The company's governance structure is adequate, with a board of directors comprising experienced professionals with expertise in the financial sector. The company's ratings reflect its limited geographical presence in the Sindh region, which poses potential vulnerabilities in business. Going forward, the Company shall witness prudent growth in upcoming years. Asset quality will remain an important factor in the future. The ratings also incorporate the vulnerability in business due to market share.

The ratings of the company are contingent upon its capacity to uphold positive performance metrics in the face of the economic deceleration, the company aims to enhance its presence by establishing one more branch in the current year, resulting in a cumulative total of four branches. The ratings incorporate the company's expansion plans and assess its ability to adapt to the evolving business landscape. Augmentation of equity base is essentially important.

For more information, contact:

Analyst,

The Pakistan Credit Rating Agency Limited (PACRA)

Awami Complex, FB1, Usman Block New Garden Town,

Lahore, Pakistan

Tel: +92-42-5869504-6

Fax: +92-42-5830425

Email: hammad.rashid@pacra.com

Website: www.pacra.com