Karachi: The Pakistan Credit Rating Agency Limited (PACRA) has downgraded the entity ratings of Thardeep Microfinance Foundation, reflecting significant challenges in asset quality, liquidity, and overall financial health. This small-tier microfinance organization, crucial for providing services to impoverished communities in Pakistan, particularly women, has seen a notable decline in its operational and financial metrics over the past year.
According to The Pakistan Credit Rating Agency Limited, “The downgrade includes a shift from ‘BBB-‘ to ‘BB’ in long-term ratings and from ‘A3’ to ‘A4’ in short-term ratings, with the outlook remaining stable.” This adjustment comes in response to a 27% decrease in the Gross Loan Portfolio (GLP), which now stands at PKR 2.6 billion, exacerbated by geographic challenges, climate-related disruptions, and economic pressures in interior Sindh.
The Thardeep Microfinance Foundation has experienced increasing difficulty due to high inflation and interest rates which have eroded the disposable income of consumers, leading to heightened risk of non-performing loans. The organization’s financial statements for FY24 reported a gross loss of approximately PKR 77.2 million, a stark contrast to the previous year’s gross income of PKR 344 million. This financial downturn was primarily due to diminished interest income and rising funding costs, complicating the Foundation’s efforts to maintain pricing models that meet consumer needs.
Furthermore, the Portfolio at Risk (PAR) has risen to 3.7%, considerably higher than the industry average, indicating an escalating credit risk profile. “The ongoing losses have not only depleted equity levels but also added significant pressure on the Foundation’s cost structure and credit ratings,” PACRA noted, highlighting the urgency for a comprehensive strategy to stabilize and enhance financial management practices.
The future of Thardeep Microfinance Foundation’s ratings will hinge on its ability to improve asset quality and effectively manage PAR, as well as its success in strengthening its equity base through enhanced profitability measures. Continued support from its sponsors will be critical in navigating these challenging financial landscapes and ensuring the organization can sustain its mission of poverty alleviation and economic empowerment in vulnerable communities.