Press Release

JCR-VIS Assigns Initial Entity Ratings to Rural Community Development Programmes

Karachi, February 8, 2019: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB/A-3’ (Triple B /A-Three) to Rural Community Development Programmes (RCDP). The assigned long term rating signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short term rating of ‘A-3’ depicts satisfactory liquidity and other protection factors qualify the entity as an investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. Outlook on the assigned ratings is ‘Stable’.

In 1998, Rural Community Development Society (RCDS) was formed to provide integrated development services to the impoverished and neglected communities in Punjab, Pakistan. Subsequently to abide and comply with regulations, RCDS underwent a spin-off process and separated the microfinance and social development aspects; microfinance segment was taken into a new entity by the name of RCDP while the social development aspects were retained within RCDS in 2016. The company is primarily engaged in mobilizing funds for provision of microfinance services for mitigating poverty and promoting social welfare with the ultimate objective of poverty alleviation. RCDP is registered as a company limited by guarantee by three individuals and not having share capital.

The assigned ratings reflect sound asset quality indicators, adequate liquidity levels and projected growth in advances portfolio and profitability. Gross loan portfolio of RCDP has exhibited an increasing trend during the past few years; the same has been achieved on the back of increase in both number of active clients and average loan size. Despite the growth witnessed in loan portfolio, infection ratios have been maintained at minimal level. The same is largely attributed to sound internal controls. Ratings will remain contingent on persistence of asset quality and productivity indicators at similar levels.

Ratings are constrained by high leverage ratios given that growth observed in loan portfolio is primarily funded by increased borrowings of RCDP. Since borrowings remain the primary source of funding for the institution, leverage indicators are expected to remain on the higher side. Going forward, management is projecting sizeable growth in loan book. Management intends to continue mobilizing borrowings from creditors which will keep the funding cost on the higher side which may generate an adverse impact on spreads of the company. Profitability of RCDP has depicted a growth on the back of volumetric growth in markup bearing assets with operating self-sufficiency ratio at a significant level of 191.1% in FY18. The same depicts considerable cushion as core income is more than sufficient to cover administrative expenses. While liquidity coverage in relation to liabilities is considered adequate, maintaining these indicators at a manageable level would remain one of the key rating drivers.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Ms. Muniba Khan (Ext: 215) at 021-35311861-70 (10 lines) or fax to 021-35311873.

Javed Callea

Applicable Rating Criteria: Microfinance Institutions (May 2016)

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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited