KASHF Foundation

Direct: Our provision of a senior debt facility to Kashf enabled the microfinance institution to maintain and extend greater credit – in the form of individual loans – to its customers, namely entrepreneurs of micro-businesses, allowing them to better manage cashflow, and grow their businesses. Over 75% of Kashf's lending activity constitutes loans to micro enterprises.

Pakistan (category ‘B’ country). Present in 40 per cent of Pakistan’s districts (37 per cent rural, 29 per cent semi-urban, and 34 per cent urban).

Women (100 per cent of portfolio are female and of this, 63 per cent are female-led businesses); low-income (82 per cent of portfolio lives at or below the poverty line of $2/day and average loan size is $260).

• Duration: three years i.e. lifecycle of the facility. Growth will be slower in terms of gross loan portfolio and new client acquisition for 2021 given COVID-19 context.

• Depth: High as evidenced by impact assessments demonstrating that Kashf’s financial services can provide borrowers with: i) a 37 per cent increase in average revenue; (ii) improved food security for 40 per cent of clients; (iii) improved decision-making authority for more than 80 per cent of female clients; and (iv) improved access to healthcare for 40 per cent of clients.

• Financial additionality: The commercial market does not offer capital in sufficient quantities to meet the company's plans or needs, and does not offer capital on the same terms.

4.0

Market context: Significant addressable market (34 per cent penetration rate of addressable market and one of the lowest rates of female participation in the workforce globally). The microfinance sector in Pakistan is smaller and less developed than India and Bangladesh (active borrowers in Pakistan is one fifth and one seventh the size of Bangladesh and India respectively) but the market is experiencing increasing competition and developing quickly in maturity.

External Risk

Relates to the risk that client protection considerations are heightened in the COVID-19 context as end borrowers are low-income/vulnerable populations. We take comfort in Kashf being SMART-certified and offering COVID-19 specific protections to their clients such as tailored rescheduling based on client need , tailored financial products such as emergency and/or top-up loans to help clients financially navigate the crisis, and implementing business continuity trainings for clients to rebuild businesses.

Evidence Risk

Relates to the risk of challenges in measuring our impact through this facility. We take comfort in Kashf’s strong research and monitoring team. Mitigant: We will be receiving a semi-annual monitoring template on key impact indicators for this transaction.

Execution Risk

Relates to the currency risk related to hedging of a US dollar facility i.e. hedging costs may be prohibitive and be transferred to microfinance institution borrowers. This risk is low as almost half of Kashf’s existing borrowings are in foreign currency and hedged to local currency and has not translated to significantly higher costs for borrowers to date. Interest rates have stayed consistent in the last two years despite a reduction in margins, indicating Kashf’s efforts at minimizing transfer of costs to their borrowers.