KASHF Foundation

South Asia Financial services

Kashf Foundation is one of the leading microfinance institutions in Pakistan. The organisation promotes female entrepreneurship and has so far enabled more than a million low-income families across Pakistan to improve their standard of living.

Our investment

We made a $15 million loan to the company, to support it to provide specialised microcredit products and capacity building services to micro-entrepreneurs, with a focus on women-owned or affiliated businesses.

Impact
  • Sustain and increase economic opportunities by providing access to financial services for entrepreneurs (SDG 8.3, 8.10).
  • Enhance resilience to economic shocks; maintain and increase access to microfinance for lower-income and vulnerable populations (SDG 1.4, 1.5, 5.5).
How?

Direct: CDC’s provision of a senior debt facility to Kashf will enable the microfinance institution to maintain and extend greater credit – in the form of individual loans – to its customers, namely entrepreneurs of micro-businesses, enabling them to better manage cashflow, maintain and grow their businesses. Only a relatively small proportion of loans (approximately 7 per cent) is expected to be used for personal purposes through a custom loan product used for financing consumption and/or emergency personal needs.

Stakeholder Geography Characteristics
Employees, individuals, households

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).

Scale Depth/Duration
  • 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.
Grid Score Contribution

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.

To help us direct our investments, we use a tool called the Development Impact Grid. The Grid scores every investment we plan out of a score of four, based on two factors: the difficulty of investing in the country and whether investment in that sector will lead to jobs.

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

Risk
  • External: 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: 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: 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.

Environmental and social aspects

We are supporting the company to develop and implement an exclusion list and procedures to incorporate an environmental, social and governance lens as part of its credit approval process. We are also supporting the company to improve its existing human resources policies and safeguarding procedures.

Key facts

Status:
Active
Region

Since 2012, we’ve only invested in Africa and South Asia. Investments outside these regions are from our pre-2012 portfolio.

:
South Asia
Countries:
Pakistan
Sector

We have seven priority sectors. However, we continue to invest outside these sectors, largely in the most challenging regions, as new investment supporting any sector helps to underpin the private sector, and create jobs and livelihoods for people.

:
Financial services
Investment type

We provide capital in three broad ways: direct equity, debt, and intermediated equity (principally through investment funds).

:
Direct Debt
Start date

For direct investments, this is the date CDC committed capital to the business or project.

For funds, this is the date that CDC committed capital to the fund.

For underlying fund investments, this is the date that the fund invested capital into the business.e

:
December 2020
Amount

For direct investments, this is the total amount that CDC has committed to the business or project (it may be a combination of equity and debt).

For funds, this is the total amount that CDC has committed to the fund.

:
$15m
Domicile

This is the investee company’s place of incorporation; or a fund’s jurisdiction.

:
Pakistan