FROM KASHF FOUNDATION TO KASHF MICROFINANCE BANK
This case documents the challenges faced by the Kashf Microfinance Bank (KMFB) in 2012, when it was a relatively new entrant in the financial industry established by the 2001 Microfinance Institutions Ordinance. The case identifies the difficulties KMFB encountered in establishing itself as a microfinance bank, moving away from the unregulated NGO sector that its parent company, Kashf Foundation, belonged to.KMFB faced the simultaneous challenges of surviving the start-up stage as well as adapting to the stringent banking regulations placed on it by the State Bank of Pakistan (SBP). The latter required learning to strike a balance between the sometimes conflicting banking and development institutional logics, a typical problem for hybrid institutions with a social mission.As KMFB grappled with trying to meet SBP’s requirements on capital adequacy, it faced a repayment crisis originating from its parent company, wiping out a significant portion of its equity. KMFB’s board must make a decision regarding whether or not to invite a new majority shareholder to bring the bank out of the red. This includes the decision criteria for choosing a shareholder that will uphold KMFB’s mission of financial inclusion.
On a wintry evening in late 2012, KMFB’s CEO Mudassar Aqil sat in his office reading yet another SBP inquiry directed at Kashf Microfinance Bank. Aqil’s mind was increasingly occupied by thoughts of the bank’s current dismal financial statements. He knew he had tough choices ahead as he prepared for a meeting with his board of directors. This included raising the minimum capital requirement (MCR) from PKR 500 million to PKR 1 billion and increasing their capital to meet an annual target of PKR 1 billion by December 2013. These regulations hit Kashf Bank hard, since two-thirds of its initial equity of PKR 750 million had already been wiped out in the years since it began operations in 2008. Due to this, the country’s premier credit rating agency had just intimated Kashf Bank that it was dangerously close to being downgraded to non-investment grade. The bank had to recover from its balance sheet crisis, but what were the options available? Would a fresh injection of equity allow the original board of directors to maintain their hold over the bank and safeguard Aqil’s position as its CEO? Or would there have to be a sell-out? The bank had been approached by a few interested buyers that included a telecommunications company as well as a consortium of local investors. In purely financial terms, both offers would substantially improve the bank’s balance sheet and pull it out of this crisis. There was also interest from the Foundation for International Community Assistance (FINCA), a widely respected name in the international community. Kashf Bank’s board had to decide how to balance financial considerations with the social and development mission of their institution, i.e., providing access to finance to the country’s unbanked population of more than 150 million.
Zulfiqar, G.M. (2017). From Kashf Foundation to Kashf Microfinance Bank—Changing Organisational Identities. Asian Journal of Management Cases, 14 (2), 94-114.
About the Author
Ghazal M. Zulfiqar is Assistant Professor at the SDSB, LUMS. She teaches policy analysis, microeconomics, and women and policy. Her research interests include political economy of poverty, gender, and class-based inequality. Her work has been published in Feminist Economics.