People's Micro-Commerce Ltd ("PML" or "the Company") is a non-deposit-taking microcredit provider incorporated in 2010, with over 15 years of operating history in Sri Lanka's underserved micro-credit segment. PML is wholly owned by People's Leasing & Finance PLC ("PLC" or "the Parent"), which is in turn majority owned by People's Bank, one of Sri Lanka's largest state-owned commercial banks. This layered, state-linked ownership structure provides PML with strong parentage, oversight and access to the funding and institutional support. The Company benefits from board level guidance from its Parent. PML has historically operated outside CBSL's licensing and regulatory perimeter for microfinance institutions, funding its lending operations entirely through debt. Under the newly enacted Act, PML intends to formalize its regulatory status. The Company has represented that it has the requisite internal systems and controls in place to pursue licensing under the new regime. The rating draws comfort from PML's strong sponsor, stable earnings profile, relatively higher spreads, secured portfolio and strong asset quality indicators backed. PML's Net interest income (NII) improved by ~106% to LKR ~1.6Bn in FY26, from LKR ~796Mn in FY25, despite core spreads normalizing to ~20.8% in FY26 (~22.3% in FY25) on account of portfolio expansion. The Company has moderate profitability as it posted net profit of LKR ~295Mn in FY26 (FY25: LKR ~153Mn). Core income is further supplemented by other income and processing fees. Total loans and advances reached LKR ~12.7Bn in FY26 (3MFY27: LKR ~12.9Bn), a growth trajectory that outpaced the industry average and is expected to moderate over the remainder of FY27. The lending book remains concentrated in the hire-purchase segment spanning both registered and unregistered vehicles, which constitutes ~97% of the portfolio. The recent portfolio mix has tilted toward smaller-ticket two-wheelers (now comprising ~67% of the portfolio) as compared to three-wheelers. The Company also intends to grow its unsecured micro-lending book going forward. NPLs in this segment are higher than the overall portfolio NPL ratio of ~1.3% at end-FY26 (~1.9% at 3MFY27). Given the underlying borrower base's vulnerability to income shocks, PML's ability to sustain close customer engagement and continuously strengthen its systems and controls will remain critical to preserving asset quality. Looking ahead, PML aims to grow both interest and non-interest income through new initiatives, including micro-insurance. The rating is constrained by PML's very highly leveraged capital structure, adequate coverages and high cost of borrowings. Leverage increased to ~90.6% in FY26 from ~80.9 % in FY25, driven primarily by a significant rise in borrowings to fund growth. The interest and debt coverages remain modest exposing the Company to rollover risk. Reducing the Company's leveraging and improving coverage ratios is critical. The management envisages capital infusion from the Parent in the short-term to mitigate these risks. The assigned rating already factors in the expected capital infusion from the Parent. As the rating is forward-looking, the actual receipt of these funds will not, in itself, trigger a rating upgrade, but remains imperative to sustain the current rating level.
The rating is dependent on the Company's ability to sustain its margins and robust asset quality while achieving its growth targets. Meanwhile, effectively reducing leveraging through timely capital infusion by the Parent remains crucial.