Karandaaz aims over 600 SMEs in its credit portfolio by 2019

KARACHI: Karandaaz Pakistan plans to expand its operations in the coming years to help grow the small and medium enterprises (SMEs) sector in the country and to increase financial inclusion through digital payments, a top official said.

“We are targeting to double the number of SMEs in our credit portfolio to reach over 600 SMEs by 2019. Similarly, we hope to build our equity portfolio by adding at least four transactions by March 2019,” Ali Sarfraz, chief executive officer Karandaaz, said in an interview with The News.

The SMEs constitute over 90 percent of estimated 3.2 million businesses in the country. These firms contribute 30 percent of gross domestic product of Pakistan and 25 percent in export earnings. As of December 31, 2016, total number of SME borrowers stood at around 177,000 and outstanding SME financing of banks/ development finance institutions was Rs401 billion, showing an increase of 31 percent on year-on-year basis, according to the central bank data.

Sarfaraz said various large-scale projects under Karandaaz’s digital finance work stream would reach full-scale implementation over the coming months.

“These include our partnership with Central Directorate of National Savings [CDNS] whereby their customers will get access to alternate delivery channels, the project with National Bank of Pakistan for digitising government receipts and payments, and the efforts to create a micropayments gateway in the country at the State Bank of Pakistan,” he said.

Karandaaz has initiated many innovative programmes to do its bit in achieving the vision set out in the National Financial Inclusion Strategy (NFIS). This ranges from improving access of finance for micro, small and medium businesses (MSMEs) to connect the financially excluded population to financial services using mobile technology.

The UK’s Department for International Development (DFID) has committed GBP 187 million through Karandaaz to be invested till March 2024, out of which it has already invested about GBP 46 million towards Micro, Small and Medium Enterprises (MSMEs) finance.

These funds have been used to inject growth capital directly into SMEs as well as through wholesale arrangements with financial partners to improve access to credit for small and medium firms as well as micro-enterprises.

Karandaaz CEO said they were about to complete three equity investments, have partnered with Bank Alfalah, Meezan Bank and ORIX Leasing Pakistan for providing credit to SMEs and invested in Pakistan Microfinance Investment Company Limited (PMIC) for developing the market for micro-enterprise finance.

“We will continue to support innovation and experimentation across its portfolio,” he said. Sarfaraz added that more specifically the Innovation Challenge Fund and FinTech Disrupt Challenge rounds will identify and target the best ideas with potential to reach unbanked and excluded segments.

“The company believes its knowledge management work will continue to support better achieving its objectives and provide evidence and information to industry players,” the CEO said. He viewed these investments would be instrumental for Karandaaz to meet its growth targets and achieve its goal of greater financial inclusion in Pakistan leading to more jobs and increased household incomes for Pakistanis.

The proportion of Pakistani adults with access to formal financial services now stands at 23 percent, as per State Bank of Pakistan. In 2008, this was only 12 percent. “Although we still lag behind our regional peers, I am confident that if we continue to work together, we will keep moving the needle on financial inclusion for different socioeconomic segments of the population,” he added.

Sarfaraz said the company was confident that with growth in access points and implementation of the National Payment Gateway, Pakistan would continue on this positive trajectory.

“Karandaaz is providing technical support to enable digital channels, such as mobile wallets, through which credit can be disbursed to the farmers. So far more than 16,000 farmers have started receiving loans through mobile wallets and the plan is to increase the number to 500,000 small famers with a landholding of up to 12 acres,” he said.

Moreover, he said, the work with CDNS, Pakistan Post, and the company’s contribution in micropayment gateway would encourage formalisation of small transactions and segments that have not used the formal financial system till now.

“Women face several challenges in accessing financial services such as lack of information and business networks, mobility, and lack of assets. Karandaaz’s interventions are customised to overcome these challenges,” Sarfaraz said.

He said based upon the decision of the judges, Karandaaz would invest equity in about 3-4 businesses and provide grant to about 15 businesses.

“We have decided to make this a recurring initiative as part of our support for women entrepreneurship and also expand our coverage to other cities of Pakistan,” Sarfraz mentioned.

“We are hoping that this model will not only support female entrepreneurs but also build the capacity of incubators to develop programmes that meet the needs of women entrepreneurs.” He said the company thought Pakistan provided a very conducive environment to FinTechs that plan to launch new applications, processes, products, or business models in Pakistan’s financial services industry. “There is a need for a simulated sandbox environment which the Fintechs can use to test their product. In a country as large as Pakistan with such high levels of financial exclusion, we will need to nurture the entire ecosystem of innovation if we want to leapfrog access to appropriate financial services,” Sarfraz said.