Pakistan’s VCs expected to stake up with foreign funds

KARACHI: Pakistan’s local venture capital industry is expected to expand while taking cue from growing investments from international funds in the country’s tech startups, an industry official said.

Owais Zaidi, founder and CEO of CrediFix – the country’s first digital lending company – said the local venture capital (VC) industry is very nascent and bulk of investments are coming from international funds.

“Eventually the local VC industry will grow as the local VCs learn from international funds investing and leading the way,” Zaidi said in an interview.

Pakistani ecosystem was late to take off due to the delay in 3G/4G launch. Once the 3G/4G came, new business models like mobile commerce/payments, ridesharing, digital lending, became possible. Pakistan is the 5th most populous country in the world with over 220 million people, he said.

CreditFix utilises machine learning and big data and combines to enable low-income borrowers to borrow for big-ticket loans for starting or growing business. The company is providing loans to improve the lives of the underserved segments in Pakistan. Its rates are 20-40 percent cheaper than banks and the turnaround time is much faster. The company wants to drive up access to credit in Pakistan.

Zaidi said the tech ecosystem is expected to receive further investments in times to come as the COVID has accelerated the adoption of digital services in the country. Coronavirus lockdowns have pushed economic activity online. Startups in the e-commerce, fintech, transport and healthcare sector are getting a boost, he said.

“You can see the uptick in mobile payments, food delivery and e-commerce. Now this behavioral change has happened, it will further accelerate the growth of local startups and create a virtuous cycle of investment and growth,” Zaidi said.

Zaidi sees the sectors, including lending, digital banks and insurtech, and e-commerce likely to attract more investments in future. “I believe investments will come in all sectors where there are good startups,” he said.

CreditFix has recently secured an undisclosed amount of seed funding led by venture capital fund Insitor Partners Pte. Ltd. The investments allow the company to scale its team and expand lending business. It brings more international investors and will help the local ecosystem grow and expand greatly.

Pakistan’s tech startups raised around $128 million in January-June 2021, a highest ever funding in any period and greater than the last three-year investments combined, the data from the investment banking and financial advisory services platform Alpha Beta Core showed.

The surge in the investments was due to huge global liquidity, ultra-low interest rates in Europe and the United States and the accommodative regulatory regime in Pakistan.

A huge market supported by a large talent pool and enabling environment including policies by the State Bank of Pakistan and regulations by Securities and Exchange Commission of Pakistan made the country an attractive market for investment, he said. “The SBP measures have definitely helped by facilitating the inflow of capital. We were the first startup to get permission to do a cross border convertible note.”

Pakistan’s information technology exports increased 47 percent to $1.9 billion in the 11 months of this fiscal year as global demand for the technology services remained strong amid the COVID-19. Electronic banking transactions rose 29 percent to Rs22.5 trillion in the third quarter of the outgoing fiscal year, showing the trust of the consumers in the usage of digital channels.