Having spent a week at PakLaunch meeting with friends, investors and founders building and investing in Pakistan we have been overwhelmed with the size of opportunity while beginning to understand the challenges for the South Asian nation of 249m people.
Pakistan has a 70% underbanked adult population but has made early steps with a growing digital banking effort in the country. The central bank also issued the first 5 digital banking licences earlier this year in a big push forward in this effort. Founders building in the space have had success working with the SECP, as a forward thinking and professional organisation supporting their efforts to offer digital credit products under an NBFC licence. Having based the rulings of the US SEC system this sets a strong regulatory framework for lenders under this licence.
However, fintech remains incredibly under penetrated to date, if you remove microfinance a remarkable 2% of adults in Pakistan have access to credit. The green field opportunity is huge and people across different verticals are beginning to take on the problem from asset financing with Qist Bazaar and Trukkr, to education financing with Edufi and nano loans with JazzCash. nano Loans have been one area of success thus far with JazzCash now completing 60,000 loans a day to support the lowest income segments, with incredible performance and extremely low default rates.
Entrepreneurship in the region is coming of age and brilliant founders are working on important problems. For example, our friends at Dastgyr, led by the brilliant Zohaib Ali, supporting 100,000+ small businesses to scale across Pakistan and internationally across Agriculture, FMCG, Chemical and Construction. However, the region retains an unfair negative western perception from stories like Airlift. A story much more reflective of the crazy times of the last cycle more than the great opportunity or people tackling key problems.
From a macro perspective Pakistan faces many headwinds with currency performance, political turmoil and environmental shocks. Inflation has hit peak rates of 28% in 2023 and the central bank has reacted slowly with rate movements to 22%, a 12.25% growth since April 2022. The rupee has depreciated 18% in 1 year and 57% in 5 against the US Dollar. The International Monetary Fund said Pakistan’s external debt has swelled to $100 billion, warning the nation could well become the next country to restructure its debt if it doesn’t hit bailout program goals.
Pakistan did secure an initial bailout loan of $3 billion in July avoiding sovereign default. The government has increased tax revenues and energy prices to meet IMF demands but hasn’t made progress on long term structural issues and may be forced into privatizing state-owned enterprises.
Governmentally, Pakistan is now close to Martial Law, predominantly run by the army with elections coming shortly which could be pivotal from a short-term perspective.
Big thankyou to our friends for showing us the huge potential in the region and I look forward to a trip to Karachi later in the year…
- Robin Butler (Sturgeon Capital)
- Saad Hasan (Sturgeon Capital)
- Arif Lakhani (Qist Bazaar)
- Zohaib Ali (Dastgyr)
- Nayab Babar (VEON/Jazz)
- Taimur Malik (Legal Counsel)
- Aman Nasir (Sarmaycar)
- Mishal Adamjee (Trukkr)
- Babar Lahkani (Lakson investments)
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