Finja defines itself as a new age financial services platform for professionals, merchants (karyana shops) and SME businesses addressing their payments, collections, and credit needs. Its partnership with banks, Fls and merchants has allowed it to hold a unique position in the value chain enabling all actors in the eco-system to interact digitally.

Qasif cofunded Finja along with Monis ur Rahman and Umer Munawar together they are the brains behind Finja. He specializes in driving change and innovation through introduction of new-age retail banking products, services, and solutions. He has helped Finja monetize future oriented business ventures.

Qasif has been associated with the fintech industry for almost two decades. Before he helped set up Finja, he served as the Head of Digital Channels at ABN AMBRO Singapore, Head of Electronic Channels, Standard Chartered Bank Pakistan, and Head of Digital Banking & Busines Development at MCB.

His career at these organizations spanned conceiving, building, marketing, managing, and growing digital led payment businesses. He helped build supporting delivery channels such as ATMs/CDMs, Point-of Sale terminals, E-commerce channels, branch, and service centre management. Qasif played an instrumental role in forging cross-industry alliances and in developing partnerships with payment associations, technology solution providers, outsourcing entities and in working closely with the regulators.

BR Research sat down with Qasif recently to discuss the fast-evolving Fintech space in Pakistan, with special focus on challenges faced by Finja in the integration between its Lending and Digital Payment platforms.

Below are the edited excerpts:

BR Research: Can you give a brief overview of Finja’s evolution since its establishment?

Qasif Shahid: Finja was founded in 2016, backed by leading global venture capital funds including Sweden based Vostok Emerging Finance, BeeNext, and Washington based Quona Capital. It aims to provide an ecosystem for integrated financial services, with a special focus on lending to MSMEs (micro, small, & medium enterprises).

It started as a Super-Agent for branchless banking of Finca Microfinance Bank and helped developed its branchless banking platform. Since then, the organization has fast expanded from its nascent days to become a consumer facing platform focused on digitizing payments, collections, and provide lending products to MSMEs.

Recently, Finja became the first fintech to obtain two regulatory licenses: an EMI (Electronic Money Institutions) license under the ambit of SBP, and a fully function lending license for an NBFC (non-bank financial company) under the SECP.

BRR: What is Finja’s business model today? How are these licenses leveraged?

QS: Our star product is Finja Business, which is a portal for digital financial solutions, rolled out under the NBFC license from SECP. The platform was built because we realized that nobody in Pakistan is doing digital platforms right.

Corporate organizations do not want to open bank accounts with branchless or microfinance banks as the account opening process is agonizing, despite the ease it brings for payroll disbursement and other similar products. Finja was able to identify a gap in the market, and that is how the digital product suite was born.

Because most corporate organizations do not want to move their main operating account, we realized that the success of any digital financial platform lies in becoming truly bank agnostic. In order to transfer funds through Finja portal, corporates now open a virtual account with Finja, which does not cause any hassle beyond asking for basic credentials. The platform allows companies to link their operating account with the portal, and then credited with funds through an IBFT or RTGS.

Similarly, on the payments side, Finja is not obsessed with salaries going only into wallets opened with Finja. However, the flow of funds through the Finja platform allows us to use this data to lend to the employees of those corporates, by feeding the data into our credit and AI engine. The EMI wallet has allowed us to build use-cases for Finja Business, although its currently in a commercial pilot phase.

Our cutting edge, new age payments and disbursement portal is used by businesses not only for salary disbursements, but also for collections, vendor payments, and transactions with suppliers and distributors.

BRR: Does Finja’s solution threaten the existing digital and branchless banking platforms of commercial banks and other FIs?

QS: No, because Finja has built partnerships with multiple banks, by collaboratively creating lending and payment products with banks to serve the previously financially excluded target market. In fact, banks are super-incentivized to partner with us, as we have made them part of the action. Already, banks and FIs such as Meezan, Faysal, Easy Paisa, ANT Financial have partnered with us.

Commercial banks are also showing willingness to share their credit book, as they have realized that Finja has its skin in the lending game. Leveraging its AI-based solutions, Finja does all the leg work that goes in origination and evaluation of credit, and in return, banks share credit risk on an 80-20 ratio for a cut in our profits. We are also in advance stages of reaching an agreement for credit book sharing with a leading microfinance institution in the country.

BRR: How exactly does the lending platform work? Is the entire process digitized?

QS: Finja goes above and beyond the basic criteria for KYC before making a lending decision, because as an NBFC, our equity is on the line. For productive working capital loans (for businesses such as kiryana shops), Finja representatives visits the prospective borrower premises at the time of first loan origination, takes pictures of the shop, perform inventory estimation, while also obtaining credit data from its suppliers which is then fed into our AI engine.

Similarly, for consumer loans made to salaried individuals, we use payroll data from our corporates/business clients. Mostly, these are short term loans for one-month tenor. Subsequent loans are disbursed digitally, however, the first time must be a very real-world driven process.

BRR: For value chain loans, how is the data from corporate/businesses leveraged?

QS: We are a digital lending company, which is obsessed with lending in supply chain every time it gets it hands on payments data from any value chain. In Pakistan, most of the data, especially payments data, exists only on the supply side.

For example, when a kiryana purchases from a distributor or a distributor from an FMCG, invoices are generated, entries are made in the ERP systems, and the banking channel is used for disbursements and collections. Same goes for payroll disbursements.

Pakistan has one million kiryana stores; however, in order to make prudent lending decisions, we need not open wallets or virtual accounts with all of them. Instead, we have data coming from FMCGs and distributors, who supply credit to these kiryanas. Similarly, another example could be of leveraging sales data of a fertilizer company which sells urea to small farmers. Just like the FMCG-distributor-kiryana value chain, the fertilizer sale data could be used to make micro loans to farmers.

Our product portfolio extends to both conventional and Islamic modes of financing. For example, Finja becomes the supplier of capital by buying goods from an FMCG at Rs 100 and selling them to a kiryana on one-month credit at a price of Rs 102.5. In annualized terms, the ROI is over 30 percent.

Both the regulator and existing players in the financial system must realize that no Fintech business model can be scaled if all parts of the ecosystem are not winning. The example of credit to kiryanas shows how supplying them with credit allows the whole value chain to win, as it resolves the perennial challenge of liquidity that small retailers face, while also ensuring that the distributor does not have to be out of pocket for the length of credit period.

BRR: How has the Covid affected your business? How does the company mitigate its default risk?

QS: Finja and other digital platforms have succeeded tremendously during Covid. In fact, we credit our success to kiryanas, which are hyper-local. People did not want to go to large supermarkets during the pandemic due to risk of increased public interaction.

When this hurt the offtake of consumer goods, many FMCGs began offering rebates to kiryanas; thus, we were able to lend to kiryanas at virtually zero cost to them, which increased credit offtake by leaps and bounds. In a very short span, we have lent an aggregate of $8 million from our own asset base, and most of our borrowers are already in their eighth or ninth cycle. The SBP must also be credited for easing restriction on digital platforms, such as fee waiver on use of IBFT. If digital platforms in this country are to succeed, the cost of tech-adoption for end consumer must be reduced.

The credit risk is mitigated by entering supply suppression agreements with the FMCG/distributors, which commits to terminate supply to the kiryana (or any borrower) in case it defaults on its loan from Finja. Of course, the credit risk still exists, but it is vastly mitigated, as it creates significant costs on default.

BRR: Is the success of a digital lending platform predicated on holding an EMI license?

QS: This remains to be seen. The EMI license allows license holder to take deposits which gives us a consumer facing brand. However, we are only in a commercial pilot phase for EMI right now, with up to 2,500 users. We hope that it will soon be upgraded to a full license, subject to an SBP inspection. The true benefits of an EMI license have accrued in the form of allowing us to build use-cases, which we have then leveraged to make lending products through Finja Business. Now that Finja has already built that part of the ecosystem, an upcoming lending NBFC may not require to put itself through those hoops and reinvent that wheel.