Pakistani fintech startup AdalFi has raised $7.5 million in the first major corporate funding announcement in the country facing an economic crisis.
Investors: The $7.5 million funding round was led by UAE-based COTU Ventures and Chimera Ventures, Pakistan-based Fatima Gobi Ventures and Zayn Capital, and included angel investors such as executives from US-based fintech firm Plaid.
AdalFi: The Lahore-based startup is Pakistan’s first end-to-end digital lending infrastructure provider, helping banks offer their customers real-time loan products by partner banks. AdalFi scores the financial transactional data already possessed by banks, enabled by its proprietary AI-powered credit scoring model.
Digital platforms like AdalFi can transform access to credit in Pakistan, which like many other developing economies, lacks any kind of credit scoring or rating infrastructure.
“AdalFi operates on an asset-light, revenue-sharing model with banks which captures any downside risk exposure to banks such that any loan losses are accounted for, pro-rata, in fees due to AdalFi. These deep partnerships ensure banks and AdalFi are completely aligned in that AdalFi only makes money from loans that are actually paid back,” the company said.
The co-founder and CEO Salman Akhtar says that banks are drawn to AdalFi because of its “rigorous credit scoring to ensure portfolio quality with zero cost customer conversion” from depositors to borrowers. Additionally, the company provides instant and smart loans that revolutionize the customer experience and value delivery. AdalFi’s tech stack also facilitates seamless loan processing for eligible customers in a digital, mobile-centric world.
What investors are saying? “The fact that they have already secured partnerships with the leading banks in the country, and have already facilitated new unsecured lending channels for their clients in such a short space of time, gives us confidence that they have an incredibly exciting future ahead of them” said Amir Farha, Managing Partner at COTU Ventures.
Helping millions get credit for the first time
Salman Akhtar has spent years getting to know Pakistan’s banks, which he says serve 50 million consumers and small businesses, but only 2 million of them take bank loans, just 4% of the market. “AdalFi’s digital lending platform allows partner banks to instantly credit score the other 95% of their existing customers who have never been lent to and cross-sell loans to them.”
Easy access to credit: The fintech aims to promote financial inclusion by unlocking access to credit for millions of Pakistanis and small and medium-sized enterprises through its proprietary AI-powered credit scoring. The platform provides banks with a competitive edge in the lending market.
How? AI-driven credit scoring systems have revolutionized traditional methods by providing banks with personalized insights into customers’ financial behavior. The credit scoring model allows banks to make automatic lending decisions, offering credit to a wider range of borrowers. Without such platforms, banks would typically take two weeks to process a loan request in Pakistan.
Currently, only 5% of deposit customers in Pakistan are also borrowers, according to the company. AdalFi enables banks to tap this huge, latent customer base, according to Akhtar.
- AdalFi, founded in July 2021, has grown the gross loan volume by 30% month-on-month for the last 19 months and enabled a cumulative amount of Rs1 billion in gross loan volume through December 2022.
- Over 70,000 loans have been disbursed with a default rate of under 0.1%.
- In January 2023 alone, AdalFi generated Rs390 million in lending and is on track to exceed Rs1 billion within the first quarter (Q1) of 2023.
- The company has signed on 14 banks, including seven out of the top 10.
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