Two years ago, a group of entrepreneurs in Pakistan began researching the market to understand why financial services failed to reach the majority of traders in the world’s fifth most populous country.
On Friday, Tiger Global said it is backing their startup, CreditBook, to meet these challenges. This is the New York-based company’s first investment in Pakistan.
A number of other investors, including Better Tomorrow Ventures, Firstminute Capital, Banana Capital, VentureSouq, Ratio Ventures and i2i Ventures, as well as angel investors Sriram Krishnan and Julian Shapiro also participated in the $11 million pre-Series A round. This is also Firstminute Capital’s first investment in the South Asian market.
“We started the research and started experimenting in late 2019,” said CreditBook co-founder Iman Jamall, in an interview with BestFitnessBands. “At the time, I was working as a service designer on a project for one of the largest Pakistani banks and observed different persona types to understand why financial services hadn’t yet found a foothold in the country.”
The challenges Jamall, one of the few female founders in the country, identified were cash flow, the role of credit and the social relations surrounding it, and the over-reliance on “paper for everything,” she said.
The over-reliance on paper to keep ledgers and ever-low cash flow is a challenge shared by traders in many markets in South Asia and Southeast Asia. As we discussed earlier, these small businesses often run on informal credit, relying on money that they secure by selling their existing inventory to buy their next batch. The customers buy things for weeks and sometimes months before they clear the bill.
These shortcomings are hurting these small businesses and mom and pop stores and stunting their growth at a time when major e-commerce giants are trying to court customers.
CreditBook today offers an accounting app to merchants, which allows them to digitize the handwritten ledger that they traditionally used to keep track of their day-to-day accounts.
The mobile app of the same name has gathered merchants in more than 400 towns and cities, the startup said. CreditBook declined to disclose the number of merchants using the service, but said the number of transactions with users has increased 10 times since last year.
Digital accounting is the startup’s main offering these days, but Jamall said CreditBook is building and testing financial products. It’s too early to reveal exactly what those financial products would look like, she said. (But it’s definitely not e-commerce, she said.)
Jamall provided some context around the areas CreditBook is exploring. “In Pakistan there is a huge white space in payments. But mobile money is starting to gain momentum, especially amid the pandemic,” she said, adding that the local regulator has also pushed in recent years to accelerate the adoption of mobile payments and focuses on the building an infrastructure for instant payments. (Similar to India’s UPI, which has become the most popular way for users to transact online in recent years.)
It’s a huge opportunity. CreditBook estimates there is a $45 billion funding shortfall for small businesses. More than 220 million people live in Pakistan, 60% of whom are under the age of 30.
“We are delighted to partner with CreditBook and make Tiger Global’s first investment in Pakistan,” said John Curtius, a partner at Tiger Global, in a statement. “The investment is a testament to the incredible traction and vision the team has shown.”
Friday’s announcement builds on what has been a turning point for Pakistan’s burgeoning startup ecosystem as several global investors including Kleiner Perkins, Addition, 20VC and Buckley Ventures make their first bets in the country. Startups in Pakistan have raised more than $300 million this year, more than the previous six years combined. Grocery delivery start-up Krave Mart announced earlier this week that it had raised $6 million in its pre-seed funding round.