Lahore-based startup, AdalFi, announced raising a $7.5M seed round led by COTU Ventures and Chimera Capital. Other investors were Fatima Gobi Ventures, Zayn Capital as well as angels, including executives from Plaid.
This is the first deal announcement in February and only the second in 2023. VC funding to Pakistan has plunged lately, with Q4-2022 amount the lowest in 10 quarters. The same trend has so far continued in 2023 and is line with global market.
What is AdalFi?
The startup is a digital lending infrastruture provider and works with financial institutions to help them make better loans. Their technology scores the financial transactional data already possessed by banks, enables personalized digital marketing to qualified prospects and, finally, provides the customer journeys which are embedded within the bank’s digital presence to enable real-time disbursement of loans.
What Problem are they solving?
Salman Akhtar, CEO and co-founder of AdalFi commented: “Pakistan has 50 million bank accounts yet only 2 million of these individuals and businesses have any credit relationship with their bank. The high cost of loan origination driven by physical verification of identity, assets and financial health (in the absence of credit scoring) has restricted credit access to a thin, top tier of customers. 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.”
He added: “In essence, we have built better underwriting models for banks. Not only have we lowered the cost of credit scoring and underwriting and therefore the cost of credit but we changed their outlook and got them to change their approach. Banks have been drawn to AdalFi because we offer rigorous credit scoring to ensure portfolio quality with zero cost customer conversion (from depositors to borrowers). Moreover, we enable a breakthrough in customer experience with instant, smart loans which completely transform customer value delivery.”
Business Model and Traction
The company operates on a B2B2C model where it earns a share of the revenue made by the bank from the loan while also being exposes to the downside risk of bad debts. Since its launch in July 2021, AdalFi claims to have grown the Gross Loan Volume (GLV) enabled by its Digital Lending Platform at 30% MoM for the last 19 months.
“Over 70,000 loans have disbursed to date with a default rate well under 0.1%. Through December 2022, AdalFi enabled a cumulative PKR 1 Billion in GLV. In January 2023 alone AdalFi generated Rs. 390 Million in lending and is on track to exceed PKR 1B within Q1 2023.” According to the press statement, they have already signed up 14 banks (including 7 of the top 10).
“Salman excited us from our first interaction. Him and his team’s level of experience and track record building software for financial institutions is a rarity in this space. When you combine that with the innovative solution that AdalFi offers, specifically with its AI-powered scoring model that is scalable and frictionless, you have all the ingredients to massively transform the credit industry. 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.