Issue No. 5QUARTER IV – 2016

IN THIS ISSUE…• CEO’sMessage

• Pakistan’sFirst-EverFinTechDisruptChallenge

• Workshopson‘CrackingtheBlockchainCode’and‘CrackingE-commerce2.0’

• NewPartnershipswith:

• BankAlfalahtoProvideDigitalFinancialServicesinPakistan

• JazzCashtoEnhanceDigitalFinancialServices

• PakistanPosttoSupportDigitizationofMoneyOrders

• PunjabAgritoIntroduceSolutionsforDFI

• ResearchShowcase:StudyonProfilingandSegmentingtheRoadTransport(Logistics)SectorwithAssessmentofInformalFinancing

• FinancialInclusioninNumbers

• FeaturedBlogPost:GoodIntentions:WhyWhatYouMeasureinFinancialInclusionissoImportanttotheOutcomesYouAchieve

CEO’s MessageDearFriends,

I am pleased to share the fifth issue ofKarandaaz Pakistan’s quarterly newsletter.Thepreviousquarterhasbeenabusyone.Keyhighlights include holding of an innovationchallenge on remittances, announcing thewinners forFinTechDisruptChallenge2016,and closing out four significant deals withPunjab Agri Department, Pakistan Post,Bank Alfalah and JazzCash all of which areaimed at promoting financial inclusion.Wealso received an overwhelming responsefor the Digital Money Course certified bythe prestigious Fletcher School at TuftsUniversity. I am delighted that KarandaazPakistanhasproventobeanenabler in theindustry, pushing through with its innovations in this sector, building sustainablemodelsfordigitalfinance,andbringingfinancialinclusiontothehithertounderservedorexcludedsegmentsofsociety.

Happyreading!Ali Sarfraz HussainCEO Karandaaz Pakistan

The FinTech industry in Pakistan is in its nascent stages and isfacedwith issues of access to finance and limitedmentorship.Recognizing the enormous potential of FinTechs to developeasilyscalablesolutionsbyleveragetechnology,FinTechDisruptChallenge 2016 galvanized Pakistani startups to proposeinnovative products and services in areas like payments,financing,insurance,savingsandinvestmentforgrantsuptoPKR10million.

Banks, government regulators, incubators, complementary

actorsfromtheFinTechindustryassembledatFDC2016tosee23shortlistedstartupspresenttheirideastoapanelofexperts.Leading industry practitioners like Nadeem Hussain and QasifShahidgavekeynotespeechesattheeventabout“UnbundlingCommercialBanks”and“DesignMechanicsforSettingUpFinTechOperationsinPakistan”respectively.

FDC2016culminatedwiththeannouncementofthreewinners,RicultPakistan,PaysysandPublishexwhowonagrantamountofPKR10millioneach.

Karandaaz and LUMS Center for Entrepreneurship Conduct First-Ever FinTech Disrupt Challenge in Pakistan

Finalists of FinTech Disrupt Challenge 2016 with Ali Sarfraz, CEO of Karandaaz Pakistan and judges

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Karandaaz & PlanetN Hold Workshops on ‘Cracking the Blockchain Code’ and ‘Cracking E-commerce 2.0’

Karandaaz Partners with Bank Alfalah to Provide Digital Financial Services in Pakistan

Karandaaz Enters into an Alliance with JazzCash to Enhance Access of Digital Financial Services

Karandaaz and Punjab Agri Department Come Together to Introduce Solutions for DFI

Blockchain is a public ledger of all Bitcointransactionsthathaveeverbeenexecutedandis constantly growing as ‘completed’ blocksare added to itwith a new set of recordings.Blockchain therefore provides variousbenefits including transparency, efficiency,lower costs and reliability amongst others, togovernments, financial servicesorganizations,investors and entrepreneurs. In addition tothesebenefits,Blockchainisalsoasubstantialforceinfosteringfinancialinclusionforcitizensinpoverty.

Karandaaz Pakistan and PlanetN took thelead in disseminating knowledge regardingBlockchaininthelocalmarket.Mr.FaisalKhan,aleaderinthepaymentseco-systemofPakistanand abroad, conducted a session explainingthetechnologyindetail.Asimulationwasalsoprovidedbyparticipants fromUrduBitwhere-after breakout sessions on Payments, IdentityandLandtitleregistrytookplace.

The workshop on E-commerce focused onareas of customer facilitation and protection,e-payments, managing delivery logistics andusinge-commercetogrowPakistan’sexports.

SMEs learnt how they could manage theirowne-commercechannels.Participantsoftheworkshop includedmembers of government,leadinge-commercesitesUrduBit,GameStorm,Yayvo,HBL,UBL,MCB,EasternGarments,Well.pk, BlueX, Wavetech, Food Panda, FINJAS,Junaid Jamshed, Bakeware.pk, TPS Online,Interlink,IDG,NIFT,Leopardsaswellasaspiring

startupsfromtheindustry.

E-commerceadoptionhaspositivelyimpactedrevenues and profitability of SMEs. Despitehighpotential,amajorityofPakistaniSMEsareyettoadopte-commerceoraresub-optimallyengaged.

Such knowledge-building platforms arebecoming increasingly imperative in viewof rapidly changing E-commerce trendsin Pakistan due to the growing number ofbroadband/3G/4Gusersaswellasgovernmentefforts for digital inclusion. Moreover,e-commerce will gain further inducement asinternetbecomesaccessible to the remainingunserved population. In light of this rapidlyincreasing trend this workshop gatheredrelevant stakeholders to discuss essentialparameters of e-commerce; the role ofe-commerceindevelopmentofSMEs;policiesandregulationsthatcanhelpthissectorgrowandchallengesandopportunitiesforPakistanataninternationallevel.

InpursuitofitsmissiontodigitizePakistan’sfinancial services landscape, Bank Alfalahhas signed two major agreements withKarandaaz Pakistan. The agreements areaimed at promoting access to finance forsmall businesses through a commerciallydirectedinvestmentplatform,toworkjointlyonmultiplestrategiestodigitizepaymentsand create convenient, transparent andreliable channels of financial transactions,through a suite of financial products andserviceswithafocusonretailsupplychainpayments.

Under the first agreement, KarandaazPakistan will provide technical andfinancial assistance to Bank Alfalah forthe development of a digital strategy thatwill help the bank offer digital financial

services to its customers, particularly theunder-bankedsegmentsofthemarket.Thesecond agreement focuses on digitization

of supply-chain payments and conversionofcashtransactionstowalletaccountbasedtransactions.

Karandaaz and JazzCash entered into astrategic alliance to enhance access ofdigitalfinancialservicesinPakistan.

Underthispartnership,KarandaazPakistanwill provide a grant as well as technicalsupport to JazzCash in implementingkey findings of the human-centereddesign research recently completed bythe former. This support will help bringgreater innovation to JazzCash’s exisitingMobileApplicationandincreaseitsuptakeamongst over 50 million Mobilink-Waridcustomers.

Karandaaz partnered with the AgricultureDepartment of Punjab in order to introducesolutions for digital financial inclusion ofsmall farmers as part of the Kissan Package,announced by the government. Karandaazwouldprovidetechnicalsupportinenvisioningthescopeofentireprojectandtechnicalaswellasfinancialsupportforpilotingtheproposedprocessesandservicedesigns.

Ali Sarfraz, CEO Karandaaz, describing the objective of the workshop

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Study on Profiling and Segmenting the Road Transport (Logistics) Sector with Assessment of Informal Financing

Karandaaz Partners with Pakistan Post to Support its Reforms Agenda of Digitizing Money Orders

KARANDAAZ PAKISTAN RESEARCH SHOWCASE

Karandaaz Pakistan will be undertaking astudy to deepen the understanding of theroad transport sector (logistics sub-sector),andespeciallytoenhanceknowledgeofhowimprovedaccesstoformalsourcesoffinancein this sector, can play a role in improvingproductivityandgrowth.Forthispurpose,asector profiling and segmentation exercisewill be conducted, supplemented with anin-depthassessmentofaccesstoformalandinformalsourcesoffinance.Theprimaryaimistoprovideinsightsintothesectortoformalfinancial institutions allowing influence tothedesignofsuitableproductsandservices,enabling the formalization of lending andgrowthof theportfoliooffinancial servicesavailabletothesector.

Such cutting-edge research is critical forunderstanding a sector that, on estimate,contributes around 11% to Pakistan’s GDPaccounts for 6% of employment and 15%ofthepublicsectordevelopmentprogram(PSDP).Logistics inPakistanrelymainlyonroad networkswhere96%of total nationalfreight is carried by road transport. Thisnetworkhasseenmajorexpansioninrecentyears where the number of registeredtrucks increased from approximately148,600 in 2000 to more than 251,000by 2014, while the number of registeredbusesincreasedfrom154,000tomorethan223,000duringthesametimeperiod.1Theimportanceofthestudyhasincreasedwiththe development of the China PakistanEconomicCorridor(CPEC)andthepotentialofminimizingtradelossesthatmightoccurfromaweakinfrastructure.

Despite sustained growth, the logistics

industry is reported to account for lossesof 4–8.5% of GDP due to overall poorperformance.Also, inaddition toconsuming35% of total energy and causing damageto national road infrastructure due to faultydesign and loading norms, 30–40%wastageofagriculturalproducehasbeenreportedduetopoorlyequippedandinefficientvehicles.2

Theresearchwillundertakesizing,profilingand segmenting of the transport sectorwith a focuson road transport, inclusiveoftruckingaswellaslightweightvehicles(vans,pickups, tractors, etc.). Also, in addition toidentifyingandanalyzingtheregulatoryandpolicyenvironmentthisresearchwillprovideinsights into underlying sector economicsandthedistributionofvalue/earningsacrossplayers/actors.

Moreover, comparative analysis of thecurrent financing options with formaland informal sources in the industry willbe undertaken. Finally, the research willbe aimed at understanding the valuepropositionsofferedbyformalandinformaloptions and will shed light on financinggapsthatexist inthissector, the impactongrowthwithincreasedaccesstofinance,themultiplier impactonGDP,employmentandassociatedsub-sectors.

1EconomicSurveyofPakistan2015-162 European Union and Competition Commissionof Pakistan. Road Freight Transport Sectorand Emerging Competitive Dynamics.h t t p : / / t r t a p a k i s t a n . o r g / w p - c o n t e n t /uploads/2016/01/Road-freight-transport-sector-and-emerging-competitive-dynamics_final.pdf

With the joint vision of promotingfinancial inclusion to theunderbankedand unserved populations, KarandaazPakistan and Pakistan Post havesigned a partnership agreement todigitize money orders. The agreementwas signed between Fakir SyedShaharyaruddin-DGPakistanPost andAli Sarfraz Husaain -CEO KarandaazPakistanandthesigningceremony,heldin Islamabad,waschairedbySecretaryCommunications Mr. Khalid MasoodChaudhryandDr.LousieWalker-GroupHead,EconomicGrowthDFID.

Under the agreement, KarandaazPakistanwillprovidetechnicalsupportin designing a new product ‘mobilemoney order’ from conceptualizationtodeployment.TheKarandaazteam’stechnical knowledge and its fundingsupport will assist Pakistan Postin the identification of managerialand technical requirements for thenew service and will strategize anddevelop a complete business plan.The project is envisioned to improvePakistan Post’s service penetrationandalsocreatenewrevenuestreams.

DG Pakistan Post acknowledgedthe role of Karandaaz Pakistan infurthering one of the key goals ofGovernmentofPakistanofimprovingthe level of financial inclusion in thecountry.TheprojectwillhelpimprovePakistan Post’s service channelpenetration from 6.5 to 30 per100,000 persons by 2020 and offer anewportfoliooffinancialservicesviathedigitalplatform.

Karandaaz is committed to enablinggreaterfinancialinclusionforcurrentlyunderserved rural populations andcatering to their financial needs.Through this partnership withPakistan Post, Karandaaz hopesto assist in the development of adigital platform for money orderwhich has the potential to reach theunderserved with improved speed,safetyandconvenience.

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SME Sector Genesis, Challenges & Prospects by SMEDA

UNWOMEN Study on Women’s Participation and Empowerment in Pakistan: Gender-wise Distribution of Borrowers

UNWOMEN Study on Women’s Participation and Empowerment in Pakistan: Percentage Share of Employment by Industry

World Economic Forum’s Global Gender Gap Report 2016

Thechart shows thegrowingsignificanceofSMEs in theemergingeconomies.

AgenderedlookatborrowershighlightsissuesofaccesstofinancialservicesforwomenindifferentsectorsacrossPakistan.

Genderdisaggregatedemploymentdatarevealsthatwomenareunder-representedinmostoftheindustrialsectorsinPakistan.

ThetablebelowshowsthegendergapindexforPakistan,comparing2006with2016.Asseen,Pakistanfares143rdof144countriesintheGlobalGenderGapIndexin2016,evenworsethan2006whenitranked112thoutof115countries.WartorncountriessuchasSyriafarebetterthanPakistaningenderparity.

Year2016 2006

Rank Rank

Global Gender Gap Index 143 112

Economic Participation & Opportunity 143 112

Educational Attainment 135 110

Health & Survival 124 112

Political Empowerment 90 37

Rank out of 144 115

FINANCIAL INCLUSION IN NUMBERS

20%

31.9

0%

50%

40%

50% 58

.90%

76%

78%

99%

97.3

0%

99%

99%

BRAZIL MALA YS IA TU RK EY PA KI ST AN

% Contrib o GDP % Contrib on to Employment % of Firms

26%

4%

15%

2%

74%

96%

85% 98

%

M ICROFINANCE AG RICU LT UR EH OU SI NG SMES

Women Men

1%

2%

2%

3%

20%

22%

39%

99%

98%

98%

97%

80%

78%

61%

Transport, Storage &Communica

Wholesale & Retail Trade andRestaurants & Hotels

Electricity, Gas & Water

Financing, Insurance, RealState & Business

Manufacturing

Community, Social & PersonalServices

Agriculture, Forestry, Hun& Fishing

Women Men

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Good intentions: Why what you measure in financial inclusion is so important to the outcomes you achieve

FEATURED BLOGPOST

Financialinclusionisincreasinglyrecognizedas a policy instrument to deliver on policyobjectivessuchaswelfare,healthoutcomesand food security. In fact, it is deemed soimportantthattherecentlypublishedUnited Nations Sustainable Development Goals (SDGs)1 include equal access to financialservicesforallpeopleasoneofthegoalstoending poverty. To track and measure theSDGs, a number of indicators have beenagreed upon. For the financial inclusioncomponent, the designated indicators arebankaccountuptakeandactivity.

Settingindicatorsandtargetssuchastheseare important. Policymakers are decision-makers. They set objectives and designinterventions to achieve those objectives.To know whether they are meeting theirobjectives, or if changes are needed,requiresmeasurement.Butmeasurementisadouble-edgedsword:ifyouaremeasuringthewrongthings,youarelikelytofocusonthewronginterventions.

The“One Rupee trick2”thatrecentlycaughttheheadlines in Indiaprovidesanexampleof the unintended consequence fromsetting thewrong targets.With thebestofintentions, the Indian government in 2014launched an initiative to bring basic bankaccountstoall. Itmandatedaccount-basedtargetsforbankstodeliveronthispromise.This led to 240millionnewbank accountsbeingopenedsincethen.

However, it soon transpired that theseaccountswerenotbeingused:themajorityhad zero balances, indicating that theywere dormant. Just opening accounts wasclearly not sufficient. So the focus shifted

to measuring active accounts, defined asthosewithanon-zerobalance.Forawhileitlookedasifremarkableprogresswasbeingmade: dormancy reduced dramatically.Here, finally, was a true financial inclusionsuccessstory.

But in reality, some bank managers hadfound a way to fool the system by simplydepositing negligible amounts intoaccounts to make them appear active. Itwas discovered that more than 10 millionaccountshadonlyoneRupeeinthebalance.Though the targets were being met onpaper, actual usage was non-existent andtheaccountholdersthemselveswere likelyoblivious to what was happening in theiraccounts.

There are many lessons to be learnedfrom this story. For us at the i2i facility,a resource center based in South Africathat deepens understanding of financialinclusion through data, the story hasdemonstrated how critical the nuances ofour measurement frameworks are. One ofourobjectivesoverthenextfewyears istowork with governments and the broaderfinancial inclusion community to developmeasurement tools that better reflect ourintentions.

To know what to measure, we must firstownuptoacommondeceptioninfinancialinclusion: that financial services uptakeis the objective. In fact, savings, credit,payments and insurance are roads, not destinations3. We use them because wewant to get somewhere, not because wewant to travel. The real destination is themorefundamentalneedsthatpeoplemust

meet through financial services.These canincludereceivingincome,buyinggroceries,paying for schooling or healthcare, buyingstock for a business, or sendingmoney toelderly parents, all of which, in turn, helpyoutoliveyourdailyeconomiclife,bemoreresilient,ormeetyourfinancialgoals.

A financial service such as a bank accountmay connect you to one ormore of thesedestinations,but todo so itmustbeused.For example, in Indonesia, Findex datashowsthatsevenoutoftenbankaccountsaredormantorusedasamailbox,wherebyall income received into the account arecashed out in one single transaction. Aswith all those one-Rupee accounts, it isunlikelythatthedormantbankaccountsaremeeting any of the financial needs notedabove. And those used as a mailbox mayonly meet some of them. Where fees areincurredon suchaccounts, customervaluemay actually be eroded. Unused accountsarealsonotprofitableforproviders.So,ifweset targets that incentivise the delivery ofservicestopeoplewhoarenotlikelytoneedit – andwill hencenotuse it –we arenotachievingourend-goal,and,insomecases,mayactuallybemakingtheirfinancial livesworse.

Whyareaccountsnotused?Doesthismeanthatwe have thus far beenmeasuring thewrongthingsand,ifso,whatelseshouldweprioritise?

Toanswer thesequestionswefirstneedtoknowwhereweareandwherewewanttogo.

For example, measuring the number ofadultsthatuseaformalfinancialservicemayindicatethebreadthofthefinancialsector,but tells us little about how the financialsector is meeting the needs discussedabove. If we broaden this to also includethe depth4 of usage, or the number andtypesoffinancialservicetheseadultsuse,ittellsushowresponsive thefinancial sectoris to needs. By considering both breadthanddepth,wecanmoreaccuratelyidentifywherethedevelopmentfocusshouldbe.

Ifbreadthofusageislow,providersshouldfocus on improving the distributioninfrastructure in a country, specificallypayments to reach new consumers. Ifbreadth of usage is high, then providers

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should focus on targeting existing clientswith a more comprehensive and tailoredportfoliooffinancialservices.Wehavefoundthat this shift to depth typically happenswhenbreadthreaches50%inacountry.

Whilst this is a very crude indicator, italready sharpens our measurement toolsto allow a more targeted and sequencedpolicyresponsetohelpusgettowherewewanttogo.Further,focusingonneedsandunpacking people’s usage decisions canhelp to design discrete interventions forspecific segments of the population. Justunderstandingthatitisnotusefultopushfull

functionality bank accounts, or productivecredit, to parts of the population that areunlikelytoneed–andhenceuse-it,alreadytakesyoua longwaytoknowingwheretofocuspolicyattentionandresources.

Thinking about financial inclusion targetsand measurement in this light opens upnewpossibilities.Ourtasknowisposingandtestingconcretehypothesestounlockthesepossibilities, and to explore the potentialofdifferentdata sources, including supply-side and transaction data, to answer thesequestions.Findingnewmetricsforfinancialinclusionisanambitiousagenda–butone

which is within grasp if we work with therightpartners.

This blog has been cross posted in collaboration between insight2impact and Karandaaz Pakistan, and authored by Hennie Bester & Richard Chamboko.

Hennie Bester and Richard Chamboko lead the insight2impact (i2i) facility work on deepening measurement in financial inclusion.

1http://www.un.org/sustainabledevelopment/sustainable-development-goals/2http://www.economist.com/news/finance-and-economics/21707234-indian-banks-staff-found-dodgy-ways-meet-targets-set-higher-ups-accounts3http://www.i2ifacility.org/This_road_will_not_get_you_there.html4http://cenfri.org/making-access-possible/depth-sounding?highlight=YToxOntpOjA7czo1OiJkZXB0aCI7fQ==

Read more blogposts at www.karandaaz.com.pk/blog

About Karandaaz Pakistan Karandaaz Pakistan, a Section 42 company established in August 2014, promotes access to finance for small businesses through acommerciallydirectedinvestmentplatform,andfinancialinclusionforindividualsbyemployingtechnologyenableddigitalsolutions.TheCompanyhasfinancialandinstitutionalsupportfromleadinginternationaldevelopmentfinanceinstitutions;principallytheUnitedKingdomDepartmentforInternationalDevelopment(DFID)andtheBill&MelindaGatesFoundation.

Karandaaz Pakistan is sponsored and governed by eminent Pakistanis, and ismanaged by an experienced teamwith core expertise ininternationalinvestmentmanagementanddigitalfinance.

TheCompanyhasthreeworkstreams:

Corporate Investment and Credit (CIC)TheCIClineofbusinessprovideswholesalestructuredcreditandequity-linkeddirectgrowthcapitalinvestmentsforsmallandmid-sizeenterpriseswithcompellingprospectsforsustainablegrowthandemploymentgenerationinPakistan

1E, Mezzanine Floor, Ali Plaza,Nazimuddin Road, F-6/4, 44000, IslamabadTel:(051) 8449761Email: info@karandaaz.com.pk

Digital Financial Services (DFS)TheDFSlineofbusinessfocusesonexpandingthepoor’saccesstodigitalfinancialservicesinPakistanbyworkingacrosstheecosystemwithallstakeholdersincludingregulators,policy-makers,governmentdepartments,businessesandresearchersandacademicswithactivitiesarrangedinfourkeyworkareas–PolicyandRegulation,SeedingInnovation,ExperimentationandSolutionsDevelopment,andScaleandOutreach.

Knowledge Management and Communications (KMC)TheKMClineofbusinesssupportsthecompany’scorenancialinclusiongoalbydevelopinganddisseminatingevidencebasedinsightsandsolutionstoinfluencemarketandthefinancialinclusionecosystem.

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