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Karandaaz Joins Hands with Bank Alfalah and DigiServ to develop an Innovative Credit Scoring Model for SMEs

Karandaaz Joins Hands with Bank Alfalah and DigiServ to develop an Innovative Credit Scoring Model for SMEs
Karandaaz Joins Hands with Bank Alfalah and DigiServ to develop an Innovative Credit Scoring Model for SMEs

Karandaaz Pakistan, under its third round of Innovation Challenge Fund (ICF), has signed an agreement with a consortium of Bank Alfalah Limited and DigiServ, for developing an innovative, cash-flow based, credit scoring model for small and medium enterprises (SMEs). During this challenge, Karandaaz had invited ideas from entities interested in developing and testing innovative credit scoring models for SME lending in the country. Bank Alfalah is the fifth largest private bank in Pakistan with a network of 630+ branches. The Bank has been endeavouring to transform the landscape of banking in Pakistan by riding the waves of global digital trends. By introducing a wide array of technologically advanced features, the Bank is determined to provide its customers the new way forward. Bank Alfalah’s consortium partner, DigiServ, is a communication technology provider with a dynamic integration of people, skills, and services. Bank Alfalah and DigiServ will use this support from Karandaaz to design and test an innovative method of calculating credit scores for SME obligors looking to avail credit from the bank.

Currently, banks generally use collateral to cover their credit risk of lending to SMEs. Although SMEs accounts for 30 percent of GDP, generate 78 percent of non-agri employment, and contribute 25 percent of manufactured goods exports, their ability to access finance suffers due to onerous credit assessment requirements of banks.  As a result, SMEs continue to rely on their own resources or informal financial sources to meet their financing needs. The initiative emerging from the collaboration between Karandaaz in partnership with Bank Alfalah and DigiServ will disrupt the status quo for assessing credit needs and risks of SMEs and help lead the industry to break away from the conventional and un-scalable models.

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Ali Sarfraz, CEO Karandaaz Pakistan said, “We are confident that the funding from Karandaaz for this consortium of Bank Alfalah and DigiServ will help the bank pursue the agenda of disruption and innovation in financial sector and develop a model of innovative credit scoring that favours SME lending. Through this Challenge Fund, Karandaaz has motivated innovators to look beyond the obvious and come up with credit scoring ideas that suit small and medium sized entrepreneurs. Small and medium sized businesses must be provided an environment where access to finance through formal channels is easy for them so that they grow, create more jobs, and benefit the overall economy.”

Mehreen Ahmed, Group Head Bank Alfalah said, “Bank Alfalah Limited is a dominant player in the Commercial & SME financing space, providing innovative solutions & supporting particularly the small borrowers with non-financial advisory services to help them scale up. We are grateful to Karandaaz Pakistan and their main sponsor, UK’s Department for International Development (DFID), for driving the financial industry towards innovation and technology based innovative credit scoring models that will benefit the SME sector in the country. We are pleased to announce this initiative as we firmly believe that the way forward is strengthening our SMEs and be able to provide greater access of banking facilities to them. A credit assessment scorecard going beyond the conventional methods of credit risk assessment should be an important catalyst in expanding our outreach to this very important sector of the country. Ultimately the aim is to make the credit assessment process more efficient and customized on the back of digitization & analytics.”

Dr Asim I Khwaja, Professor at Harvard Kennedy School & Director of the Centre for International Development at Harvard said, “DigiServ is striving to unleash the entrepreneurial potential of small businesses in Pakistan by enabling financial access to them through alternative credit scoring techniques. This partnership with Karandaaz and Bank Alfalah will help us design, test and scale solutions that demonstrate the possibilities offered by data and technology for the financial sector and generate both economic and social impact.”

Karandaaz Pakistan is supporting small and medium entrepreneurs by increasing access to finance for unbanked populations by leveraging digital technologies, developing and disseminating evidence based insights, and encouraging innovation in financial space. Karandaaz has been funded by UK’s Department for International Development (DFID) and the Bill & Melinda Gates Foundation.