Tez Financial transforming data into credit insights

KARACHI: Seasoned banker Nadeem Hussain knows he might be putting Rs10 million at risk in a data mining exercise for his digital nano financial startup, but he is sure that the initiative will ultimately acclimatise his

artificial intelligence-powered machines

with underlying tendencies of people unserved by mainstream banking and insurance services.

“In order to develop the algorithm, we have to take risk,” said Hussain, co-founder of Tez Financial Services that eyes 20,000 nano-borrowers by this month-end.

One year old startup Tez Financial loans up to Rs10,000 for maximum one month in 10 minutes. It is for everybody who has smartphone, which is the only requirement to be eligible for the loan.

Customers just need to give consent of data being used – no bank statement, no guarantee, no salary statement and no collateral. Their mobile wallet accounts are instantly credited after they fill in a form on the app.

The loan depends on the evaluation of data in smartphone.

The system takes 12,000 data points from the aspiring borrower's phone.

The startup has already implemented first pilot and its data scientists extracted data of 5,000 consumers.

“We look at the common traits of people who defaulted versus the people who paid back. For example, people who default have lots of incoming calls. Their mindset is to give a call and hang up,” Tez chief executive said. “We are relying on the data. Our algorithm is already learning. We have implemented first pilot and second pilot is of 10,000 and then it will be commercially opened.”

Tez Financial emerged to cater the un-served poorest in the market with around six million active microfinance borrowers. People need short-term liquidity to pay hospital and electricity bills, and have emergency cash requirements.

Though they get productive loan from microfinance banks, the paperwork and time involved are painful.

“We want to cater to both the needs,” said Hussain, who also founded Tameer Microfinance Bank that is now Telenor Microfinance Bank.

Sixty to 70 million people in Pakistan constitute bottom-of-the-pyramid. They can’t borrow from the commercial banks that are not geared to give small-tier loans. And, their cost structure needs to be changed to be able to lend money to long-tail customers who have small money needs but are significant in volume.

In July, Telenor Microfinance also introduced a digital nano loan platform, known as Easypaisa Loan, to meet instant cash needs. But, the Tez Financial wants to create a menu of products for customers at the bottom-of-the-pyramid entirely through digital intervention.

“We will not have any physical branch. We will lend money, we will do saving, we will do insurance and investment,” said the official of the company that raised $1.1 million in seed money from Omidyar Network, DC-based Accion Venture Lab and Karachi-based Planet N. “We are raising another five million dollars in Series A from two existing and two new investors.”

Planet N that owns 60 percent stakes in Tez Financial, has participated in three joint ventures in Egypt, including a digital nano lending company.

The group owns 25 percent of these companies. It also owns a 25 percent shareholding in an upcoming digital lending facility in UAE to be launched for migrant workers by June next year.

Tez Financial, which is registered with the Securities and Exchange Commission of Pakistan as nonbanking financial institution, has partnered with at least two insurers to give life and health insurance products to its target market, using digital edge for claim management and giving insurance firms access to the unserved segment.

It also plans to move into outpatient insurance services.

The company also plans to institutionalise informal saving system, widely known as ‘committee’. It wants to promote saving in gold with savers able to buy gold of as low as Rs200.

“We have significant financial exclusion in Pakistan where the average man or woman is not able to get access to credit. They are at the mercy of money lenders or intermediaries,” Hussain said.

“Unless we have a national policy with public and private sector trying to address the issue, the bulk of the people will remain outside the financial net.”