Issuu

CONTENTS

10 Profit merchandise and memes this week in Pakistan’s business and economics twittervers 12 Shaukat Tarin and the FBR are shepherding Pakistan towards the digital payments promised land

16 PCB faces serious financial losses after cancelled tours 18 The not so humble stockbroker, and why you need them 20 TAG(ged) at a $100mn valuation on merit? Not really

26 National Foods’ excellent 2021 29 The conundrums of attempting social media regulation Hamza Nizam Kazi 32 Maqsad gets a headstart in edtech with $2.1 million pre seed funding

Profit

34 Pale, nervous SBP injects steroids into money markets to stop rupee fall*

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Shahab Omer Chief of Staff & Product Manager: Muhammad Faran Bukhari Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

Readers Say Next is Supernet IPO - Telecard. Apropos: Oversubscription at Octopus tells a tale of too much regulation @nomanaziz83, Twitter

Pakistan - DM us ( @rooshanaziz / @maqsadpk )! Apropos: Maqsad announces raising $2.1mn in preseed funding for its mobile-first learning platform @tahaahmed, Twitter

The IPO does not seem to be oversubscribed in 500 share lots. Therefore, not too underpriced. Apropos: Oversubscription at Octopus tells a tale of too much regulation @ayazdawood7, Twitter

Growing up with dyslexia meant I struggled at school and felt strongly about the Pakistani education ecosystem. That’s why last year when the pandemic hit and education for millions was impacted, @tahahmed_ and I got together to start @maqsadpk. We initially started with a small pilot to help kids with math but quickly realised the scale of the challenges faced by students. From then on, @maqsadpk ’s mission was to make high-quality education accessible to 100 million students in Pakistan. Today we are excited to announce that @maqsadpk has raised a $2.1 million pre-seed round led by @indusvalleycap with participation by @Alter_Global and @fatimagobivc. This fundraise would allow us to create high-quality academic content & build the tech needed to deliver this at scale. We're focused on a localised solution & hence starting off with a mobile-only platform. Visit our website ( http://maqsad.io ) & join the waitlist. Blown away by the talent we’ve seen so far, we are excited to build this in Pakistan’s thriving tech ecosystem. We have a number of open positions, join us to build the educational infrastructure of Pakistan! Apropos: Maqsad announces raising $2.1mn in pre-seed funding for its mobile-first learning platform @rooshanaziz, Twitter

Yes, good point. Stupid investment bankers sold it for nothing. I prefer direct listings like Robinhood and other major companies are doing. Apropos: Oversubscription at Octopus tells a tale of too much regulation @asad_murani, Twitter The ship was freed one week ago after tireless effort, and you are telling us about it now ‫ ۔‬shame on you. Apropos: The Karachi sea view ship saga Sara Sameer, Facebook Excellent presentation. Keep it up very nice. May you have more success in your future life. Apropos: The how, what, and whys of Initial Public Offerings (IPOs) Jamshed Zakaria, Facebook Why are you making this particular video in english? It makes absolutely no sense. It is not useful for many stock exchange investors. And I am sure investors who are fluent in English already know what it is. That too read off of a teleprompter. Apropos: The how, what, and whys of Initial Public Offerings (IPOs) M Nadeem, Facebook Nice job ..you guys are truly the best pop up which I've followed on FB. Way better than the Ostruce Ostrich Oil ad! Job well done to Profit! Apropos: The how, what, and whys of Initial Public Offerings (IPOs) Saad A Khan, Facebook

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com.pk

HOW TO CONTACT

At @maqsadpk , we believe that access to high quality education can have a profound impact on one’s life trajectory - our mission is to make it accessible to all Pakistani students. Thrilled to have @indusvalleycap , @Alter_Global and @fatimagobivc join us on this journey. Maqsad has raised $2.1m pre-seed to bring together a team of rockstars, develop academic content and build world class products. We are taking the first step towards building a platform that enables Pakistani students to achieve their maqsad. If you are someone who is passionate about building education infrastructure for

Congratulations @rooshanaziz for a fantastic journey ahead #ASERDisability surveys show challenges at 15 % +! Time to address them in this nation-wide mission mode! Just brilliant! @itacecorg @ASERPAKISTAN ! Apropos: Maqsad announces raising $2.1mn in pre-seed funding for its mobile-first learning platform @BaelaImtiaz, Twitter Congrats on the raise @rooshanaziz and team #maqsad. You guys are taking on a super complex problem, which if solved correctly can transform the way we could uplift human potential in Pakistan. All the best! Apropos: Maqsad announces raising $2.1mn in pre-seed funding for its mobile-first learning platform @JiqbalPK, Twitter Congratulations, wish you best of luck, education is the key to progress and development. Apropos: Maqsad announces raising $2.1mn in pre-seed funding for its mobile-first learning platform @AsianAquarias89, Twitter

COMMENTS

IN BRIEF $43 million:

Pakistan earned USD43.985m by providing different travel services in various countries during the first month of the current financial year 202122. This shows a growth of 75.59 per cent as compared to $25.050 million same services were provided during the corresponding period of the last fiscal year 2020-21.

“Despite many challenges, the game-changer China Pakistan Economic Corridor (CPEC) was progressing successfully as many projects under the corridor have been completed in accordance with their set deadlines. The CPEC cooperation successfully stood the test of time during the pandemic.” Asad Umar, planning minister

The Excise and Taxation Department has offered a 10 per cent rebate and 5pc discount on the token tax payment if a taxpayer pays tax through ePay Punjab. The citizens have been advised to hurry up as just seven days left to get this special offer and pay the token tax before Sept 30. South Korean tech giant Samsung Electronics is in the process of setting up a television lineup plant in Karachi, the Prime Minister’s aide on Commerce and Investment Abdul Razak Dawood said. Earlier in August, the Pakistan Telecommunication Authority (PTA) issued a local firm the license to manufacture Samsung smartphones locally. Pakistan’s economic growth rebounded to 3.9 per cent in the previous fiscal year (FY21), ended June 30, and is expected to reach 4.0pc in the current fiscal (FY22) as business activity gradually resumes in the second year of the Covid-19 pandemic, the Asian Development Bank (ADB) said in a report.

The National Assembly Standing Committee on Finance and Revenue on Wednesday unanimously approved the Securities & Exchange Commission of Pakistan (Amendment) Bill, 2020. The 63rd meeting of the National Assembly Standing Committee on Finance and Revenue was held under the chairmanship of Faiz Ullah. Unlike the Ministry of Industries’ intention and proposals made regarding the introduction of a new car financing scheme, the government has postponed the plan keeping in view the rising demand in the auto sector.

Profit merchandise and memes

this week in Pakistan’s business and economics twitterverse

e at Profit this week are trying to figure out if “the stock market is not an indicator of the economy” merchandise would be something our readers would line up to buy like they do copies of our magazine. There are, of course, other things going on too. Bad math from Farrukh Saleem, stockbrokers and memes feature this week. Ariba Shahid brings you all this and more in this week’s social media roundup

Another financial scandal - kind of

Read the fine print

Valuations and valuation caps are two different things. A recent example is what happened at TAG as well. But hey, we dont want to sound pessimistic here. Regardless if you want to learn about the startup world, you should defo follow Mubariz Leave it to Pakistanis to scandalize an “injection” even when the reserves don’t really show you an injection. Also why is everything the SBP does made into something political?

A man of mystery

Memes export

A man of mystery with a locked account and no tweets. Sometimes we wonder what he has to say. Oh well, maybe we’ll never know. Oh to be a fly on that twitter wall ...

Quite obvious

If Pakistanis could export memes we’d probably have all our economic woes sorted out. Also we didn’t think our managing editor was a memer like us. For all that Tirmizi sb has taught us, we would like to think that an enrichment in meme knowledge has been our way of saying thank you.

Told you so

Why do you need so many labs in the same commercial vicinity? Well, do we really need to spell it out? Just by the way, sheep blood isn’t expensive either

We’ve said it before and we’re saying it again. The Roshan Digital Apni Car scheme was a bad idea. This is our “we told you so” moment because we did tell you so. Pumping up demand for cars is not a great idea to begin with because it pushes consumption led growth. Also subsidizing cars for expats makes little to no sense either. Finally some signs of sense kicking back in

SOCIAL MEDIA ROUNDUP

By Taimoor Hassan

akistan has become the land of financial technology startups. For the longest time, we here at Profit have been explaining ad nauseum how Pakistan is ripe for the fintech revolution. How we have a largely unbanked population, a growing number of software side workers, entrepreneurs with bright ideas, and most importantly consistently growing internet coverage with cheap 3G and 4G available in

different corners. With all of these factors, it was only a matter of time before the people of a country tired of bureaucratic red-taping and slow inefficient paperwork would shun the same and turn towards the accessibility, utility and convenience that comes with money going online. And it has happened. Fintech startups in Pakistan are popping up everywhere. There are microfinance banks, agro finance applications, and multiple super apps. All of them have gotten competition and there is a vibrant and very competitive field of

capable people running the show. It seems to be working. Pakistan has become a go to area for investors and eyeballs are on how this revolution pans out. You could still say that these investors might be betting on the wrong horse, but at least they are not just willing to but actively wanting to bet on us. But there is only so far that the fintechs can get us. There has been a growing demand of the fintech companies that if digital payments are to be pushed, there’s only so much that fintech companies and banks can do. This revolution actively needs the

In the past 50-60 years, the tax collection has had indirect taxation which has resulted in indirect taxation for the salaried class. So if businesses are asked to pay the right amount of taxes, taxes for the economy overall will be rationalised and that would be achieved simultaneously with IT companies getting more business opportunities Karim Jindani, CEO of Paysys Labs

participation and backing of the government and financial institutions to succeed. They have been interested in it for a while, but haven’t quite been enthusiastically participating. Now that might be changing, and the saviours of the revolution could be Shaukat Tarin and the Federal Board of Revenue (FBR). In a recent measure, which our sources say has been pushed by Finance Minister Shaukat Tarin and the team at FBR, the payments push has come which is likely going to give a big impetus to digital payments, and consequently help FBR prop up revenues. The fintech companies have been longing to see some reforms that push the demand up so that these companies can push the supply up. For some context about the problems, consider the case of POS acquiring (acquiring is the business under which a fintech company or a bank imports the point of sale machines and deploys them at a merchant which accepts the payments through debit or credit cards).

How we got here

itibank has had an interesting history in Pakistan. The bank is by no means even close to being the largest bank in Pakistan, or for that matter even the largest foreign bank in the country. What it has had is a history of innovation, and producing the financial leaders of Pakistan. Multiple finance ministers and one prime minister have all at some point been Citibankers. In fact, even the incumbent finance minister, Shaukat Tarin, began his career in finance at Citibank in 1975. It is with Citibank that this story begins in some ways. In both Corporate Pakistan – as well as the government – it means something special to be able to call oneself an “ex-Citibanker”, more so than any other financial institution. A majority of innovation in Pakistani banking has come from Citi. In the early 1990s, it was a team of Citibank executives that decided to re-invent the very notion of consumer banking in Pakistan, introducing products like credit cards, auto

loans, and significantly expanding the scope of the country’s mortgage market. At the time, the bank was led by Shaukat Tarin. Ever since Citibank entered the market with its debit and credit cards, POS acquisition has predominantly remained the headache of a few players. They would be hurting their own P&Ls to get these machines installed at the merchants. Bank Alfalah for instance, in its early days in the POS acquiring business, waived off the price of these machines to merchants just so that the uptake of these machines could be improved. These machines are costly, running in hundreds of dollars to be paid for a single machine, and when these machines are deployed, transactions on these machines would be small because such transactions were not incentivised against cash transactions. There is only so much that the individual banks or fintechs, pushing these POS machines in the market, could do on their own. A merchant keeping the POS machine at his shop has to pay an MDR, a fixed percentage charged on the transaction amount, which is a cost for the merchant. While on the other hand, cash transactions do not cost anything extra upfront. Though cash transactions have hidden costs for the overall economy, upfront, the merchant is not paying anything extra at that very moment for that transaction. So in very simple words, if you are a merchant who has kept a POS machine at his retail outlet, does not see the benefit for him to push the uptake of digital payments, if he is not able to collect such payments at such volumes that it makes sense for him to keep those POS machines. So if you go to Servaid today to buy medicine, you can pay a Rs5,000 bill using your debit card - you are most likely not going to keep Rs5,000 in cash with you all the time. A Servaid pharmacy manager told Profit that around 40% of their transactions are through debit or credit cards and because that is a significant volume of transactions, it makes sense for them to pay an MDR for POS service - the money goes directly to the bank

account of the merchant and the security of money automatically increases. In contrast, a small shop which has mostly small bills to collect, prefers cash and has a small turnover. His sales are already small and he is not likely to be willing to pay and MDR for debit or credit card transactions. Such merchants have all the incentive not to accept digital payments, because obviously, they are not paying anything extra, which would have been the case if they accepted digital payments. Cash transactions also help suppress sales volume and help evade taxes. Which is why cash is a bane for the FBR that it has long been trying to fight, and, consequently, had all the reasons to push digital payments. That is what is also behind policies such as there being less tax if you pay through a card, or discounts and rebates on taxes if you pay online. The earlier business model had more costs than incentives for POS acquirers, and it did not make sense for banks or fintech companies to deploy more POS machines in the market when they knew that the uptake would not be there. To keep it brief, POS acquirers used to get a small cut from the MDR charged to merchants which disincentivized the business from an acquirer’s perspective because the cost of deploying these machines was high and the requisite transaction volume was not there for these players to make money. The State Bank of Pakistan realised the problems and incentivised the acquiring business by rationalising the MDR. In February last year, the central bank made the POS acquiring business a lucrative undertaking for players that are in this space by rationalising the cut for acquirers from the MDR. There are at present five major POS acquirers which include HBL, Bank Alfalah, MCB Bank, United Bank and a fintech company called Keenu. While the MDR was nationalised in which the acquirers did not get a bigger cut, the end consumer was not incentivised to make digital payments. So

FINANCIAL TECHNOLOGY

Right now we have around 1,400 retailers which are integrated. The impact would be substantial when this number goes to 50,000 retailers which are integrated Sajidullah Siddiqui, director general of retail at the FBR

even if POS acquirers pushed more machines into the market, it would be of no use if end users like you or me do not make payments through debit or credit cards on these machines. While POS acquiring is one example which highlights problems that affect one particular type of business, it underscores the one problem in the entire economy which keeps digital payments from picking up; that if the government does not incentivise digital payments, cash will always remain incentivised and everyone, including the government, businesses that transact in cash, businesses that help digitisation of payments, consumers and the economy overall, loses.

What has the government done?

o what has the government done? In the recently announced budget this year, the government, spearheaded by Finance Minister Shaukat Tarin, decided to integrate Tier-1 retailers with the FBR’s systems whereby the FBR would have live access to transactions carried out at that retailer. This was coupled with exemption of duties on the import of POS machines. While the digitisation was helped, as the FBR told us, a recently passed ordinance, gives further impetus to digital transactions, which will not only help FBR with its tax collection, it incentivises fintech businesses, and opens further opportunities for IT companies to come in and provide services, thereby creating new businesses altogether. It is perhaps because of Shaukat Tarin’s experience as a banker that he realises how important digital payments are and the good they can bring to the economy. As I have learned, Train has been instrumental in getting some measures passed which will push digital payments. The push could have come earlier after all these measures, which are discussed below, require political ownership. But past finance ministers including names such as Hafeez Sheikh, Asad Umar or ministers in previous governments could not push these measures. While Tarin was able to do it in only a few months after being appointed as the finance minister. Shaukat Tarin was

appointed as the finance minister in April this year, and four months later, the government introduced Tax Laws (Third Amendment) Ordinance 2021, passed a little over a week ago, in what is being called a substantial push likely to change the entire digital payments landscape. Here’s a list of measures passed: i) Companies are now allowed to make payment for their expenses of Rs 250,000 or above (under a single account head) only through digital means. Predictably, the problem with the Federal Board of Revenue (FBR) has been that if businesses are dealing in cash, the Board would not be able to assess their sales. And if their sales are not assessed, how would their income tax be? Essentially, the government has disallowed paper-based cheques, which would be non-admissible for tax purposes. As FBR explained to us, paper-based cheques would be paid in other peoples’ names which would hide the transaction. Now, digital is the only way acceptable. Since businesses run in tens of thousands in numbers, banks can not reach every single one of them, let alone with speed. The fintech companies have opportunities to move in and reach where banks would not be willing to go to and digitise payments for businesses. However, the FBR and the State Bank would have to ensure that service quality for the end consumers with regards to such digital payments would have to be good. If these businesses are pushed to digital payments and the service quality is not good, it would deter them from digital transactions. Simultaneously, the regulators would have to review the digital payments limits allowed to banks and fintech companies which would have to be revised. ii) For businesses making payments through digital means, the sales tax has been reduced to 16.9% from 17% It may not really look like a big percentage at first but if you do some calculations, things will add up. Businesses transact in billions so even a percentage as small as 0.1% would yield numbers in millions, which can substantially add on to a business’ bottomline.

Banks actually charge 0.1% on transactions for businesses made through digital means. This measure has been introduced, as the FBR told us, to compensate for the charge paid to banks for these transactions. To be clear, this incentive is for the businesses collecting sales tax and not the ones that are paying. iii) To enforce the digitisation of payments, the FBR will resort to punitive measures which will make compliance more likely. FBR Director General of Retail Sajidullah Siddiqui, who has also been instrumental in getting these measures through and is at the helm of the digitisation drive at FBR, told Profit that the FBR is liaising with electricity distribution companies (DISCOs) and other utility companies to get access to companies not enforcing digitisation measures. The FBR will actively discontinue utility connections of delinquent businesses not registering or integrating their systems with FBR for sales tax purposes, besides enhancing penalties for such persons. Initially, those resisting will be served notices, and their failure to integrate with FBR even after these notices will result in FBR resorting to punitive measures for compliance. iv) For all payments made by customers at retailers through digital means, the sales tax has been reduced from 17% to 16%. So if you purchase anything using your debit or credit card or even through a QR code, the sales tax retailer will charge you on this transaction would be 16% instead of 17%. Individual consumers would be paying 1% less in sales tax while the retailer where you are making the transaction, would be saving 1% because he pays 17% sales tax when he makes the purchase of the same product from a distributor, while he is only liable to collect 16% now. v) FBR has been authorised to extend the integration with FBR to all retailers. So if you are a karyana store, the FBR can ask you to create digital invoices on your cash register and integrate your digital system with FBR.

The karyana store transactions would populate live in the FBR’s system, helping the FBR keep record of your transactions. Earlier, FBR only mandated tier-1 retailers to integrate with FBR. Now the problem was that the retailer also bought products from unregistered sellers, which suppresses actual sales. Now the FBR after the recent law will not only integrate tier-1 retailers but also any other retailer it deems necessary for invoicing. vi) For retailers to go digital, the expenditure incurred on obtaining hardware and software, if it goes above Rs150,000, the retailers would be able to claim tax credit when they file their returns. And there is also sales tax exemption on import of debit/credit card terminals and cash registers. The government realises that asking businesses to go digital is going to come at a cost, which would be a burden for small businesses such as karyana stores. In that respect, tax credit has been allowed. Moreover, big corporations, because they are not digital ready yet, have been allowed to ramp up their digital readiness by the month of November, instead of asking them to do it instantly. vii) Currently, any salary payment exceeding Rs25,000 per month is required to be made through a crossed cheque or direct transfer of funds to the employee’s bank account so as to qualify as admissible business expenditure. Henceforth, all salary payments through digital modes will qualify as admissible expense. Salary disbursements are allowed through funds transfers into your bank accounts. The scope has been widened to include all modes of digital payments rather than direct bank transfers only.

The promised land

hat does all of this mean? For starters, all acquiring business is going to pick up. The definition of digital payments is not just restricted to debit or credit cards. It goes on to include QR codes. It’s just that debit and credit card transactions are most in numbers after cash transactions. To digitise the retailer, the FBR connected with cash registers of retailers through APIs. As FBR told us that around 1,400 retailers have been activated through this measure and they have 25 billion transactions recorded. These transactions are auto populated and the FBR takes it up as soon as the revenue is recognised. “Right now we have around 1,400 retailers which are integrated. The impact would be substantial when this number goes to 50,000 retailers which are integrated,” says Sajidullah Siddiqui, director general of retail

The FBR and the State Bank would have to ensure that service quality for the end consumers with regards to such digital payments would have to be good. If these businesses are pushed to digital payments and the service quality is not good, it would deter them from digital transactions. Simultaneously, the regulators would have to review the digital payments limits allowed to banks and fintech companies which would have to be revised at the Federal Board of Revenue. The FBR has further mandated that tier-1 retailers would have to accept digital payments without exception, and they will also have to keep banking POS which accepts debit or credit card payments. Since all retailers are going to have to keep the POS terminals, POS acquiring is going to see a boom. In fact, all acquiring is going to see a boom. POS machines for debit and credit cards are all imported and the decision to import is based on the demand that vendors that import these machines foresee. Already, duties have been exempted and the demand side push in terms of less sales tax on digital payments is going to help see more machines in the market. Already there are 5 major acquirers and four more are entering the market to provide POS machines for debit and credit card transactions. Akhtar Fuou Technologies is one such fintech company and reportedly, Bank of Punjab and Meezan Bank are also entering the POS acquiring business to digitise retail. “These measures are substantial which will help move Pakistan from a cash-dominated economy to a modern one, which will help disburse credit to the lowest strata of society, help businesses, job opportunities will be created and SMEs would flourish,” says Saad Niazi, chief operating officer at Keenu, the only fintech company in the POS acquiring business. Simultaneously, demand for more debit and credit cards in the market would push issuing for payment schemes such as Visa or Mastercard through respective issuing banks which have subscribed to these payment schemes. The users of debit cards have less sales tax to pay (16% instead of 17%) if they pay using digital methods instead of cash. Is the 1% difference going to help? Well Mexico introduced a 2% reduction in sales tax on digital payments and witnessed digital transactions volumes going up. The enforcement measures in terms of disconnecting utilities for delinquent business helps IT companies such as fintech companies, which

see this measure as a boost on the demand side which will help the supply side, the companies that provide softwares and hardwares for such integration, to provide these services to businesses. Paysys Labs CEO and founding member of Pakistan Fintech Association (PFA) Karim Jindani tells Profit that the FBR has created a platform for IT companies to come in and provide such integration services. According to Karim, the era of the salaried classes having to pull everyone’s weight through indirect taxation might be ending soon. “In the past 50-60 years, the tax collection has had indirect taxation which has resulted in indirect taxation for the salaried class. So if businesses are asked to pay the right amount of taxes, taxes for the economy overall will be rationalised and that would be achieved simultaneously with IT companies getting more business opportunities.” As the volume of digital payments increases, there will be data points to collect and help assess the creditworthiness of small businesses. Right now, small businesses do not have access to credit because they deal in cash which is not documented, and the lack of financial history means their creditworthiness can not be determined. Fintech companies in particular can move in and provide lending services to small retailers. So as digital transactions start getting recorded, more fintech companies would be able to provide microloans, sometimes in partnerships with banks like in the case of Finja, to small businesses based on the credit assessment achieved through the digital transactions data. Other avenues will open up for IT companies to start completely new tech services. For instance, SupTech (supervisory technology) will come into play which would use innovative technologies for supervisory support. Concomitantly, InsurTech (insurance technology) will help build technological insurance models, and WealthTech (wealth management technology) will further help build the digital financial ecosystem. n

FINANCIAL TECHNOLOGY

PCB

faces serious financial losses after cancelled tours Years in the making, the PCB had done everything to prepare until the unthinkable happened

he Pakistan Cricket Board will suffer financial losses in millions as a result of New Zealand abruptly calling off their tour just before the first of three One-day Internationals was to begin in Rawalpindi due to a security threat last week. Much has been said about the decision to cancel by the New Zealand cricket board. The decision, in which Pakistan was not kept in the loop at all, has had fans jilted and the cricketing world raising eyebrows at the way New Zealand left. What has been even more of a shock has been the withdrawal of the England Cricket Board from a tour of Pakistan

set for next month. The ECB did not even offer a reasonable explanation, and their cancellation has been labelled by former England Captain Mike Atherton as “disrespectful” and by ESPN Cricinfo’s editor Osman Sammiuddin as a “slap in the face” of Pakistan cricket. While the politics of world cricket are not for us to debate, what is clear is that Pakistan cricket will face serious damages from this financially. Already the New Zealand board has said that they will be ready to consider entering compensation negotiations with the PCB. The loss is substantial. In an interview with Dawn, a PCB official said that apart from the blow to the efforts the PCB, the gov-

ernment and the security agencies who had been making to fully restore international cricket in Pakistan, this will also have financial repercussions. According to sources with the PCB that have spoken to Profit, while a valuation has not been made a rough estimate could be somewhere around the $1.5 million mark in terms of losses. How is so much money being lost? Because the PCB’s stated aim and mission is to make money and be profitable so that it can in turn spend on the development of cricket in the country. This tour was an investment, where the PCB had spent money not just on training and hotels, but also hiring production teams for the PTV, signing a broadcast

“Within the next few years, we want to be in a position where we are producing ourselves and do not need third parties. Our capabilities have been lacking, so we are training the PCB staff so that we can rid ourselves of third parties” Wasim Khan, CEO of PCB

deal with the national broadcaster, renovating stadiums, arranging for securities and other expenses. The economics of cricket are fascinating and complex. But this is how they work roughly. There are two main sources of income for a cricket board. The first is the International Cricket Council (ICC). The ICC hosts international tournaments like the Cricket World Cup and the T20 World Cup or the Champions Trophy, which attract cricket fans from around the world. From these tournaments, through gate receipts, broadcasting rights, and sponsorship deals, the ICC makes billions. In the projections for ICC’s 2015-23 cycle, the council is supposed to make up to $3 billion, which is then distributed through the different cricket boards. Larger boards that bring in larger television audiences like India and Australia get larger shares. Currently, the ICC is giving around $16.5 million to Pakistan annually until 2023. For this money, the PCB is completely dependent on the ICC. The main and most traditional way for a board to make its own money is by hosting bilateral series. For example, the Pakistan Cricket Team toured New Zealand last year, where they played a full tour. Now, since the tour is being hosted by New Zealand, Pakistan makes no money from the broadcasting rights, and all of that goes to the host country. In a pre-Covid world, gate receipts would also be a moneymaker for the board hosting. Pakistan will make money from broadcasting rights when it hosts tournaments, like the recent series with Zimbabwe or the PSL’s latest edition. “In essence, what

has happened with the PCB is that it has normally relied on two sources of income – broadcasting deals, and ICC handouts,” the PCB CEO, Wasim Khan explained in an earlier interview with Profit. “Each board receives 20-30% of annual revenue through the handout.” Now, while New Zealand had made money when Pakistan toured them, they were now going to tour Pakistan, it was their turn to visit Pakistan so that the PCB could benefit from the media rights and get broadcasting revenues. The return of teams like New Zealand and England was a big deal because they draw larger crowds and television audiences compared to teams like Zimbabwe or Sri Lanka. Instead of returning the favour, both New Zealand and England have left Pakistan hanging high and dry for no particularly good reason. The ICC handouts are vital for any cricket board, but they mean that the boards are tethered to the ICC. To have some semblance of independence, it is important for boards to up their broadcasting game. Pakistan cricket has been lagging behind in this department. Broadcasting quality and techniques have not been up to the mark since the turn of the century. No deals had been signed with international broadcasters to take Pakistan’s home matches to a larger audience and attract more money, and the deals signed with broadcasters at home were less than ideal. This is one particular area where the PCB has made strides in becoming self-sustainable. They have made overtures to improve broadcasting, have developed a robust and creative media team and are in

The return of teams like New Zealand and England was a big deal because they draw larger crowds and television audiences compared to teams like Zimbabwe or Sri Lanka. Instead of returning the favour, both New Zealand and England have left Pakistan hanging high and dry for no particularly good reason

constant talks to further sign broadcasting deals. This was one department where the PCB made improvements not just for the short term, but because they had commitments from teams like England and New Zealand to tour Pakistan. With better broadcasting, the PCB could even share their broadcasting with foreign channels.“We have recently signed a $200 million deal with the PTV. Currently, we are producing content through third parties and providing our content to PTV for broadcasting, but this is only in the short-term, we are in this for the long-haul,” says Wasim Khan. This ambition was also being ramped up. In the earlier interview, the key for Wasim Khan had been sustainability. “Within the next few years, we want to be in a position where we are producing ourselves and do not need third parties. Our capabilities have been lacking, so we are training the PCB staff so that we can rid ourselves of third parties,” he said. “We need to contain a sustainable system that requires training. We want the money to stay within Pakistan.” Other than PTV, the PCB has also signed a deal with Super Sport – a South African broadcaster that has agreed to show Pakistan’s matches on its networks. According to Wasim Khan, the board is on the verge of making similar deals with other international broadcasters as well, including Sky Sports in England as well as the California based Fox Sports. But these are the traditional sources of income for the PCB. As long as the board is dependent on ICC handouts, the PCB will never be an independent board and always a wrong move away from falling in disfavour and not getting as much money. Particularly, with the Board of Control for Cricket in India (BCCI), not only dominating the ICC, but allying with the Australian and English cricket boards to create a triopoly in cricket has resulted in a greater than ever need to diversify sources of income and become independent from the ICC.

SPORTS

The not so humble stockbroker, and why you need them

The PSX might not exactly be Wall Street, but the stockbroker is still an important character

By Ariba Shahid

n 2006, Will Smith starred in The Pursuit of Happyness, a raw, tear-jerker, movie that earned him acting nominations for both the Oscars and the Golden Globes. The movie, based on a true story, follows the life of Chris Gardner, a salesman and single father. While Gardner manages to provide for his family on his sales job, at one point he decides to take an unpaid

internship as a stockbroker in a large firm. Taking the internship leads him to become homeless, but he persists in the cut-throat world of the stock market before finally making a cut and landing a job at the firm - where he then literally goes from rags to riches. This is one portrayal of the stockbroker. As a humble, head down, honest worker that believes in the American dream and works hard to come out of their life’s circumstances. The other significant representation of the stockbroker in pop culture was the 2013

movie The Wolf of Wall Street. Far from the emotional roller-coaster that was The Pursuit of Happyness, this movie saw Leonardo DiCaprio star as a cocaine fuelled, high-stakes Wall Street stockbroker that has perfected the art of the hard sale, engages in pump-anddump schemes regularly with glee, and ends up being put in the slammer by the FBI and the SEC. Both of these representations are vastly different, but they do tell us one thing - the stockbroker is a bonafide character of the

capitalist story. Much like the 9-5 banker heading to work in the morning in a hat and a long-coat, briefcase hanging at his side, or the door-to-door salesman, or the entrepreneur (or startup founder these days), the stockbroker is a symbol. They are a symbol not just of the accumulation of wealth, the fragility of the system, and the capitalist lifestyle - they are also elusive figures that can make big money through their profession both for themselves and for their clients. What is a stockbroker? They are financial professionals who execute orders in the market on behalf of clients. Most stockbrokers work for a brokerage firm and handle transactions for a number of individual and institutional customers. Stockbrokers are often paid on a commission basis although compensation methods vary by employer. Brokerage firms and broker-dealer companies are also sometimes referred to generically as stockbrokers. The function of the stockbroker is two-fold. The first thing they do is that they actually do the technical work of executing trades that their clients want them to make. That means they are making entries, coordinating trades, and pushing buttons on a computer. The second function is more abstract and also more dicey. Advice. Brokers can give you advice on what stocks you should invest in and which ones you should avoid. The first function anyone can learn and do, the second is an analytical gift and brokers can be highly sought after because of their skill and ability to make the right calls for their clients. This is often how they end up making a lot of money. Now, the PSX is not exactly the New York Stock Exchange. There is a vast difference between the worlds of 11 Wall Street New York and Stock Exchange Building, Stock Exchange Road, Karachi. However, one of the telling sights of the PSX is still that brokers are everywhere and you need them to maneuver your way around the floor. Even if you are savvy and don’t need anyone giving you advice, you will still need them to execute trades for you. This is the role and nature of the stockbroker in Pakistan’s stock market.

How it works in Pakistan

f you want to buy or sell shares, as a retail investor you should know that most of it is done through exchanges like the Pakistan Stock Exchange. An exchange is essentially a marketplace for shares where buyers and sellers meet and decide on a trading price. If you’ve seen movies about stock market trading you’ve probably seen scenes where there are traders yelling across a physical trading floor. As charming as the idea of spittle landing in your eyes as your eardrums face a cacophony

Both of these representations are vastly different, but they do tell us one thing - the stockbroker is a bonafide character of the capitalist story. Much like the 9-5 banker heading to work in the morning in a hat and a long-coat, briefcase hanging at his side, or the door-to-door salesman, or the entrepreneur (or startup founder these days) of large, angry, frustrated men shouting is, in this day and age most trades are carried out virtually through a network of computers. Once shares are issued in a primary market through an IPO (we’ve explained those already), they can then be listed on the stock market which is a secondary market. A secondary market is essentially one where investors trade second hand or already issued securities. You no longer deal with the issuing company here. Companies only really offer shares in their stock through IPOs. When this happens, the general public can go crazy and make bids for the shares. However, once those shares have been sold they are the property of the person that has bought them. To sell those shares, or trade them, the owner of the share goes to the PSX which is where other buyers find them and deals can be made. It is, essentially, a marketplaces where buyers and sellers come to trade - the modern day equivalent of a grand bazaar. However there is a problem. Say you have a share that you want to sell or are going to the PSX to look for companies to invest in. Once you get there, you don’t simply walk up to a stall, or a booth and ask the price. The exchange is simply a place where buyers and sellers meet, and since shares are not tangible objects that can be handed around. Because of this, you need a middleman to actually carry out the deal and execute it - pushing buttons essentially. These middlemen are called stock brokers. A stock broker is an agent or firm that charges a fee or commission for carrying through buy and sell orders for investors. A brokerage firm acts as a middleman connecting buyers and sellers in order to facilitate transactions. There are essentially two types of brokers. Institutional brokers have large companies as their clients and trade on their behalf. They usually have investment banking divisions and help with IPOs as well. These brokers also had advisory and brokerage facilities. Personal stock brokers offer investment banking, advisory and brokerage to small businesses and individual investors. When we say advisory we mean research and assessment of the index, companies and sectors. Essentially you have large firms with sharp, top of their

batch brokers that also serve as advisors and execute complicated transactions that might not be easily done or understood by the average broker. These are major trades and buyouts with multiple beneficiaries.

Do I need a broker?

es. People like you and me can’t just walk into a stock exchange to trade shares the same way we can’t walk into the SBP to get a loan. In order to carry out a trade you need someone that is a member of the stock exchange, namely a broker. Brokers buy and sell shares for themselves to make money and also on behalf of their clients. Every broker needs to be registered with the SECP and follow the required regulations. So let’s say you have a share in company X. It isn’t a liquid share with little free float and little demand. When your broker puts up a sell order on your behalf, it is visible by all the brokers on their computer screens. If someone wants to buy the given quantity at your price, then the transaction is carried out. Each time you buy or sell shares a broker will charge a flat rate or % commission. Stock broker costs depend on the extent of services you avail from them. An alternative to this is to get yourself registered as a broker but that requires fulfilling the SECP requirements. So how do you get a broker exactly? You can’t just walk up to them and hope they’ll tell you what to do. First things first is to round up your documents. You’re going to need a copy of your CNIC, current salary slip, a copy of a utility bill, your bank statement, a CNIC for a close relative, and a cheque with the money you’re going to invest. Nowadays most brokers are allowing online account opening. The extent however, is limited and the process is not so great. However, before you open up an account, define your objectives. What type of trading do you plan on undertaking and how you want to carry out investments. Shortlist brokers and services. Sometimes brokers provide advisory if you have a bigger account. Choose a broker that fits your needs. Open an account with a brokerage firm and also a CDC sub account and a CDC investor account. Deposit the money and then begin your investment journey. n

EXPLAIN-IT-LIKE-I’M-FIVE

By Taimoor Hassan

akistan’s fintech startup TAG has claimed to have raised $12 million in a seed round at a valuation of $100 million, international news media outlets announced recently. This is not some strange news for people following business and the startup space in Pakistan. These companies often get astronomical valuations in massive rounds raised. What is also not new news is that these valuations are often not very realistic, and even when they are, they are never exactly what they seem. The case of TAG is somewhere in the middle. Armed with a young and hungry founder who carries the reputation of being cutthroat when it comes to business and someone who knows how to get things done in Pakistan, TAG is a fintech startup gunning to become the first digital bank of Pakistan. For now, the startup is in the process of launching a mobile wallet through which users will be able to transfer funds, pay bills, receive payments, withdraw funds through ATMs and conduct POS transactions through debit cards. The startup also claims to have arrangements with corporations that will disburse salaries digitally into their employees’ TAG wallets. Just three months after its launch in 2020, TAG secured an in-principle approval for the Electronic Money Institution (EMI) license to operate as a digital wallet from the State Bank of Pakistan (SBP) in November last year and was granted the approval for pilot this year in August. Similar to TAG are fintechs NayaPay and SadaPay, also mobile wallets, and therefore competitors to TAG, also plan to provide funds transfers, bill payments and card transactions. The unique proposition of all these wallets is that compared to banks, these wallets will have an enhanced digital experience for customers with considerably less fees. While SadaPay is also in the pilot phase, NayaPay has received a license for its commercial launch this month. Another fintech company, Finja, has also received the approval for commercial launch, making it one of the only two fintech startups which have the regulator’s approval for commercial launch. Finja is more focused on providing payroll management and credit services for professionals and MSMEs. While various media outlets have announced and the founders and investors have endorsed that TAG is valued at $100 million, the company’s valuation really is still undecided. TAG’s recent seed funding round was led by NewYork-based Liberty City Ventures, while Canaan Partners, Addition, Mantis and Banana Capital also participated in the round. Previous investors in the pre-seed round were Quiet Capital and Fatima Gobi Ventures. As quoted in a media report, Polymath Dig-

ital doubled down in this round while Khwarizmi Ventures and the co-founder of Plaid William Hockey also participated.

The valuation confusion

ccording to investor communication published on AngelList, a revered online platform which connects investors with startups, the startup TAG had raised $10 million on SAFEs (simple agreement for future equity) at a valuation cap of $100 million, and was raising more at the same cap, but is construing the same as actual valuation. Before we move on to explain details about TAG’s seed round, we’ll try to explain what a valuation is and how it is not the same as a valuation cap. Valuation is simply the actual worth of the business quantified, which is why some startups not only in Pakistan but across the world have exhibited tendencies to exaggerate their valuations, that is the actual worth of their business. Because these startups, mostly early stage, do not have a certain net income, of course then, exaggerating the worth helps them appear stronger, gain traction, attract talent, evoke investor and media interest (not necessarily positive), secure partnerships and scare off competition. Startups which have not launched their products yet in the market have a lot to gain from such announcements, and that seems to be the case with TAG, which like SadaPay and NayaPay has yet to launch its wallet. Here’s where the problem is: the announcement means that the actual worth (valuation) of the company is $100 million, but in reality, for the seed round, TAG had raised $10 million on SAFEs at valuation caps of $60, $75, and $100 million. Startup founders can raise new funds as equity or non-equity. In the rounds which are equity-raised, investors get shareholding based on the actual value of the company. So if a company was valued at $10 million and an investor invested $1 million, the investor owns 10% of the company. Equity rounds in which shares are traded at actual value are also called priced rounds. In contrast, a non-equity funding round does not give an investor any shareholding in the company. Non-equity based rounds are raised by early stage startups which do not have sufficient internal cash, but need it to grow the business. It is also difficult to value a startup in its early stages because the startup has not grown enough to be valued accurately. So startup founders raise such non-equity based rounds at early stages which helps them raise funding all the while keeping them from losing any shareholding at that point. Moreover, investors participating in non-equity based rounds, because of not not getting any shareholding yet, do not get much governance rights. Non-equity rounds can be raised as con-

FINANCIAL TECHNOLOGY

Most of the banks do not offer mobile banking. The ones that do have poor products, limited applicability, complex designs, and unreliable operations. These Banks still employ outdated systems and have failed to evolve. They have not graduated into the 21st century tech-wise. Therefore, incumbents are in a vulnerable position to lose to an innovative, challenger bank Talib Rizvi, executive director, TAG

vertible notes or SAFEs (simple agreement for future equity). Both convertible notes and SAFEs guarantee funding but are converted into equity during a later stage (priced round) when the startup has grown, institutional investors come in, do more detailed due diligence and there are data points available to value the company and give investors shareholding based on actual valuation. Early stage investors, because they are taking a risk with their investment especially when the company can not be valued, want to be rewarded for their investments. So non-equity based financing rounds come with investors or founders setting a valuation cap which provides an incentive to the investor that if the company is valued above the cap, his shares would fetch a better price than the later investor in the priced round. For example, if an investor puts $500,000 in a startup as SAFEs and sets a valuation cap of $5 million, if the startup is valued at $10 million in the priced round, his shares would convert as if the valuation was $5 million (the cap) and not $10 million, giving him a lower price per share as incentive. If there was no valuation cap and the priced round valued the startup at $10 million, both the early investor and the new investors in the priced rounds are buying shares at the same price, while the risk for the early investor was higher because he invested early. A valuation cap, therefore, is simply the highest price at which shares of the early stage investors would convert at, in the next round, which increases willingness to participate in a funding round. This does not mean that the company is actually valued at that amount. So coming back to TAG: according to our information from AngelList, there were investors in the fintech startup’s seed round which invested at valuation caps of $60, $75, and $100 million as SAFEs. There would be investors who would have invested, let’s say $100,000 at a valuation cap of $60 million in TAG’s recent round. There would be others who would have invested at a valuation cap of $100 million. So when TAG raises the equity or priced round next and

the actual value of the company is revealed, the early investors would convert at the valuation cap at which they invested earlier. So let’s say if TAG is valued at $110 million in the next funding round which happens in let’s say a year’s time, the investors who invested at a valuation cap of $100 million would convert their earlier investment into shares at the $100 million valuation (the cap) instead of $110 million (the actual valuation), giving them a better price per share. The ones that invested at a valuation cap of $60 million would get an even better price per share. Omn the downside, if the actual valuation goes below $100 million, a pre-agreed discount rate (usually 20%) kicks in for these investors. So if the actual valuation of the company falls below the valuation cap and is let’s say $50 million in the next round, early investors get a discount; these investors get to convert their investment into shares at share price which is discounted by a fixed percentage. As already mentioned, it is normal for investors in SAFE rounds to not conduct as thorough a due diligence as in a priced round. This also seems to be the case here as TAG founder Talal Gondal’s in interviews with foreign media outlets said that this round was closed in two weeks, clearly not sufficient time to carry out a detailed due diligence which would be essential if it were a priced round. Profit reached out to TAG to see any document to confirm that the funding amount was $12 million and to confirm if and how the valuation, as claimed in media reports and endorsed by the founders, was $100 million, but no response was received from TAG. Essentially, valuation caps depend on how well a startup is able to negotiate, and according to some, how well the startup could capitalise on investors’ fear-of-missing-out. In the early stages where there is no revenue, such negotiations matter. The market value of a business is driven by how much an investor is willing to pay to get involved in a funding round. And investors are willing to pay a high price to invest in

Y-Combinator startups. Y-Combinator is the most prestigious startup incubator in the world and has produced globally successful startups such as Stripe and Airbnb. Because the incubator is prestigious and has produced success stories, other investors assume (probably rightly so) that if a startup went through Y-Combinator, it is a good startup and the bet then is that because the startup went into the Y-Combinator, it has a high chance of succeeding in the future; it’s an opportunity that should not be missed. TAG is among the very few startups from Pakistan that went into YCombinator this year in June. So if an investor gave TAG let’s say an investment of $1 million in the seed round at a $60 million valuation cap, that investor made a bet that TAG’s chances of success are high because it went to Y-Combinator, but would still want a valuation cap and/or discount to protect the upside and downside. Now there is a different level of tolerance of how much higher an investor can expect the next round to be. Some investors would expect it to be three times higher, others would expect it to be only 20% higher, and so investors could naturally fix different valuation caps. Then there is this interesting dynamic with startups, that if it got a known investor to participate first, and that investor participated at a valuation cap of $60 million, the next investor would want to invest knowing that the startup went into the Y-Combinator and a known investor participated in the round. The new investor is betting not just on the startup and its team, but also on the Y-Combinator and the existing known investor. The startup this time can negotiate by allowing the second investor to participate at a higher valuation cap. So the second investor would come at a higher valuation cap of let’s say $75 million. The price for the second investor is higher because if the startup gets a valuation of $80 million in the priced round, the investor that participated at $75 million valuation cap gets his shares converted at a price which would be higher than the investor

who invested at $60 million cap. The first investor is converting at a better rate than the second investor. When the third investor comes in, the startup can again negotiate even a higher price of let’s say a valuation cap of $100 million. So the investors that are the last cheque in, are willing to pay a higher price by agreeing to a higher valuation cap so that they can participate and invest in an early stage company that they perceive is good because of the Y-Combinator factor and the few known investors. Because such deals are rare, investors would not want to miss out. The valuation cap goes up, and the market value of the startup in terms of the price it was able to fetch from an investor also goes up, but in reality, the actual valuation of the company still remains undiscovered.

The basis for valuation and possible misrepresentation

t’s really the founder and the core team which really forms the basis for an investor to gauge what trajectory an early stage startup is going to go and as people who have interacted with Talal tell us, he is someone who is at the top of his game. It was the founder, Talal, who ideated TAG and got it the in-principle approval from the central bank within a matter of three months when it took some of the others a year or more. In an earlier interview, Talal told Profit that he knew how to work his way around bureaucracies. It was Talal who got TAG into the Y-Combinator, a feat many others in Pakistan would fail at, and after getting his startup into the most prestigious incubator in the world, made it, as we have learned, one of the most popular startups from being very unpopular in the beginning, and led the negotiations with investors. Hailing from a political family in Punjab, Talal has the right political connections and built the right team which has people who have served at influential positions in the government. For instance, TAG has on its board a former general of the Pakistan army and a former finance secretary who also served as the governor of the State Bank of Pakistan. These are the sort of people that you would not be surprised to see on the boards of big businesses in Pakistan, and it looks like an anomaly to see these people on the board of the startup. But it makes sense once we realise who the competitors to TAG are. Yes, other wallets are competitors to TAG, but all these wallets have one competitor in common: the banks. The financial services industry in Pakistan is dominated by big banks which lend to the government primarily, and corporations, ignoring retail consumers most of the time. As a consequence, Pakistan has a large unbanked

population which fintech startups like TAG, SadaPay and NayaPay are trying to bank on. “Pakistan lags behind in tech adoption. One of the key segments happens to be fintech, which is currently a greenfield. Incumbents (Banks and telcos) have been complacent. They employ complex revenue models and have moved away from innovation. Most of the banks do not offer mobile banking. The ones that do have poor products, limited applicability, complex designs, and unreliable operations. These Banks still employ outdated systems and have failed to evolve. They have not graduated into the 21st century tech-wise. Therefore, incumbents are in a vulnerable position to lose to an innovative, challenger bank,” wrote Talib Rizvi, executive director TAG, in his commentary on the financial services sector and the rise of fintech companies. The problem, however, is that banks also have well entrenched lobbies in the financial system and banks look at fintech companies as competitors, which makes things difficult for fintech startups. This is perhaps why TAG’s other competitors also have former government officials on their boards. For instance, SadaPay has Waqar Masood, former federal finance secretary and former special assistant to prime minister, on its board. On the other hand, Nayapay is helmed by scion of an old and prominent business family in Pakistan with all the right connections. From a business perspective, the mobile wallet space has not yet been cracked by any player. Previously, Inov8 tried to do it through FonePay, Finja tried to do it through SimSim in partnership with Finca Bank, but both of them failed to create a dent. Traditional banks which already dominate, have been creating hurdles for fintechs by refusing partnerships, all the while improving their own digital muscle. Profit in on the politics in the financial services industry and opportunities for fintech startups in Pakistan ). With the right political connections and a team to go around bureaucracies, sources that have interacted with Talal tell us that the founder has a no-nonsense attitude, always on the top of his game, and ready to beat the competition. “If someone can crack wallets, it’s Talal,” a source told us. Cutthroat and hungry, Talal has been able to create a perception around TAG in front of investors too that his startup is the only one which can dominate the market. From the investor communication available to us, one of the investors in TAG said about SadaPay, one of TAG’s competitors, that it was led by an “American who is completely out of his depth” in Pakistan. Documents shared around on Whatsapp groups and the Pakistani startup community also claim that the founder

of SadaPay was not completely clean with his records. But perception could be exaggerated and this is where we would bring some instances of misrepresentation by the TAG founder, to portray a better image and the opportunity thereof for TAG to become a successful business. While there is no solid data to project the future valuation of the company, startups can give an idea about the future growth to investors by stating factors that would make their growth possible. For instance, TAG positions itself as a ‘neobank’ in a country of over 220 million people, most of whom are unbanked. Pakistan’s 3G/4G users are increasing which means that the number of phone users that will potentially use TAG mobile wallet is also increasing. All these indicators help get a sense of direction the startup is going to go. Then some updates from the startup have helped investors make investment decisions. For instance, TAG said that it had gotten approval from the State Bank of Pakistan to launch operations, but without specifying if TAG “has gotten approval” means they have secured the complete license or TAG is only referring to the “in-principle approval’ or approval for pilot. The EMI license from the State Bank of Pakistan under which a fintech company can operate a mobile wallet has three stages: in-principle approval, approval for pilot and approval for commercial launch. All three stages have different requirements and the final decision to grant the license rests with the State Bank of Pakistan. If by approval, TAG means complete license, that has not happened yet. And if it means in-principal approval or pilot approval, it is not a guarantee that the license will be granted. The central bank’s own disclaimer in this regard states: “In-Principle approval letters are granted to EMIs based on the information submitted by them and a review of their application for In-Principle approval under Regulations for EMIs (Electronic Money Institutions). It must not be construed as an endorsement of the EMIs proposed business model, financial viability, etc. by State Bank of Pakistan. State Bank of Pakistan will not be responsible for any financial, legal and reputational loss to any entity or individual who has established a business relationship with the respective EMI based on the In-Principle approval letter.” TAG received an in-principle approval from the State Bank of Pakistan (SBP) last year, and received pilot approval this year in August which qualifies it to test its products and services with limited customers. The commercial launch is only going to come after the SBP is satisfied with the pilot phase of TAG. The startup has yet not disclosed how far away they are from the commercial launch,

FINANCIAL TECHNOLOGY

in a question sent by Profit. Another update cited as the basis for valuation was that the fintech TAG had “secured a major public sector contract that would allow us [TAG] to eventually onboard 1.2 million active users over the course of next year and bring us [TAG] ARR of $8.4 million.” According to TAG’s pitch deck available with Profit, the only public sector contract that TAG claims to have is with the Frontier Works Organisation (FWO). Frontier Works Organisation is Pakistan’s military-run organisation which undertakes construction projects. TAG would be digitising salary disbursements for FWO, according to TAG’s pitch deck. While TAG has claimed to investors that it had secured a major contract with FWO, sources close to TAG confirmed to Profit that no final contract with FWO is in place and as of now, there are only negotiations which FWO is continuously engaged in for many of its contracts; no contract with TAG is final yet. It also remains unclear if the FWO contract alone will bring 1.2 million users to the TAG wallet as claimed because FWO has between 7,000-8,000 employees as Profit has learned, and most of them are blue collar workers which have feature phones and cannot really have TAG mobile wallets on these phones. The number of mobile wallet users that FWO can bring TAG would, therefore, be significantly less. Our sources tell us that while the FWO contract is not final, other contracts are also being negotiated but none of these contracts have materialised yet. The claim, therefore, simply exaggerates the strength of the startup. TAG has another contract in place with Fatima Group, Pakistan’s leading conglomerate, which is also an investor in TAG through its venture capital arm Fatima Gobi Ventures. Moreover, earlier in June this year, TAG announced raising $5.5 million in the pre-seed round. However, according to TAG’s deck, the startup told investors that it raised $2.5 million in the pre-seed round. Profit reached out to TAG to understand how the $5.5 million adds up, but no response was received. In another investor presentation, the startup claimed that it had earlier deposited $2 million with the State Bank of Pakistan as a precondition to launch the pilot. While the startup has claimed in its deck that it deposited $2 million with the central bank to launch the pilot, as per the EMI license requirements from the central bank, a fintech company seeking such license is only required to show Rs200 million (~$1-1.3 million depending on fluctuating dollar rates during the last few months) as paid up capital, of which only 10% is required to be deposited as security with the State Bank.

Can wallets really make it big?

hile the TAG investment is indicative of how fintech funding is picking up, the thinking behind such investments is the belief that tech startups are going to transform the financial services industry. The indicators with respect to financial transactions going digital are encouraging but while digital payments volumes are picking up, the increase in volumes does not necessarily mean that wallets created by fintech companies would be able to get a major share from this volume because, as elaborated in an earlier cover of Profit and we recreate briefly the arguments below, the financial services sector is dominated by big banks, which can control the future of EMIs like TAG and others. If an EMI threatens banks and their deposits in any way, which wallets like TAG plan to do, they will meet stiff resistance from the banks. The underlying fact is that the EMI license allows creating an app-based wallet to facilitate money transfers between two parties primarily, and does not allow much scale of earning interest on deposits. So these wallets are really looking at the opportunity of creating a big business out of app-based wallets only on facilitating payments between two parties. The scope of such transactions is limited, however, if you consider that EMI regulations place transaction limits - wallet users cannot transfer more than Rs50,000 into their digital wallet in a single day, unless they complete biometric verification, in which case they will be allowed to move up to Rs200,000 per month into their digital wallet. In contrast, the limits of transfers at banks are controlled by banks themselves, rather than regulations. TAG and SadaPay are issuing debit cards that customers can use to withdraw money from ATMs, and the ATM network is controlled by banks which can further create withdrawal limits for EMIs when they use bank ATMs. Currently, cash withdrawals are limited to Rs10,000 per day and banks charge an ATM withdrawal fee. Since the limit is low compared to banks’ ATM cards, the cost per transaction is high if you have a wallet card. Effectively, wallets become expensive for users. These users are unbanked because banking is expensive, and form the market for these fintechs to capture. On the other hand, putting money into a wallet is also going to happen through a bank, which can again set limits on how much money can be deposited into a wallet account and in fact ask for a fee for such deposits. It can also happen through branchless banking agents the likes of EasyPaisa and JazzCash have but both

these players are notorious for keeping their wallets closed loop. Essentially, EMIs like TAG are creating a product which competes with basic banking services without providing value for these services. Now an EMI can upgrade itself to a digital bank and TAG has publicly announced that it plans to become a digital bank but the law in this regard is not final yet and it is anybody’s guess what its final shape would look like. The functions of the State Bank require it to be mindful of the depositors interest first, followed by conventional banks that take these deposits. Naturally, the financial services system is dominated by conventional banks with better lobbyists for regulations that claim to be in the interest of keeping the depositors’ money safe. In turn, the State Bank is likely to find itself persuaded by such arguments more than that of the EMIs. The State Bank also has its limitations: if it allows EMis to deliver the same services as conventional banks which have a higher requirement for paid up capital, it would be unfair to these banks and their investors. Then the Prudential Regulations do not allow specialisations which means EMIs would have to create general products, which means they would be competing with banks head on. Some niches have been created, for instance Finja is into lending primarily, for most others, it is an uphill battle in a market that is heavily tilted in favour of the incumbents, even with a regulator that has moved significantly in the direction of allowing innovative companies room to operate. So understanding that the power rests with the incumbents for now who are not likely to let it go anytime soon, the only play fintech companies are left with is to not threaten banks where they dominate. So if TAG wants to disburse salaries for corporations, it essentially threatens banks’s business with that corporation and if that happens, do not expect cooperation from the banks, and do not expect the State Bank to be particularly friendly to your lobbying, because the big banks have better lobbyists than you and can rely on with very reasonable-sounding arguments that all purport to be in the interest of protecting the depositor. So fintech companies really have a chance in the financial services industry if they do let’s say salary advances, like Abhi does. Banks are currently not interested in this space. Then microlending for small businesses is lackluster which banks have left unserved. With increasing VC interest in Pakistan’s startup space, EMIs might succeed in securing high valuations in future priced rounds, however, with banks’ dominance, getting a good return on these investments might not have the same likelyhood. n

FINANCIAL TECHNOLOGY TEXTILES

National Foods’ excellent 2021 The famous spice company is determined to win the condiments and pickles department too By Meiryum Ali

very city has a hub, and some cities have multiple. Karachi has Saddar, the oldest part of town, a busy market place and shopping district. And it also has I.I. Chundrigar Road, the city’s ‘Wall Street’, so it were. There are other contenders to these hubs - consider the Korangi area, the Dolmen site on Seaview. But there is one district that is unlikely to become a corporate offices hub - and that is Civil Lines, a leafy residential area with old school townhouses, and new apartment complexes. And yet it is here, tucked in a side lane where the National Foods head office is located, food company with over 250 differ-

ent products, across 13 categories. It is an old residential building that has been renovated and revamped. It’s an unusual location for an unlikely company, founded in the 70s, and experiencing fantastic financial results in the last decade. In the recent annual report sent to the Pakistan Stock Exchange on September 22, the company experienced its highest ever consolidated revenue, at Rs34 billion. Not bad for a company that just 20 years ago was making just Rs765 million. But the story of National Foods is much older than that. National Food Laboratories Limited existed in some form before 1970 - a small company initially set up by the same family group that had set up EFU Life Insurance. In came Waqar Hasan, and Abdul Majeed, who are credited in company documents as the founders of National Foods

as we know it today. After graduating from the F.C. College, (a Chartered University) Lahore with a B.Sc. in Physics and Mathematics, he was selected by the British Council for Higher Studies in Textile Engineering and completed B.Sc. (Hons.) in Technology from Manchester University in 1959 The two old friends decided to take this smaller company in a different direction. Neither exactly had a background in food: Majeed had graduated from F.C. College in physics and mathematics, and from Manchester University in Technology; while Hasan had been a former test cricketer for the Pakistan team since 1948 for 14 years. But this unlikely duo stumble upon a unique idea. While it may seem strange now, what with the ubiquitous presence of pre-packaged spices used in Pakistani food,

before the advent of consumer goods like National and Shaan, people had to physically buy spices, pound them, mix them, and then use them in food. The two decided to introduce branded and packaged spices, changing how Pakistanis cooked. Over the next few decades, the company slowly but surely expanded. It launched branded salt in 1978, and grew large enough to list on the PSX in 1988. It launched its much beloved pickles in 1991, ketchup in 1997, and jellies and jams in 1998. In the year 2000, the company acquired a new CEO: Waqar Hasan’s son, Abrar Hasan. And while the two founders had obviously grown the company over the last few decades (after all, the company was approaching Rs1 billion in sales), it is really Abrar Hasan who can be credited with the transformation and rapid sales growth of National Foods. He introduced modern corporate concepts: like sustainability, efficient supply chains, gender diversity and daycare - which are now paying off. The company introduced a brand new facility in 2006, and then completely revamped all packing in 2009. They introduced drinks in 2010, and halal frozen meals and nimco snacks in 2014. Perhaps most importantly in this era, the company decided to start expanding globally. The company established its first subsidiary in Dubai in 2014, and another in 2014 in Canada.

And that point the company just goes on a roll: introducing mayonnaise in 2017, launching chaat masala and snacks in 2018, and (somewhat late to the game) garlic mayo in 2019. And the results show. In the year 2000, sales were just at Rs765 million, crossing the Rs1 billion mark in 2003, and the Rs2 billion mark in 2007. From that year on, it would jump by a billion - every year. By 2014, sales were jumping by Rs2 billion a year. Between 2017 and 2018, sales jumped from Rs16 billion to Rs21 billion. And sales also jumped from Rs28 billion in 2018, to Rs34 billion in 2021. Similarly, profits levels were middling until around 2012. That’s when the company began raking in serious profits, and crossed the Rs1 billion mark in 2018. In 2021, net income

stood at Rs1.9 billion. What explains this meteoric rise? According to the company’s annual report it had focused on Mayonnaise and savoury snacks, and also found new distribution partners in the UK and UAE. Ot also launched new crushed pickles, pink salt, and pepper grinders. But perhaps most importantly National Food has invested in image. National ka Pakistan, where a celebrity chef discovers cuisines in Pakistan is now in its sixth season. The company also heavily advertises its ketchup to children, buying ad space on cartoon channels. It is a subtle but important aspect about being a food company: taste good, but perhaps more importantly, be everywhere. And that’s what National has been trying to do all along. n

FOOD

OPINION

Hamza Nizam Kazi

The conundrums of attempting social media regulation

What these authorities are trying is to impose general regulations on these spaces as law and implement them across the board without considering the dynamics and overall structure of these proposed policies and regulations. With the advent of technology and the latest gadgets and the world moving fast towards 5G, certain corners of the government and bureaucracy are in the dark ages where coaxial cable and landline was the need of the hour and without that, no communication can ever take place. Controlling online social media including Facebook, Youtube, and other online platforms in this fast, rapidly growing world is fading the image of Pakistan as a progressive Islamic state, the whole basis on which this country came into being. These laws, regulations, and policies are likely to pass and be implemented by the government and those standing firm against n recent days, many policies and regulations regarding it would have no other choice to seek justice from the courts. In social media and national digital cable have been the talk this situation, the powerful sector lobbying for these measures of the town. Be it the proposed Pakistan Media Developwins and people are to wait for justice and directions. ment Authority, the existing Pakistan Telecommunication Another aspect of implementing these online social media Authority, Pakistan Electronic Media Regulatory Authorirules, media development authority provisions are through ty or the Ministry of Information Technology and Ministry virtue of the operators that come under the direct supervision of Information and Broadcasting - all of them have a part of the Authorities. Minister for Information and Broadcasting to play and are the center of any future policies. Chaudhry Fawad Hussain last month said that the government It is a well-known fact that whenever any government has had approved the National Digital Cable Policy 2021 for cable tried to control the freedom of the press it has always backfired. operators. However, no such cable policy is available anywhere on any website of the government or any authority. Coming back to the application of the social media rules, authorities have indirectly bound all the citizens who are using the services of these Hamza Nizam Kazi operators whether you accept them or not. The operators are bound by their license is a corporate and technology conditions to implement any such directive provided thus the rules automatically trickle lawyer having experience down to the end user. However, as the Peter Parker principle, a proverb popularized by the Spider-Man comic books written by Stan Lee, goes “With great power comes great in the telecom industry and responsibility.” Do these Authorities have the capacity to be responsible for the amount advising digital startups. of data that there is, or simply even pass the buck on to operators to install or implement He can be reached on such technology for storing and monitoring of the data? The question remains unanswered. hamza.n.kazi@gmail.com Some of the absurd rules regarding online social media regulations are linked with for advice on legal and the removal and blocking of unlawful online content (Procedure, Oversight and Saferegulatory issues pertaining guards). This means there would be rules that empower the authority to pass directions for complete blocking of the entire online system or removal or blocking of unlawful to the telecom sector and online content within 6 hours to 24 hours, which are again the drastic powers assumed electronic media. by the authorities under their control.

The rules being established for the internet belong nowhere other than in the dark ages

COMMENT

Social media rules require the publication of community guidelines by service providers, social media companies, and owners of any online data/Information. All the previous guidelines, if any, contrary to the community guidelines under the social media rules will stand null and void. These guidelines under social media rules will be in addition to the community guidelines, under any other provisions of the law or the respective licenses issued by the authorities. In addition to this, the social media companies and service providers are to deploy a system and mechanism for identification, live streaming, and in this context, the rules require that the system of the service providers must be capable of identifying users who host, display, upload, modify, publish, transmit, update or- share any such online content that falls squarely into the category of unlawful content which is again the powers supposed to be with the authorities to interpret according to their wishes and whims. Essentially, if the authorities ask the social media company, they are bound by law to snitch. With Amazon and other cloud service providers across the globe, another rule that belongs in the dark ages is that database servers are bound to record and store data of

Coming back to the application of the social media rules, authorities have indirectly bound all the citizens who are using the services of these operators whether you accept them or not. The operators are bound by their license conditions to implement any such directive provided thus the rules automatically trickle down to the end user online content posted within the territorial boundaries of Pakistan for citizen data privacy. To top that, the companies are to establish one or more database servers in Pakistan within eighteen months of coming into force of these rules. Further, the authorities can obtain any information or data or content or sub-content contained in any information system. This gives blanket approval to an authorized officer of a designated agency to obtain any data of any person/customer. Another aspect that empowers the Authorities to control is always supporting the national exchequer. I am sure that there would be some logical explanation for this rule but the penalty on services providers’ failure to comply is up to Rs 500 million in

case they fail to abide by the Act or the social media rules or indeed any other directions. With relevant laws including The Federal Investigation Agency Act,1974, Pakistan Telecommunication (Re-organization) Act, 1996, Electronic Transactions Ordinance, 2002, Investigation for Fair Trial Act, 2013, Prevention of Electronic Crimes Act, 2016, Prevention of Electronic Crimes Investigation Rules, 2018, Pakistan Electronic Media Regulatory Authority Ordinance 2002, Pakistan Electronic Media Regulatory Authority (Amendment) Act, 2007 above all The Constitution of Pakistan all being intact and functioning, the question still hangs in balance that whenever any government has tried to control the freedom of the press it has always backfired. n

COMMENT

Maqsad gets a headstart in edtech with $2.1 million pre seed funding The mobile-first learning platform is looking to disrupt the country’s neglected education sector

By Taimoor Hassan

n India, tech entrepreneur Byju Raveendran’s edtech startup, named Byju’s, is raising $1.5 billion at a mammoth valuation of $21 billion. The $21 billion valuation is going to make edtech Byju’s the most valuable startup in India, followed by PayTM, the eCommerce and fintech startup. It is not a fintech startup, neither an eCommerce or a food delivery startup, but an edtech that is gunning to become the most valuable tech company in India. Byju’s aside, India has three other edtech unicorns namely Unacademy, Eruditus and UpGrad. In Pakistan, however, we only really have a few names in the edtech space that have only sprung up recently and are in the very early stages of their startup journey. Consumer edtech startups are few and far between in Pakistan while the education system is a trainwreck inside a dumpster fire, with one-third of the children aged 5-16 out of school. For those that are enrolled and getting some education, the student to teacher ratio is 48:1, making it one of the worst in the world. This goes on to show that students in Pakistan are going to be neglected when it comes to getting the personalised attention from teachers and would need out-of-school support at some time in their schooling life. The Covid-19 pandemic also created a global education crisis, which was more pronounced in developing countries. The neglected education sector nudged some to think about innovating and introducing technological solutions to fill the gaps and in Pakistan, Maqsad, a pandemic entrant in the edtech space, is one such startup that was launched seven months ago to transform Pakistan’s educational landscape after the pandemic sent schools and off-line academies scrambling. In a recent announcement on Monday, the startup claimed to have raised $2.1 million in a pre-seed round. The venture round, which was closed in July this year, was led by US-based and Pakistan-focused Indus Valley Capital led by Aatif Awan, Silicon Valley-based Alter Global and Pakistan’s Fatima

Gobi Ventures. According to a statement from the startup, several individual founders from Pakistan and the Middle East also participated in the pre-seed round. Founded by friends Taha Ahmed and Rooshan Aziz, Maqsad says it is building a mobile-first, one-stop-shop for after-school academic support for 100 million Pakistani students. The platform claims it will deliver high-quality localised academic content that is in a mix of English and Urdu, which will be supplemented by quizzes and other gamified features that will come together to provide a personalised learning experience. Following a pilot run of the platform, the startup says it is going for the commercial launch of the application in the last quarter of this year. “Maqsad is an application which is mobile only and the idea is to generate in-house content where everyone is able to learn depending on their learning ability,” says Rooshan Aziz, co-founder at Maqsad. Essentially an online alternative to off-line coaching academies, the startup is starting with providing intermediate and matriculation students personalised lecture videos that can be watched, following which will be accessible to attempt, making it a one-stop-shop for after-school support for students. While it is starting with matriculation and intermediate students, Maqsad eventually plans to move towards lower grades as well. “The annual government spending on education is $6 billion currently and our model predicts that private spending is also around the same. So it is a total of $12 billion spending but we are tapping into $6 billion private spending on education,” says Rooshan. While the startup refused to disclose any information with regards to what the business model is going to

look like, Rooshan said that Maqsad was in the process of assessing four different options as to what the revenue stream was going to be like which is going to be finalised towards Q2 of the next year. On the funding announcement, Aatif Awan, the founder and managing partner of Indus Valley Capital said, “We’ve been looking to invest in a startup transforming education in Pakistan since Indus Valley’s inception. Maqsad founders’ deep understanding of the problem, unique approach to solving it and passion for impact persuaded us quickly that this was the team to partner with.” “Struggles of students during the early days of the pandemic motivated us to run a pilot. With promising initial traction and user feedback, the potential to digitise the education sector became very clear” says Rooshan, previously a banker at BNP Paribas in London. Ali Mukhtar, general partner of Fatima Gobi Ventures, said, “Pakistan’s edtech opportunity is one of the largest in the world and we are excited to back Maqsad in delivering tech-powered education that levels access, quality and cost across Pakistan’s youth and creates lasting social change” “It’s about more than just getting students to pass their exams. We want to start a revolution in the way Pakistani students learn, moving beyond rote memorization to a place of real comprehension” Taha said, co-founder at Maqsad and formerly a strategy consultant for LEK in London. Maqsad’s closest competitor in the edtech category is EdKasa, also a mobile-first digital learning platform that helps students prepare for exams, which is also targeting the intermediate and matriculation students. EdKasa announced raising $320,000 in a pre-seed round in April this year. n

EDUCATION TECHNOLOGY

Pale, nervous SBP injects steroids into money markets to stop rupee fall* “Relax, okay? Hrithik, Salman, you name it, they all use it…”: Guy outside gym to Baqir Raza

By The Dependent A nervous State Bank of Pakistan has injected an as yet undisclosed number of millilitres of steroids into the money markets to strengthen the Pakistani rupee against the US Dollar. The move follows the central banks’s earlier, unsuccessful injection of $1.2 billion dollars into the markets to achieve said results. A man seen outside SBP’s gym told Governor Baqir Raza as he was leaving that if he wants quick results, there was no other option. “Bhai, I have been seeing you struggling for some weeks now but there have been no results,” said the man, who goes by ‘Kashi

Butt’ to the central banker. “Aap Aisa karo, merey se ye sheeshi purchase kar lo, aur phir dekho kamal aik haftey mein.” “Hrithik, Salman, you name it, they all do it. In fact, so does Momi.” After assuring Raza that the approach was absolutely safe, the SBP made an acquisition of said sheeshi as per PPRA rules and injected its contents into the money markets. According to sources Raza is still struggling as the rupee has shown no observable difference in muscularity. Meanwhile, the Finance Division has sent an enquiry paper to the central bank, asking why the rupee was still not stable despite the government spending $1.2 billion + Rs 3250/-

SATIRE