Fintech Akhtar Fuiou Technologies to bring financial services to agriculture; obtains pilot approval for EMI operations

LAHORE: Fintech company Akhtar Fuiou Technologies (AFT) has received approval from the State Bank of Pakistan (SBP) to begin pilot operations for an Electronic Money Institution (EMI) license as it looks to bring financial services to the largely informal agricultural sector.

Following approval from the central bank, AFT will start pilot operations for its agriculture-focused fintech brand Digitt+ to digitize agricultural payments and distribution of credit products from licensed lenders to farmers.

Launched in late 2020, Akhtar Fuiou Technologies is a joint venture between Pakistan’s Akhtar Group, Chinese fintech company Fuiou Technologies and a third partner in the venture, Chinese e-commerce platform JollyChic. The company has so far raised around $2 million in pre-seed funding, and received in-principle approval for an EMI license last May.

AFT is also arguably the first fintech company to launch dedicated fintech products for the agricultural sector, that too as a licensed entity. Other EMIs, such as SadaPay and Nayapay, provide money transfers, bill payments and card transactions.

Finja on the other hand has a wallet for consumers and merchants but is more focused on providing working capital to merchants under its NBFC license.

That’s what Qasim Akhtar Khan, founder and head of strategy at AFT, says Profit that their first application would be to digitize payroll at a sugar factory owned by the Akhtar Group, followed by digitizing payments from the factory to farmers for sugarcane procurement.

“We want to ensure timely payment to sugarcane farmers; we want to ensure that sugar mills get visibility into cane procurement transactions, says Qasim.

“If there are more and more transactions where sugarcane is procured directly from the farmer instead of the middleman, it results in better recovery for the sugar factory, timely payment for the farmer, which will ultimately result in better prices for the end product for consumers.”

In addition to payments, Digitt+ will open agriculture to access to financing from banks and other licensed financial institutions. Agriculture has largely been considered high risk due to a lack of transparency in transactions, which requires expensive collateral in the form of land against small loans.

EMI AFT will help secure sugarcane farmers to secure loans from banks and other licensed entities by filing sugarcane purchase receipt (CPR). CPR is issued by the sugar factories which confirm that the payment is due to the factory and the actual payment takes place later.

“By securitizing CPR, we are undermining what has historically been known as a risky target segment, the agricultural farmer in Pakistan. Most of their credit needs are met by an intermediary who charges arbitrary prices, mostly predatory,” says Qasim.

The farmers sell the sugarcane to a mill, but receive payment at a later date. The farmer, due to arrears in payments, ends up going to loan sharks to cover expenses related to growing the next crop.

With the CPR security, the farmer would instead be able to get these loans from a bank or non-banking finance company (NBFC) through the Digitt+ platform at better rates. “If the farmer is unable to repay the bank, this amount will be deducted from the CPR, which has historically been a high-risk segment for the banks.”

In addition, says Qasim, AFT will target around 100,000 rural merchants, serviced by another of its consumer products group companies, for payments and lending under the EMI licence.

However, not all payments will be digitized through the EMI wallet due to restrictions on transfers from the central bank. As per EMI regulations, payments of up to Rs 500,000 can be made under the licence.

While payments to farmers from a sugar factory, for example, can run into tens of millions of rupees. Digitt+ therefore plans to start with payments of up to Rs500,000 during the wallet operations.

To overcome restrictions that come with an EMI license and to be able to lend from its own deposits, AFT is in the race to get a digital banking license. The State Bank of Pakistan is in the process of finalizing the names of five applicants who will receive the digital banking license this year.

In addition, AFT plans to apply for an NBFC license to be able to lend from its balance sheet, in case plans to become a digital bank do not materialize with this year’s licenses.

“At Digitt+, we use technology to develop innovative digital financial products with a focus on microservices to build a comprehensive platform that will enable the delivery of these solutions to a wide range of users, not only for the retail Agri market, but for the corporate sector as well , through offering specialized business tools.” added Ahmed Saleemi, CEO of Digitt+, giving further insight into how the company would unlock the potential of the Agri-economy.