Can Pakistan’s financial ninja pull off another great escape?

For decades Harry Houdini, the famous stuntman and escape artist, dazzled audiences with his feats of incredible daring. Every risk he took was bigger than the last and somehow every time, against all expectations, he would manage to do what he was best at: escape unhurt. 

Until one day when he didn’t. 

In Houdini’s case the end was quite unceremonious. One of the great magician’s simplest acts was his ability to absorb punches to the stomach. During one such demonstration, he forgot by a split second to tighten his abdomen and the boxer’s punch that landed on his stomach ruptured his appendix. Within a week Houdini was dead. The split second had cost him his life. 

That is the thing about risk takers. The crowd’s roar is deafening when you’re winning but it only takes one wrong move, one step out of place, one second of concentration lost for it all to come tumbling down. Pakistan’s fintech ecosystem is currently harbouring one such Houdini, and we’re afraid he may just have made his small mistake.

The man in question is Qasif Shahid. Depending on who you talk to, he could be a visionary or an unreasonable eccentric. Either way, he is not your typical banking professional. He is also perhaps the earliest mover in Pakistan’s fintech space. From launching digital wallets for legacy banks at a time when digital financial services were unheard of in Pakistan, to deploying QR payment codes at merchants like street vendors and biryani shops — Qasif has tried it all. What has been characteristic is his ability to always get back up. But this time around he might find it a little harder to find his feet.

At the centre of this increasingly difficult situation is Qasif’s dream venture, called Finja. The fintech company until recently owned two entities in Pakistan. The first is an Electronic Money Institutions (EMI) registered as Finja Private Limited. Their product is a mobile wallet, more simply an app that lets you open a bank like account. The second is Finja Lending Services which is involved in the business of giving out loans to micro, small and medium enterprises (MSMEs) such as convenience stores in the FMCG supply chain to help them manage their daily cash flows. 

It was always an ambitious proposition to run a mobile wallet and a lending company concurrently. The idea was that Finja Private Limited would use the EMI licence granted by the State Bank of Pakistan (SBP) to run a wallet which could accept deposits from the public. Separately, under an non-banking financial company (NBFC) licence given by the Securities and Exchange Commission of Pakistan (SECP), Finja Lending Services would be able to lend money, not from the EMI deposits but from the lending company’s own resources. Now we know accepting deposits and lending are essentially core functions of a bank. If a fintech company gets two completely separate and unrelated licences that allows it to do both, theoretically, the owners of this company could posture as being owners of a bank. In fact in a previous interview, Qasif said that this arrangement made them “a featherlight digital bank.”

The only problem was that this combo didn’t quite work. Because unlike a bank, which is in the business of attracting cheap deposits and lending them out profitably, Pakistani EMIs, including Finja have found it very hard to attract cheap deposits, and even if they do, they are not allowed to lend them out profitably. Meanwhile Finja’s lending business has also started suffering, especially due to the rapidly rising interest rates. High rates meant that the cost of funds for Finja Lending Services to finance its lending operation became very high, and it found it difficult to pass on this increased cost to its borrowers, most of which were small convenience stores. Perhaps this is where Qasif would have surely realised that an NBFC and an EMI don’t maketh a bank.

In fact, in 2022 Finja did try to become an actual bank by applying for a digital banking licence with the SBP, but they could not make the final cut. More on that later. 

Not to worry. Any great escape artist has a backup plan. So did Qasif. He had identified a very profitable opportunity in lending to the ecommerce logistics supply chain. You know the small to medium sized online merchants who have their cash on delivery (CoD) payments stuck with delivery companies for weeks. But to execute this, he needed some breathing room.

What do you do when you’re drowning, you shed the extra weight and you find a way to stay afloat. So Qasif decided to sell the EMI business and use the proceeds from the sale to not just save, but also possibly grow Finja’s lending business. 

Very quickly Finja sold the EMI wallet off to the Chinese-owned fintech company Opay, and for a moment it seemed that Qasif was pulling off yet another recovery. That is until recently. It has turned out that the deal to sell to Opay was conducted in a way that Finja is now getting substantially less money than anticipated from the deal. At the same time one of Finja’s main backers Habib Bank Limited (HBL) is putting in all the motions to pull their money out.

It seems like the attempted escape has only made things worse. Finja is fast running out of time. The only question is does Qasif have one more dazzling escape up his sleeve? For inspiration, we turn back time to some of his greatest hits.  

Setting up the stage

There are three things you need before you become a startup founder. The first is self-belief. You need to know that the idea you’re bringing to the table has the legs to make it all the way. The second is a sense of fearlessness. You need to be willing to fail and take the loss on the chin. And the last thing is guile. You need to be able to recognise when an idea is beyond its expiration point and have the ability to spin it into something else. All three are connected to each other. Without belief there can be no fearlessness and without the confidence in one’s abilities to turn things around fearlessness becomes stupidity. 

Qasif proved that he had the first factor in him well before Finja was even a concept. In his career as a banker, he was responsible for launching a mobile banking application in 2012 for MCB Bank at a time when the concept was still difficult to comprehend. Qasif’s ideas and concepts were well ahead of their time in Pakistan but he believed they would work one day. 

He believed enough that in 2016, along with Monis Rahman and Umer Munawar, he launched Financial Ninja popularly known as Finja — a financial technology startup. This is the part where fearlessness comes in. In 2016 Pakistan was only a few years into the 3G revolution and people were still rather hesitantly adopting debit cards and internet banking. The SBP had still not introduced any EMI licences. To announce a war on cash at the time was ambitious to put it mildly. Despite the restrictions they pulled through. 

In 2017 SimSim was launched by Finja. This was a simple mobile wallet the likes of which are quite common now. The app was free to use, transactions were free and there was no charge whatsoever to either the user or to the merchant. Since there was no regulatory framework for stand-alone mobile wallets, Finja decided to introduce SimSim using the licence of a small microfinance bank called Finca. SimSim could technically offer not just free payments but also other banking solutions including small loans through the microfinance bank as well. But the focus was free and seamless payments.

The idea was to incentivise behaviour change by initially subsidising the users. For instance, a biryani vendor’s transactions were actually subsidised by offering biryani for Rs1 to customers if the customer chose Finja wallet to pay the vendor. Similar discounts were offered on many other merchants to boost the number of users that would use the Finja wallet to make payments. Another such example was the Coca Cola Food Festival in Lahore where visitors could get discounts at stalls if they used Finja wallet to pay. 

But as soon as similar incentives were offered by a different wallet, the customers would move over to that wallet. In fact, the very next year, JazzCash replaced SimSim at the Coca Cola Food Festival in Lahore. Apps like EasyPaisa and JazzCash eventually dominated the market by offering similar incentives as Finja but unlike Finja, these apps could afford to keep on giving these discounts. They had brand recognition, more resources, and a wider net to cast due to their existing network of telecom users. This eventually led to the death of the SimSim wallet. 

The timing of SimSim’s launch was perhaps wrong. Detractors would call it premature. Others might be kinder and say it was ahead of its time. Whatever the case, SimSim couldn’t keep up with the heavy customer acquisition cost, and particularly the cost of changing behaviours. One could say that SimSim had done the work of preparing the field for their own competitors. 

And this is where we get our first example of guile. What in the world would Finja do now? 

Setting up the escape

This is often the point where many startups fail. After all, more than 90% of startups are bound to go down from the moment they are conceived. At the point that it became clear SimSim wasn’t going to be feasible, Finja had two options. The walls were closing in and everyone was watching. Either the company could make its peace and get crushed or make an escape. In 2019 it found a rope it could dangle from. 

The SBP introduced the EMI regulations and Finja turned up to be one of the aspirants for the EMI licence under which it would create a wallet again. But how was this any different? The company had already tried creating a wallet in the form of SimSim at a time when EMI licences were not a thing and failed. On this occasion they wouldn’t even have first mover advantage as there were others applying for the licence too. The plan, however, was different. After all, a great magician never does the same trick twice for the same audience.

This time Finja’s wallet would serve a very different purpose. Most readers might not even know that Finja has a mobile wallet. That is specifically because it is not mass marketed to people. Qasif had learned during the SimSim experience that acquiring wallet customers was expensive and keeping them was a steep slope. 

As a result of this, the wallet became secondary to the lending business. Finja already had a Non Banking Financial Company licence granted to it by the Securities and Exchange Commission of Pakistan (SECP) through which they could lend money. “You spend a lot of money on acquiring wallets and payment led customers. And then when anyone else offers those incentives, those customers are lost,” says Qasif. 

“So that increases the customer acquisition cost but those new age digital customers are not loyal. They only arrive because you throw some money at them. So we decided that we could not do this and we would give the wallet to those customers that were in lending business with us. The EMI was giving payment rails to the lending company.”

The goal now was not to be like SadaPay or NayaPay for instance. It was instead to lend to micro, small, and medium enterprises. For those not in the knowhow, MSMEs are vastly unbanked and provide a massive opportunity. This was a much bigger gamble than focusing on retail transactions. The wallet would just be a small part of that. 

The company created different layers of technological solutions to enable smooth lending operations. The company initially started lending as salary advances to employees of different companies but discontinued it during Covid pandemic as job security became an issue. One business that wasn’t affected during Covid were the small neighbourhood grocery stores, we usually call kiryana stores. Finja pivoted to lend to these kiryana stores now.

Finja would use its Finja Business app to credit score a kiryana store for loans and disburse those loans into the EMI wallet of the store. In this arrangement, Finja would disburse a loan as a productive loan, for example by creating a credit line for merchants to buy inventory from distributors. “The loan disbursed in this form is a productive loan rather than a consumption loan. In the latter case,  cash is disbursed to the merchant and it is up to the merchant to use it for whatever purpose they want to. In our case the loan could only be used to order inventory from already onboarded distributors of FMCGs” says Qasif. 

On the lending side, Finja has done some impressive work: numbers shared with Profit show Finja has disbursed 200,000 such loans amounting to Rs 12 billion, and on-boarded 30,000 retailers. Its collection stands at Rs11.5 billion. 

But this was only the beginning. If Finja was going to pull off the escape, they had to do more. And the next rope was just about to appear in the form of Pakistan’s Digital Banking landscape. 

Gearing up to become a digital bank

Since 2016, the company has raised $12.5 million. Out of this total funding, some amount came after they ditched SimSim and adopted the new model of lending to MSMEs. And perhaps nothing bolstered their confidence more than the fact that the Series A round in 2022 that raised $10 million was joined by HBL. However, Finja knew that in the long run, the present source for financing their lending operations, both equity and debt, would not be sustainable nor profitable. No source of financing is as cheap as current account deposits raised from the public, which only a bank is allowed to do. The investment was also drying up and there would always be a limit to how much more they could raise.

Using the NBFC licence and the EMI together was only a temporary solution. The company used these as an example to demonstrate to the regulators, primarily the SBP, its ability to run not just a deposit taking business (EMI), but also a lending business targeting the under-banked MSMEs. In fact Finja wanted to now become a full fledged digital bank if it was to grow and become sustainable. 

The investment and support from HBL was massive for Finja because of the timing. At least that is what Qasif thought at that time. In January 2022, the SBP announced the digital bank regulations and opened applications for the first five digital bank licences. Finja had HBL on board as an investor and the two placed a bid together for a digital banking licence. HBL is the largest bank in the country, and Finja the oldest player in the fintech space. They would have felt supremely confident that they would ride off into the sunset together with the licence. 

The arrangement would have been that Finja would have been responsible for running the digital bank with Qasif as the CEO, while enjoying all the synergies that HBL lent. Qasif and Finja were on the brink of rising from the ashes. The only problem was the SBP was dragging their feet. 

Dangling in the air 

By 2022 Finja found itself adrift. The company had taken a hit in 2019 when it became apparent that SimSim was not going to work out. All of that time, effort, and investment had gone to waste other than the experience they gained. With that experience, they applied for an EMI licence and quickly began lending through their NBFC licence and managed to steady the ship. 

A second assist came to them when the SBP announced they were giving out five Digital Banking Licences. Backed by HBL, Finja felt that they would be a shoo-in and the licence would allow them to scale their business. The only problem was Finja was running out of time. The ropes they were clinging on to were about to break. Both entities owned by Finja,  Finja Private Limited as well as Finja Lending Services Limited, were losing money each passing day. 

At some point while the State Bank was still deciding the digital bank licences, Qasif admitted he did think about withdrawing from the digital bank race because Finja was taking monetary hits each day the State Bank was delaying the announcement of digital bank licences. But he chose not to do so because he “did not want to hurt the prestige of the biggest financial bank in the country” by choosing to withdraw its bid for the licence. The patience did not pay off. When the State Bank finally announced the licences, HBL and Finja were announced as out. Reason: what Qasif assumed to be his strength had in fact turned out to be his biggest weakness. Sources say that there was a lot of pressure on the SBP not to give digital banking licences to existing banks, and that would include HBL backed Finja.

This was a massive blow. Finja had been sustaining the wallet and lending business, which were both making losses by the way, in the hopes that their course would be corrected by the digital banking licence. Now they had to manage their losses for that time period and also decide what to do next. Another escape act was needed.

“We thought we could not make payments. Neither did we get the Digital Bank licence and neither did we get the money. So our effort was to try and get rid of this licence. The moment the digital bank licences were announced, it was a crucial time consuming process.” 

Just how bad are things? 

So this is where we stand. Finja’s hopes have been dashed in 2022 with the announcement that they did not qualify for a Digital Banking Licence despite being backed by Pakistan’s largest bank. Before we get into the next escape effort, let’s see just how dire the situation was over at Finja. 

Finja’s EMI business was not doing well and was bleeding money. Roughly $100,000 a month. For the 9-months of 2023 ending on September 31 for which financials are available with Profit, Finja had a net loss of Rs 24 crore, which translates into a monthly loss of Rs 2.7 crore or roughly $100,000 at Finja Private Limited, the company that operated the EMI business. 

Even without scaling the wallet, it had horrible losses. The reason why an EMI would bleed money without any growth is because of regulatory compliances. “When you take people’s money, then you need to have such technology infrastructure and then man it with firewalls, transactions monitoring systems and all, 24 hour service, audit internal compliance which actually makes the licence worthy to get as well,” explains Qasif.  “When you are spending significantly to stay compliant, then you have to scale. But then you can not do what Finja was doing.  So if you are not scaling but have to bear the weight of licences, then obviously you are going to bleed.”

The lending business was equally in a disastrous state. Finja Lending Services had also been running losses and its equity had fallen to Rs65 million only as of December 31, 2023, Rs35 million short of the Rs100 million minimum capital requirement of the NBFC license and later turned negative. More on this later.

This was mainly because interest rates had been climbing in the midst of an economic downturn and lending was becoming expensive. Finja was afraid if they started lending at these high interest rates their clients would walk away so Finja kept bearing the losses. And while the EMI wallet seemed a lost cause without a digital banking licence, even the lending company clearly needed a bailout. But this was also the time when funding had dried up and they had a choice between losing something and losing everything. 

This one was less an escape really and more a case of cutting off your foot to get free from a bear trap. And the way it was happening was by selling the EMI licence and using that to fund the lending business. 

The logical solution 

It was a severely unsentimental decision. Finja saw that its Digital Banking dream was dead in its tracks. Despite all they had hoped to achieve, the logical answer was to get rid of the EMI and instead focus on lending, which is where they felt the money was now at. But who would buy out the EMI licence? 

Enter OPay. The Sequoia and Softbank-backed and Chinese owned OPay is a major player in the digital financial services scene in Nigeria, having scaled to over 35 million users in the African country, providing them with payments, lending, savings and investment products and services. The company already has interests in Pakistan. Through a complex corporate structure, OPay is also said to be the beneficial owner of Seedcred, the company that operates the infamous Barwaqt nano lending app, which has been a regular target of the SECP. 

Sources close to OPay say that because of the success of its fintech in Nigeria, OPay believed that it could create a similar financial services ecosystem in Pakistan as well. OPay has the willingness to do it in Pakistan, has expertise and has big money to see this plan through even if it takes a while. It has raised over $550 million dollars for its global operations and was valued at $2 billion in its last round in 2021. Which is why when digital banking licences opened, OPay was one of the applicants. Albeit for different reasons, but just like Finja, they struck out with the SBP. 

And just like Qasif Shahid, OPay also had a backup plan and a backup backup plan. The first idea was to buy out an existing microfinance bank as an entry into the financial services market in Pakistan. They reportedly tried buying Advans Microfinance Bank but the deal faltered. In the face of this second failure, OPay decided it was left with no option but to start operating as an EMI and launch a mobile wallet for the time being. Buying a fresh EMI licence would have taken at least two to three years. Luckily for them Finja was looking to wash their hands of their EMI. 

Caught in a bad romance 

The Finja-OPay romance proceeded like any relationship. The two companies were introduced through a mutual friend. The President of OPay in Pakistan is Ali Mubasher Kazmi, a former banker and an ex-colleague of Qasif from his days at MCB.  Mr Kazmi also runs his own company by the name of Knightsbridge Capital. Interestingly, it was agreed between the two friends that Knightsbridge Capital would be paid a small success fee of $150,000 by Finja for arranging a meeting with the Chairman of OPay International, and also for seeing the deal through.

Like any bad romance, it initially seemed that the match was made in heaven. There was a common link in between. Finja needed money which OPay had and OPay needed a licence which Finja was in a rush to get rid of. In fact, Qasif was in such a rush to get rid of the company’s EMI that a deal was struck for a paltry $2.65 million. It was a move that reeked of desperation. 

This was the stage of the relationship where one side realises the other needs them more. After all, Finja was bleeding money and $2.65 million was around the exact sum they needed to stay afloat. So despite the fact that Qasif readily admits if he had sold the EMI earlier it would have fetched a better price and a competing EMI like Sadapay selling reportedly for a minimum of $30 million, the deal was as good as done. But the cracks would soon begin to appear. 

You see much like in relationships, sales are complicated affairs with lots of moving parts. In particular, the sale of tech based businesses can become a bit of a web. Just take a look at how this already very low figure of $2.65 million played out. 

It is important to understand that this figure of  $2.65 million of the sale was the maximum valuation of the Finja’s EMI business but not a final one. This meant that this was the maximum amount OPay would give to Finja but not the minimum. How does this work you ask? Well, for example, during due diligence, Finja has conceded to deductions worth $457,000 under various heads such as shortfall and pending dues of Finja Private Limited. OPay had already made a partial payment of $543,000 to Finja. After accounting for these deductions, the final sum receivable from OPay came out to $1.65 million according to Finja’s calculations.

Similarly whenever financial institutions are being created or sold the State Bank has what is known as a Minimum Capital Requirement (MCR). This is a sort of safeguard. The SBP wants these institutions to have ‘Capital’ (assets minus the liabilities) worth a certain amount in case it needs to be liquidated at some point. Due to persistent losses over the years Finja Private Limited was already not quite meeting this MCR requirement. Except there was a catch here too. You see in the accounting books, technology is sometimes not counted as an asset, since it is not tangible like land and building. That means if a technology company like Finja has an app and other backend softwares, it is possible that there is no valuation for the application and it is not counted as an asset on the company’s balance sheet. This is normally not a problem but if the company is not doing well and also wants to sell itself the technology not being on the books as an asset can mess up the MCR calculation.  

But there is a process to fix this. The SBP has certain conditions for it, but there is a process known as ‘tech capitalisation’ whereby a company can have its tech assets counted as assets on its balance sheet. Finja decided it would do this which would fix the MCR and OPay would then pay them the even $1.65 million in cash that had been agreed upon. The only problem was that as part of the sale agreement, it was stated that if the MCR was not met OPay would deduct that amount from what they would pay Finja for the EMI. 

The romance, ladies and gentlemen, was suddenly filled with conditions. But then again Finja was in no place to find other suitors. So they got right to work on capitalising their tech. Except maybe, just perhaps, they moved a little too fast for their own good. 

The technicalities

It is important to understand the timeline here. Finja and OPay had reached a deal in April 2023 whereby they would buy Finja’s EMI for $2.65 million. After all deductions, the amount still to be paid out in cash would come to $1.65 million. The only problem was that Finja did not meet the SBP’s MCR value and had to capitalise its tech to have a healthier balance sheet. 

Whenever a company has to capitalise its tech, the first thing they do is go to their auditor. Finja had not at this point released its financials for 2022 because it was already in the process of this tech capitalisation. The first step was that its auditor, which in this case was BDO Pakistan, would check if Finja’s claim for tech capitalisation meets the criteria of recognition, if expenditures were actually made and if the worth of the asset is as much as claimed. Since tech is often outdated very quickly, both the buyer and the seller in such a situation have to agree to its future usability. For future usability, Finja management would obviously respond in affirmative that the tech is usable for say 10 years. The auditor would capitalise the technology and it would be considered as an intangible asset in company accounts, leading to increased capital. But since the accounts for 2022 were audited in 2023 and the transaction with OPay had already begun, auditors would have taken into consideration OPay’s opinion about the future useful life of Finja’s intangible technology assets as well. As Profit has come to know, OPay initially declared that Finja’s technology was useful for them.

The audting process was completed in September 2023 and Finja also capitalised their tech in older financials all the way back to 2020. This tech capitalisation led to an amount of around $823,000 showing in Finja’s audited assets. The next step was for the SBP to get these accounts and approve the technology capitalization for MCR calculation. And if the auditor has capitalised it, the State Bank is unlikely to reverse it, thus ending the issue of a shortfall in MCR. 

Finja now felt they were easily in a position to secure every last penny of the $1.65 million that had been agreed upon by OPay. 

With everything seemingly sorted, Qasif decided he would push for an even faster deal. Up until September he still had control of the EMI and was bearing its operating costs. Originally Finja was supposed to hand over control of the EMI to OPay in March 2024 and up until then had to bear the operating costs. Tired of the continued burden, Qasif decided to hand over operational control to OPay early in October 2023. 

This was a decision that would later put Finja in a fix. It meant releasing control of the P&L sooner and giving OPay the responsibility to manage expenses for a company that was bleeding money and Finja could not go on with it. It was also in OPay’s interest and they did not hesitate either in taking control of the Finja EMI because the fintech company wanted to enter the market sooner rather than later. 

Control was handed over on the 2nd of October 2023 and both Qasif and Monis resigned from the board of the EMI. 

But the audited accounts for 2023 were still to be finalised. For 2023 as well, Finja in its accounts capitalised the technology and sent its accounts to BDO, the auditor. This time, however, the management that had to approve the intangible asset and its future usability is composed of people from OPay. 

According to information received by Profit, now the people from OPay didn’t think that the Finja’s tech was of much use to them and therefore told the auditor that the technology did not have a useful life in the future. The consequence? The auditor does not capitalise the technology, Finja’s assets drop by $823,000, and the minimum capital requirement shortfall resurfaces. And if there is a shortfall, as per the share purchase agreement signed between OPay and Finja, any minimum capital requirement shortfall is going to be deducted from the $2.65 million price for the EMI business. Finja’s technology was valued at $823,000, potentially what OPay can deduct from payments due to Finja against the deal. 

And that is where the problem really hits. Why would OPay think initially that the tech was useful for them and, therefore, let the auditors capitalise it as an asset but later retracted? One explanation is that when OPay took control of the company it was then that the technology was also handed over to OPay in Pakistan, which is controlled by OPay high-ups in China. Sources say that when OPay in China saw the technology, it was their decision that they did not consider the Finja technology useful and that they would build and use their own, hence the later retraction to the auditor.  Profit has learned from credible sources that auditors have impaired company’s technology in the 2023 accounts because OPay does not think it is useful for them. 

At the same time, auditor BDO capitalising tech in 2022 but not doing so in 2023 under a new management has raised questions about conflicts in auditing practices. The aforementioned instance of tech capitalisation is an example of the conflict of interest situation where an auditor is going to get its remuneration from the new management of a company it is auditing, and is therefore unlikely to confront the management that is responsible for compensating it. On the flipside, all auditors including BDO could have a perspective that whatever they do is within the accounting standards. Not only that, the auditor could reasonably argue that if the management of a company itself thinks its tech asset is impaired, who is the auditor to disagree with this? 

When contacted by Profit for a comment on the case, BDO declined to respond citing “client confidentiality protocols”. 

The management at Finja is, however, now trying to seek support from the State Bank of Pakistan to consider its technology as capitalised, and says that the State Bank agrees with them. Opay on the other hand argues that if the State Bank recognizes Finja’s technology as capitalised, they should say it in writing. Although if the regulator decides to recognize Finja’s technology as capitalised it would supersede everyone else’s decision, the reality is the State Bank would not give a decision on this because the regulator comes later in the process. If the management, which is now controlled by OPay, does not itself want to capitalise technology and has asked the auditor to impair it, the State Bank is in no position to tell the company to capitalise it. 

All of this means that the shortfall in minimum capital requirement for Finja EMI persists and clauses in the SPA would require Finja to let go of some money. It would be now up to OPay to decide how much they are willing to pay because let’s be real, they did buy Finja’s technology as part of the deal. 

The lending debacle

One thing that seems certain is that the deal is going to get closed soon and Finja would most likely have to let go of some more amount from the original $2.65 million agreed. Sources close to the deal say that whatever money OPay saves from this would be pumped into the EMI business now under OPay.

What this also means is that Finja EMI would thrive but under OPay, which has big money to pump into its fintech operations globally. It would deduct the money from the transaction and use that to fulfil the MCR. It would very likely also inject more equity in the EMI and try to make it a formidable competitor for other EMIs.

But the money from the sale of EMI is doubly important for Finja whose lending business is in disarray. Finja’s shareholder, Pakistan’s biggest bank HBL which owns close to 5% of the fintech company, has asked for its money back from Finja. The bank is a debt financier for Finja’s lending operations and it also provides Finja off-balance sheet lending facility. In its public announcement, HBL announced that it had invested Rs 176 million in Finja, without full disclosures about how much was equity, how much was the rest. What we do know is that HBL has also given a separate working capital loan to Finja Lending Services, and has now served a notice to Finja for recovery of this loan. 

Qasif has gone on the record to say that if he doesn’t get the complete money as initially agreed ($2.65 million or roughly Rs75 crore) from the EMI sale including the $823,000 (Rs23 crores) for the technology, Finja Lending Services could go bankrupt. 

But how did the lending business get into this mess? The respectful overtures to provide working capital to MSMEs had been a money losing business with distorted unit economics, according to a company insider. 

For the year 2021, the average loan size of the company was Rs25,000 for a 30 day period on which the company charged a 2.5% service fee, yielding a revenue of Rs625 on each loan. On the other hand, the cost of debt to finance such lending on average was 21% for the year or 1.75% for a month, yielding a cost of debt of Rs 437.5 per loan.

We are using the cost of debt for this calculation because the cost of debt gives a more conservative estimate because the cost of debt is lower than the cost of equity. The overall cost of funds is a weighted average of debt and equity. Since equity is always expensive, the weighted average would always be higher than calculations based on cost of debt alone. Finja’s lending business was funded by money raised as equity as well as debt and off-balance sheet financing. 

Based on numbers provided to us, Finja’s cost of loan collection was Rs140 per loan. So here we have a situation where each loan yields a net revenue of Rs 47.5. But if we also add the 1% bad debt provision on each loan, the situation changes to a negative net revenue of Rs 202.5 on each loan. Later the company raised the service fee to 3% when KIBOR went up and the average loan size increased to Rs 30,000 which still led to the company losing money on each loan after provisioning of bad debt. 

The company’s financials testify to this. As per the financials available with Profit, Finja Lending Services booked a loss of Rs 11.6 crore for a roughly 14-month period from October end 2019 to December 2020. For the complete year 2021, net loss of the company was Rs 17.8 crore. 

In the month of January 2024 alone, Finja Lending Services booked a loss of Rs13.7 crore. The total accumulated losses at Finja’s lending business since its inception till January 2024 have been a whopping Rs91 crore.

In conversation with Profit, Qasif has acknowledged that his company did not act quickly in bringing efficiencies in face of a high interest rate environment, which led to this situation. 

As of December 2023, the equity of Finja Lending Services had dropped to Rs6.5 crore, Rs 3.5 crore short of the Rs10 crore minimum capital requirement for NBFC licence holders, according to a correspondence between Finja and the Securities and Exchange Commission of Pakistan, seen by Profit. 

Finja assured the SECP that its MCR requirements for Finja Lending Services would be met after receiving the rest of the payment from OPay. Further it also informed SECP that Finja Lending Services is also in the process of capitalizing its tech assets with an anticipated value of $2.5 million. “Upon completion, this amount will be added to our paid-up capital, resulting in a net equity exceeding Rs1.3 billion,” the company stated. 

All this is good but for now, Finja Lending Services’ accounts for January 2024 show that its equity has turned a negative Rs85 million, making the company technically insolvent. Meanwhile, Finja has issued a press release against OPay, highlighting that payments are due from their side, effectively taking the fight public. OPay responded in kind with their press release claiming they will not give a penny more than what is due. In fact, OPay has not even released the approximately $700,000 due besides the disputed tech capitalisation amount from the total $1.65 million. Evidently, OPay has played a very smart game, some would even call their style of play evil, and even now they are holding all the aces in this fight.

Saving Finja

So while this would be the end of the EMI business for Finja, it would also cast a shadow on Finja Lending Services, possibly leading to a complete shutdown. Qasif tells Profit that he wants to continue the lending business but the current situation doesn’t allow him to do so. 

What this means is that Finja Lending Services would also be scrambling for survival. Any other avenue of raising money for Finja Lending Services is shut. But Qasif does say that if the weight of the EMI business is shed, there’s a chance. And the company has a lifeline for the lending business is the P2P (peer-to-peer) lending licence under which Finja can crowdfund money from individuals and institutions and lend it out. After successfully graduating from the pilot program, Finja says that under this licence it has been able to lend Rs1.5 billion to 7,000-8,000 customers to whom 25,000 loans have already been disbursed. As much as 500 individuals and institutions have invested in Finja under this licence. Finja is the only company that has uptil now received such P2P license in Pakistan. 

At the same time Qasif is on the move and focusing on consolidation as a means to survive, talking to other startups to merge or get acquired. The money from the sale of the EMI would only give it breathing space till this consolidation is achieved. Finja is talking with other players for cross industry mergers, for instance with logistics companies to create a hybrid of logistics and fintech, a concept initially launched in Pakistan by PostEx. PostEx’s fintech unit provides invoice factoring to eCommerce merchants and its logistics unit does the deliveries for these merchants. Following the model of PostEx, Abhi Finance acquired BlueEx. 

Finja also thinks the hybrid of logistics and fintech is impressive and is exploring a consolidation that leads to a similar model. But the dire situation at Finja would perhaps force it to get into any model. 

“Once we have concluded the OPay transaction and become a clean lending company which has some money and is at a break even, from that position we will consolidate cross industry, whether old school or new school so that we grow in that configuration,” Qasif says. 

“Our P2P licence can be used as a platform that can initiate collaborations with startups in other sectors. If a startup is for instance a logistics company, Finja can bring them on the P2P platform and whoever wants to invest in this logistics company they can do that based on our rating for the company,” Qasif said. 

The process of negotiations for this arrangement has already started with logistics companies, with Trax being one logistics company that Finja is exploring this consolidation with. If none of this materialises, Finja might have to sell its lending business and the P2P licence. In fact a source has told Profit that OPay has offered to pay Finja’s tech capitalisation amount if Finja throws in its P2P licence as a freebie in the deal. 

We started our story with Houdini. How the great illusionist spent decades escaping outrageous situations until one wrong move led to his death. The thing about taking risks, however, is that you can truly be out for the count at any moment but you can also get up again. Finja and Qasif Shahid have proven time and again that little has stopped them. 

The company went through SimSim before trying to become a Digital Bank “Light” and then eventually a full Digital Bank. All of their efforts failed. When there was no option left, they tried selling off a big part of their original business and found problems in that process as well. At every stage it has seemed like it might be curtains for Finja, and it has seemed likelier every single time. Will this be the end? Or will we see another miraculous escape? After all, it isn’t quite miraculous if it didn’t seem hopeless, is it?  

OPay declined to comment on the record for this story. 

Story Editor: Abdullah Niazi