AdalFi, a digital lending infrastructure provider, announced on Thursday that it has raised $7.5 million in seed funding.

The funding round was led by COTU Ventures, Chimera Ventures, Fatima Gobi Ventures and Zayn Capital alongside angel investors, the startup said in a press release.

It is the first major corporate funding announcement since the start of the year as Pakistan deals with a deepening economic crisis.

The company’s mission is to promote financial inclusion by providing people and small and medium enterprises access to credit, according to the release.

AdalFi scores the financial transactional data already possessed by banks, enables personalised digital marketing to qualified prospects and provides the customer journeys which are embedded within the bank’s digital presence to enable real-time disbursement of loans.

“AdalFi operates on an asset-light, revenue-sharing model with banks which captures any downside risk exposure to banks such that any loan losses are accounted for, pro-rata, in fees due to AdalFi. These deep partnerships ensure banks and AdalFi are completely aligned in that AdalFi only makes money from loans that are actually paid back,” the press release added.

“In essence, we have built better underwriting models for banks. Not only have we lowered the cost of credit scoring and underwriting and therefore the cost of credit but we changed their outlook and got them to change their approach,” Co-Founder and CEO Salman Akhtar said.

Only 5pc of deposit customers in Pakistani banks are also borrowers. So, we enable banks to tap this huge, latent customer base, Akhtar told Reuters.

He pointed to a study by the State Bank which found long lead times for loan disbursements were one factor behind consumers turning to informal credit markets instead.

“Without our platform, banks typically take two weeks to process a loan request.”

According to the press release, the startup, which was founded in July 2021, has grown the gross loan volume (GLV) by 30 per cent month-on-month for the last 19 months and enabled a cumulative amount of Rs1 billion in GLV through December.

Since its launch, over 70,000 loans have been disbursed with a default rate of under 0.1pc. “In January 2023 alone, AdalFi generated Rs390 million in lending and is on track to exceed Rs1bn within Q1 2023.”

The company has signed on 14 banks, including United Bank Limited (UBL), Habib Bank Limited (HBL), Meezan Bank, among other banks and microfinance banks operating in the country.

“Our rapid growth is a testament to the need for such solutions in the lending space, and we look forward to continuing to drive positive change in the industry,” the CEO commented.

Additional input from Reuters.