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In Indonesia, small business retailers often struggle to have enough cash to buy inventory, and banks typically don’t want to give loans to these merchants. Amee Parbhoo talks with Mir Haque about how he founded Fairbanc to provide embedded financing solutions to mom-and-pop retailers.
Fintech has the power to build a more inclusive world. Fintech for the People is about the innovators who are developing fintech solutions that reach the people who’ve been left behind. In each episode, we’ll hear from innovators who are creating financial solutions that bring every person the financial tools they need to grow their business, support their family, and build their community. Together, we’ll learn how fintech looks different in spaces and places where basic financial services are a luxury — and how solutions to address these challenges require a different level of creativity, empathy, and execution.
Fintech for the People is an Accion podcast hosted by Amee Parbhoo, Managing Partner of Accion Venture Lab – an early-stage investor in inclusive fintech startups. Learn more about Accion Venture Lab here. Episodes will be released in seasons, on a weekly schedule.
Amee Parbhoo (00:12):
Hello everyone. And welcome to our second episode of FinTech for the People, season two. I'm Amee Parbhoo, your host and managing partner of Accion Venture Lab. As always, FinTech for the People is produced by Accion Venture Lab, a leading early stage investor in inclusive startups that provide affordable, well designed financial services to underserved populations around the world. This season, we're showcasing six companies in our portfolio, all of which are building new embedded finance solutions. Last week, in our first episode of this season, we spoke with Andy Milne, CEO of Kuunda, about how they address the massive liquidity challenges for micro merchants using mobile money and embedded financial services. Now, I'd like to introduce this week's guest, Mir Haque. Mir is the founder and CEO of Fairbanc, a technology platform that integrates with corporate partners like fast moving consumer goods companies, to provide their end customers, which are mom-and-pop retailers with a simple embedded buy now pay later solution. We're excited to have you with us today, Mir.
Mir Haque (01:21):
Well, thank you, Amee. Thank you for having me.
Amee Parbhoo (01:24):
Before we dive in, it would be great to learn a bit more about you. Tell us about your journey. Have you always wanted to do something entrepreneurial?
Mir Haque (01:32):
Sure. I was born in Bangladesh, which is very big on microfinance and I came here when I was 17 as a foreign student to U.S. My journey is, when I came here without much cash and I was homeless for a while, I drove a taxi in New York City and through hard work and some lucks, I ended up at the Wharton Business School, did my MBA, and I had a series of corporate job, including McKinsey, Deutsche Bank, Google, Adobe, and so forth. While I was doing this corporate job, I realized that I became part of the hard. I took the easy, softer, gentler way, and I worked really hard to get there, but once you get it, you are like, it didn't have the meaning really, and I always felt, that's not who I am. Finally, I want to go back to Bangladesh and do something and it is better late than never, and that's how the journey started.
Amee Parbhoo (02:45):
So what brought you to this idea? Maybe you can tell us more about Fairbanc and what you do?
Mir Haque (02:51):
Sure. As it often happens, as you work in corporate job, and at certain point you realize, is this something you want to do rest of your life? I figure this is not what gives me meaning, and I wasn't quite sure what I really wanted to do. I started reading up about some of the issues that Bangladesh microfinance is having, and I thought, a lot of these issues about profitability with microfinance, overlapping, overdue loan, all this could be solved through digitization and data science. And so, that was the impetus for me to quit my job and move to Bangladesh to do this. It started in Bangladesh with Unilever and Bangladesh market wasn't ready for this sort of a product, partly from the banking side. Banks are inflexible. So, I decided to move to Indonesia and I'm not from Indonesia, I barely know anyone. I just thought it'd be a good idea to try Indonesia. We did, and also with Unilever and it happened to work out this time.
Amee Parbhoo (04:13):
Maybe we can take a step back and tell us more about your end customers. Fairbanc is this tech platform that integrates with corporate partners to provide end customers with a simple embedded solution. Who are those end customers that you're reaching through your partners? What's that problem that you're trying to solve?
Mir Haque (04:33):
Most of these small merchant, they don't have enough cash, right. There is a huge credit gap in these emerging economies. Most of their credit shortage is in working capital. They don't have enough cash to buy inventory, simply put, right. And we realized, look, there is an opportunity for inventory financing, but in a way where we don't have to do the acquisition of the merchant ourself. We don't have to do the collection ourself. And that's where we had this 'aha' moment. We realized, look, this large FMCG's, they already have the data of this merchant's order and payment history that we can leverage to give credit. We can probably leverage their existing collection infrastructure they have, which basically, they have ground sales people that go and collect, use leverage some of that for our collection. And they have a large ecosystem. We can plug into that ecosystem with some API integration.
Mir Haque (05:41):
Fortunately, the idea we had, Unilever was very receptive to this idea, especially in Indonesia, because they have tried other FinTech, which requires an app. So, that means [inaudible 00:05:57] and have to download that app, somebody has to train them and vast majority of the margin don't have the digital literacy, financial literacy to use an app. So, because our credit goes through FMCG system and doesn't require an app, right. In fact, in many cases, we don't even meet the merchant, right. We have their order and payment history. They're automatically onboarded through our selection process and their credit.
Amee Parbhoo (06:29):
Maybe you could even describe who this merchant is for our listeners. We're talking about small businesses this season, but there's such a range of what a small business, looks like. Can you describe what a typical customer is?
Mir Haque (06:42):
So, typical customer buys, for example, $50 to $200 worth of product a week, right. Over 70% of them are women operated in Indonesia, in particular. Over 85%, don't have any bank accounts, right. Their average monthly take home income is less than $200. Typically, a household will have five to six members in a household, right. So we are talking about very impoverished there, right. Margin with a large household and giving them access to credit, especially for high value product that are fast moving as a high margin could help them generate $50 more, a hundred dollars more, which is a big deal, in terms of, what it can do to their families and livelihood.
Amee Parbhoo (07:41):
How are they purchasing that inventory today? Are they accessing other forms of credit?
Mir Haque (07:47):
Largely using their own cash, right. And so, what ends up happening is if they have a $50, they will use $50 to buy the merchandise. But in fact, they may have a demand for a hundred dollars. So another way to say, if they had a hundred dollars, they could have bought and sold a hundred dollars worth of product, right. So they're buying well below their market demand.
Amee Parbhoo (08:15):
Why aren't other financial service providers adequately serving this customer's needs? What's the challenge there?
Mir Haque (08:25):
Well, one of the biggest challenge is for banks, right. Banks in Indonesia don't offer unsecured loans. They only offer secured loans and vast majority of this margin, they don't have any collateral. The other issue is for banks, they have to have KYC documents, right. Tax ID, photo ID, and so forth. And a lot of these merchants don't have proper documents. More importantly for banks, it's not worthwhile to underwrite these small loans. So typically, microfinance are these segments and microfinance are very manual, labor intensive. There's a long application process, so it's not as scalable.
Amee Parbhoo (09:15):
All right, let's take a quick break.
Amee Parbhoo (09:19):
At Accion Venture Lab, we are excited to support inclusive FinTech startups around the world. We invested in Fairbanc back in 2021 and we invested because we saw that by embedding their product into existing partner channels, Fairbanc was able to provide small retailers, seamless access to inventory financing. Fairbanc's work aligns strongly with venture lab's mission and we're excited to be on this journey with their team. Now let's get back to our conversation with Mir.
Amee Parbhoo (09:49):
What you've described of Fairbanc is, effectively, embedded finance. It's not direct acquisition and a direct loan to these merchants. It's working through your partners, through the fast moving consumer goods companies to reach those bars. It's a fairly new term, embedded finance, but obviously gaining a lot of attention. For our listeners who aren't familiar with the concept, can you tell us what this means and what advantage it gives you as a platform and as a company?
Mir Haque (10:18):
Yeah. So embedded finance, the one we are doing is a buy now, pay later. The credit is embedded in the product, right. Product comes with credit. What it means is, especially the way we are doing it with the large ecosystem, it makes it very scalable because large ecosystem has millions of merchants, right, and it also means that the cash is diverted to a productive purpose, right. It generates income, which enables the merchant to pay us back as opposed to giving direct cash loan. So, the other aspect of embedded finance is, you could really tailor it for high value product. So, even certain product have a very high margin, but they're slow moving and merchant don't want to buy slow moving product because they don't get the cash back for weeks. And now, you could enable them to make very, very high market from slow moving product by offering longer term credit for slower moving SKUs.
Amee Parbhoo (11:29):
And for the merchant, it's also an element of your embedded model, is the seamlessness of it, the convenience of it. Maybe you could say more there of, it doesn't require any additional paperwork or steps. Why is this critical for your model and how did you go about developing this type of a product?
Mir Haque (11:49):
Yeah. We recognized that, a lot of the loan application, KYC they don't really mitigate risk at the end of this day, right. Because ultimately, what mitigates risk is, number one, it has to be sustainable. In our case, if they buy product, they make profit, they pay back the credit, they can use it again. It's an evolving period line, so that makes it sustainable.
Mir Haque (12:18):
Number two, is doing all this paper work, there is so much operation cost involved for you to be economically sustainable. The lender has to charge a extremely high rate, and we see that in some of the microfinance, right, and we realize that if it doesn't mitigate risk, why go through the paper work and loan application? Rather, we could have something called a stop supply guarantee where, to prevent fraud, if merchants don't pay, just because they get... They don't want to pay intentionally, not because they have some financial hardship, stop supply guarantees often time, is a much stronger risk mitigator than just doing paper works.
Amee Parbhoo (13:09):
That basically means that the fast moving consumer goods company would stop delivering inventory and working with a merchant?
Mir Haque (13:20):
Yes. So the merchant must pay last week credit to place order this week. Yeah.
Amee Parbhoo (13:26):
It's clear also from your model that partnerships are key, right? You aren't going directly to the merchants you're working through... Fairbanc is working with a number of partners, so we can speak to some of that, but these are key to scale, as well as getting the data you need. What has Fairbanc done to be so successful in securing these institutional partnerships? How does that work for you all?
Mir Haque (13:52):
Sure. One of the reason all these large brands like Unilever, Nestle, Coca-Cola, Danone, we are working with, not just FMCG but also other verticals [inaudible 00:14:04], Samsung, all our B2B is because the way we select the merchant, that it end up growing the principle sales. Because, if you give credit to someone who's buying $500 and after you give them credit, they still buy $500, there is no benefit for the principle, in terms of sharing sensitive data, doing the collection, right. So sales growth is one of the biggest incentive for the principle to work with us, share their data and do the collection.
Amee Parbhoo (14:39):
It's really this win-win of, merchant having access to capital to sell more, but the principle who are these large companies that you're working with, being able to sell more, as well.
Mir Haque (14:52):
Yes. Yes. So, in fact what we are doing, we are injecting liquidity into a system, making it healthier, right. Where, before without liquidity, the system wasn't able to meet the consumer demand. Merchant were buying far less what they could sell. We are capturing the delta through liquidity. And so, entire ecosystem is benefiting from it.
Amee Parbhoo (15:17):
Got it. Just on this point around partnerships, we see lots of FinTech entrepreneurs who are trying to build new B2B partnerships at an early stage. Any advice for them?
Mir Haque (15:31):
Yeah. B2B partnership requires patience, right. It also requires understanding how the decision making happens within these large organizations, which oftentimes are slow. So the best way to do this is to figure out the right decision makers, who has incentive to go through the pain, piloting and so forth to do this larger scale rollout, right. Typically, people we target within the B2B whose KPI is digitization, whose KPI is our sales growth. So it could be sales director. It could be head of their supply chain digitization. So yeah, figuring out the right stakeholder who could be the internal champion for this program, is key, right. And then, during the pilot, you have to prove the value proposition, which is the sales growth, which justifies for them to dedicate a lot of resource because it takes... Some of the large FMCGs, it takes cross-functional team to work with Fairbanc, right.
Mir Haque (16:42):
From their IT to finance, to marketing, go-to-market, all over. Yeah, it definitely have to be worth it for them. In our case, we have delivered 35% sales growth during our pilot, with Unilever, 50% for Coca-Cola, right. And when they see this number, they realize this is something probably worthwhile.
Amee Parbhoo (17:06):
That's true of what we're seeing in general, with embedded finances that, if you're working with large partners, it requires a pretty cross sectional team on their end to pull this off. And so, being very thoughtful and methodical of who you bring in and who champions there, is critical. Just shifting gears, we continue to see all kinds of businesses targeting these small mom-and-pop shops. As you know, these big B2B marketplaces are coming up around the world. There are all kinds of different solutions and products out there. What's the key differentiator in an unfair advantage of Fairbanc? What do you think, especially with Fairbanc's embedded approach, is what allows it to work best?
Mir Haque (17:53):
I would say number one is, we don't require a smartphone, right. Now, that's probably once you're embedded by definition, you don't. The other advantage is we don't have to do the collection, right. Because, in lot of developed market, even within the emerging market, there are some countries where e-money is very cheap and popular. That's not the case in Indonesia, right. Is kind of expensive, but transaction. So merchants are, they don't have any incentive to pay huge fee to use e-money to pay us back digitally. So somebody has to do the collection and we want to be a tech platform, not a collection agency. That gives us a huge advantage. It took us a lot of convincing through sales group to justify for FMCGs their principles to say, "You know what, we are going to do the collection for you."
Amee Parbhoo (18:56):
So that collection piece, as well as just the, meeting people where they are in terms of their digital capabilities, are kind of advantages. We know that building a strong team culture is critical for startups and Fairbanc has an interesting set of employees. You have senior executives with longstanding careers at fast moving consumer goods companies and other sectors. At the same time, you have young professionals from the startup scene. How are you finding building and kind of balancing that, to create the right culture at Fairbanc?
Mir Haque (19:32):
When we started in Indonesia, we realized we need domain expert and domain experts are typically, in FMCG, are very senior people, often time who retired, right. One of the thing that we got lucky with is people are very... The age differences and so forth, didn't really matter that much. The employees we had were domain expert, they are in their fifties and just like you said, we have some startup talents, they're in their twenties. We have a very, sort of, a flexible style that accommodates. Some people are not that digitally savvy. Some people are, and we sort of accommodate everyone.
Mir Haque (20:22):
We try to be a big camp where everybody fit in. And so, I would say, having a culture of tolerance and acceptance and also mission orientation. We take pride in, look, we are doing something great, helping others. And once you take that approach, you become more tolerant among the team members. I think, if you're doing FinTech, especially an impact space, having a culture of tolerance and acceptance, is a key.
Amee Parbhoo (20:53):
As you think about your vision for Fairbanc... I mean, obviously the need for financing for small businesses is massive. Embedded finance is taking off as a space. How do you envision the future for Fairbanc? Where do you see the company in five years?
Mir Haque (21:10):
Sure. Well, so we started with FMCG. Now we are many different verticals, including electronics, construction material, smartphone. We are financing all these B2B, buy now, pay later in different verticals. So, in five year, our goal is to be the buy now, pay later platform for SMEs across verticals in Southeast Asia.
Amee Parbhoo (21:36):
Super. Thank you so much Mir, for this conversation today. Learned a lot about Fairbanc and what you're building for small businesses through an embedded platform. Thanks again for your time.
Mir Haque (21:48):
Thank you, Amee. Thank you for having me. Really enjoyed the discussion.
Amee Parbhoo (21:54):
Join us next week as we head to India to speak with Mukul Garg, founder and CEO of Agrim, a digital platform for the 50 billion dollar agri-input industry in India. Agrim provides small agri-retailers across the country with a one stop shop in finding distributing and financing agri-inputs.
Speaker 3 (22:14):
If we want to sub to the farmer right, that will be a huge challenge because they rely on the offline network with the retailers today, right. And it's not just the pro eCommerce, what they are doing there. It's more of a complete consultation, which also happens like that. So we said, can we build a platform where we bring manufacturers on one side and retailers on the other side, right. From there we take care of the entire logistics, fulfillment and the payments part of that. For a manufacturer who is sitting in the north part of India, right, can reach to the retailer in the Southern part of the country, right, without even doing or building the marketing team.