Transforming the credit landscape in Central Asia, with Abdullo Kurbanov

Alif Bank has grown into one of the leading fintechs in Central Asia; and with its portfolio of Sharia-compliant lending, payments, and banking products it's showing that fintech can be based on noble values.

Alif Bank and all its products can be found at https://alif.tj/?lang=en (for English speakers) or on LinkedIn at https://www.linkedin.com/company/alif-capital/?originalSubdomain=tj

Abdullo himself, who you've heard is very personable, is also there at https://www.linkedin.com/in/akurbanov/

You can read about the academy and how Alif are building future tech stars at https://fintechmagazine.com/financial-services-finserv/fintech-in-tajikistan-director-of-alif-academy-on-diversity

Then, in the episode Abdullo mentions how Alif are now an AWS case study, and he means that literally, you can read more about their hybrid migration to AWS at https://aws.amazon.com/solutions/case-studies/alif-bank-case-study/

Somon.tj is exactly where you'd expect it: https://somon.tj/

Tajikistan is a mountainous, rugged country - if you'd like to visit it, read more here https://wikitravel.org/en/Tajikistan or here https://advntr.cc/the-not-knowing-an-adventure-in-tajikistan/

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on my site: https://www.howtolendmoneytostrangers.show/contact-us.

Oh, and if you’re in need of more banking podcasts, you can find related content at https://blog.feedspot.com/banking_podcasts/

Regards, Brendan

The full written transcript, with timestamps, is below:

Abdullo Kurbanov 0:00

10 years ago, people had to physically go somewhere, wait in the queue, then had over cash. And the lending landscape was, similarly, quite cash based, not technological: it would take many days, if not weeks to get a loan.

Brendan Le Grange 0:19

Welcomed to How to Lend Money to Strangers with Brendan Le Grange.

I've lived on three continents and visited 50 countries as a tourist, so I feel like I've got a pretty decent grasp on world geography, but, Tajikistan, that's a country that I struggle to place on a map. Even now after looking it up, if it weren't for the Caspian Sea I'm not sure I'd be able to pick it out if you shuffled Kyrgyzstan, Turkmenistan and Uzbekistan around a bit in that corner west of China and south of Russia.

Ten years ago, its lending landscape was as slow and arduous to move through as its mountains are, but not today, thanks in no small part to the digital first disruption of Alif Bank, whose co-founder, Abdullo Kurbanov, is speaking to me today.

Abdullo Kurbanov, co-founder of Alif Bank - a buy now pay later and mobile first disruptor in retail banking, that is now also one of the leading fintechs in Central Asia - welcome to the show.

Abdullo Kurbanov 1:26

Thank you very much, Brendan, you've got a great show, it's a privilege to be speaking with you.

Brendan Le Grange 1:30

Thank you. And you've got a great story with Alif that I'm really looking forward to exploring now. But before we jump straight to that, I think it'd be a shame if we left out your experience beforehand.

Abdullo Kurbanov 1:41

Sure. My professional career started in the UK. After graduating from the LSE, I started working in financial consulting first and then I moved on to investment banking at UBS. I was covering metals and mining out of the London office. And then I also worked in Mongolia for a year, as a VP for mining investments for a British private equity firm.

I also, incidentally, learned how to code - well a little bit - during my work at Oliver Wyman and that skill, to the small degree that it was, it was helpful when we started Alif because our first small in-house software was written on the back of that experience.

Brendan Le Grange 2:19

Yeah, you didn't go straight into banking, you became an internet founder as well. So just talk a little bit about your previous experience in starting an internet startup.

Abdullo Kurbanov 2:28

Well, I returned to Tajikistan about 10 years ago, and I was fortunate to have met with a lot of great minds, and great hearts, which led us to establish several successful companies, a few failed ones too, for sure. And Alif Bank is of course, the one I spend most of my time on, but as you said, it's probably worth mentioning Somon.tj as well.

It's a classified ads company. We started with the Jahongir Zabirov and Dilovar Amonov in 2012. Back then, in Tajikistan, people used a newspaper to announce job vacancies, car sales, house sales, similar things. It was a newspaper solely dedicated to classified ads, it will come out once a week, you have to pay to place an ad and others had to pay to buy the newspaper and read the ads.

But it was the only way and people use it.

So it was clear at that point, especially after having seen Gumtree in the UK, for example, that in the future, obviously this is where it will move. So we started the project.

It took off slowly. But over the years it grew to become the most visited and the most popular website in the Tajik internet domain. It's number one locally, and if we include foreign websites like Google and Instagram and so on, it's currently number seven. It's important to say that all the credit goes to my co founders, investors and the team at somon.tj initially I was more involved.

But after founding Alif, Alif was my main focus really.

Brendan Le Grange 3:45

It takes time to start a bank!

Let's start talking a little bit about Tajikistan, because for many people, myself included, I think it's a country and a broader Central Asian region that we don't hear about a lot.

What is the marketplace like in Tajikistan, and in particular, what was that lending market like when you were thinking about starting Alif?

Abdullo Kurbanov 4:06

Tajikistan, it's a small country with about 10 million people. It's very beautiful, mountainous place - about 93% of our territory is covered by mountains - the Himalaya foothills, you know, they they go all across Tajikistan, and so there is a lot of mountaineering, hiking and this sort of activities taking place. Very beautiful. And it's ranked as one of the safest countries in the world as well.

Sadly, the economy is highly cash based. About 80% of our monetary base is outside the banking sector. And 10 years ago, for a lot of transactions, people actually had to physically go somewhere, wait in the queue, and then handover physical cash for lots of things from like utility bill payments, sending or receiving money from someone.

And the lending landscape was similarly quite cash based and not technological. It would take many days, if not weeks to get a loan. Default rates among banks, especially around 2015 went as high as about 40%. And in terms of technology in the financial sector, it was mainly the core banking system usually built by a Russian software companies. And I think one or two banks also had Oracle core banking system. But that was the landscape before and around the time we started.

Brendan Le Grange 5:26

What did you see that made you think, 'okay, this is a challenge we can take on, I want to revolutionise the landscape here.

Abdullo Kurbanov 5:32

With that background in terms of the financial industry, we wanted to establish the first Islamic and technological bank in the country, to try to tackle those issues.

And we needed about $10 million to start a bank. So we knocked on many doors, but we could not convince any investors. So we just decided to start ourselves, we went for the smallest licence that we could afford.

So in 2014, myself, Firdavs Mirzoev and Zuhursho Rahmatulloev, and an angel investor together established Alif as a microfinance company with Islamic finance principles in mind.

Thankfully, today, we have more than 1,000 employees, over 1.5 million clients.

We finally got our banking licence three years ago, and within a year, we were voted as the most trusted bank in the country. So today, we have about 90% of the Buy Now Pay Later market, over 50% of mobile payments and mobile outband remittances market. We are the leaders in e-commerce, we signed a strategic partnership with Visa - the only such strategic partnership among the commercial banks in the regio - and today, approximately 50% of all Visa payments in Tajikistan go through Alif.

Four years ago, we expanded to Uzbekistan, a much larger neighbouring country. And today we have about 35% of the BNPL marketing is Uzbekistan as well. At the moment, our run rate revenue is about $50 million and thankfully, we've been growing at triple digit rates annually.

Brendan Le Grange 7:02

You've obviously been a part of changing in Tajik market. Have you seen the market landscape follow you, are the other changes happening now as the lending landscape also tries to keep up with your pace? Or what does the landscape look like now 10 years later?

Abdullo Kurbanov 7:19

It's a privilege and it's also a responsibility.

Because as we have been providing these services, in Tajikistan In particular, we saw a lot of other banks also starting to provide similar services and there's a good healthy level of competition, especially in the payments area.

With the BNPL it's a product that has iterated over the years and it seems like it's harder to replicate at the moment by others, because it relies on several layers of technology.

Quite importantly, we developed our entire stack of banking technologies in-house: our call banking system, client relationship management software, mobile payments software, acquiring software, the mobile apps, and so on. And to this date, Alif is still the only bank in the country that has full internally-written banking system.

And many years ahead in terms of being able to roll out.

So with the BNPL, we're still far ahead in the market. But with the payment services, we have seen companies either bring in foreign software, and there has been a few that have written internally, and they're active, for example, just in the bus or mini buses that we have in the city, you can pay with your card, you know, it's all digital. By now, any utility bill payment can be done from home. And as I was saying, thankfully, you know, as per the data from the Central Bank of Tajikistan, we have still the dominant share of the market.

But the market is improving. We had non cash transactions increasing significantly in pace, it's still small, Brendan to be clear, but just the mobile payments per se have reached almost the same size as cards, and they're still growing at like five times volume per year.

Brendan Le Grange 8:54

From a customer point of view, if they're thinking about borrowing money, what products does Alif offer?

Abdullo Kurbanov 9:00

The main product that we have is what can be probably called as BNPL. But it's different from most of the traditional BNPLs that you probably think of, like Klarna and others, because our products have a maturity of an average of about 12 months, and they range from 10 days all the way to two years.

If we look at Tajikistan, we provide about 150,000 loans monthly, the average amount is about $40 and 80% of these loans are taking through Alif's mobile app. It's instantaneous. It happens either at the point of sales at the store. Just to give an example a couple days ago a taxi driver was telling me that he uses Alif mobi to get a quick loan on the spot to buy petrol for his car, and then he provides the taxi service to people. He earns an income and usesmpart of that income to pay back the loan.

And genuinely the whole process is seamless.

Once we onboard the client, we assign the credit limit and they can do transactions at 1,000s of stores and locations and everything is processed within Alif to minimise third party costs. So we do the merchant acquiring, we do the issuing of the loan, the app is ours and so on.

And stepping slightly back from from the lending itself in Alif. mobi there are hundreds of high-demand services that users can pay for, they can send and receive money inside the country or to and from abroad, and you can easily use your pre-approved loan limit, or you can use your debit card balance, or your wallet balance. And the volume on our side has been tripling every year.

Brendan Le Grange 10:28

The amount of time that you're freeing up in the country by being able to do these transactions seamlessly from your phone, from wherever you happen to be, is remarkable, I think, really great to hear.

I remember particularly from when we were chatting when we first met, the deep philosophical roots of Alif, that it's not just 'we're another micro lender, and we doing it more efficiently so we can drop the price a bit and improve access to credit' you do have this root in Islamic banking that shapes the organisation in terms of the products, but also in terms of your concept of how you manage profitability, and all of that.

So how does the Islamic banking philosophy translate through into the way you design your products, the way you design your interactions with your customers?

Abdullo Kurbanov 11:13

We try to do everything as much within Islamic finance principles as we can within the existing regulations. There is an Islamic banking law in Tajikistan, we have applied for the licence and we're waiting. In the meantime, we are making sure that our processes are as aligned as we can have them.

Now, the main difference between Islamic finance and traditional finance is that in Islamic finance, interest is prohibited. It doesn't mean that Islamic banks are nonprofit but the mechanics are a bit different. Let me give you an example. One of the core products in Islamic finance is called murabaha (or cost plus finance).

The bank finances the purchase of an asset or service. For example, a client wants to buy an equipment and needs $10,000. The Islamic bank would buy the equipment and sell it to the client for, let's say, $11,000. And the $1,000 would be the profit of the Islamic bank, called a markup.

You could look at this and say, how does it really differ from paying interest. And it's actually one of a frequent received criticisms when you don't consider a an important point. The difference comes when the borrower pays later than agreed upon. For any reason.

In the traditional interest based loan, the interest is accrued sometimes daily, sometimes monthly, often compounded. And the longer you hold the funds, the more you have to pay in terms of interest. In murabaha, once you agree with the Islamic bank on the size of the markup, that absolute dollar amount is maximum that the Islamic bank can make. And if you look at it from the incentive mechanisms, and so on, or if you consider that in most of the history, we didn't have consumer protection laws, we didn't have prohibitions against usury rates, that loan could double and quadruple if the borrower defaulted it, people fell into debt traps and they could not get out of so murabaha is quite different in that respect.

That means that the Islamic banks, because they cannot make any money if the client defaults, they are actually more prudent, more diligent when they provide financing. And you know, as we see more Islamic banks in the world, we will we'll see how they can fare through the crisis. And I believe that the 2007 financial crisis was a moment where Islamic banks actually fared much better compared to the traditional banks.

Brendan Le Grange 13:28

I quite like that transparency in there right up front, you know, okay, am I comfortable taking on a loan? And then you can decide yes or no.

Abdullo Kurbanov 13:40

It's just much easier to really understand the cost of something when it's given an absolute figures.

And we still have to show it in terms of our own laws here in terms of what that equates in terms of traditional interest, if it were an interest paid on time. But still, the user actually can see what the absolute number is.

Brendan Le Grange 13:59

I've got a question on how you make the loan decision. So when a customer is applying for credit with you at Alif, what tools and techniques do you have at your disposal to evaluate that? Are there credit bureaus in the market? Are you using alternative data?

Abdullo Kurbanov 14:16

in Tajikistan and Uzbekistan, the process is slightly different, but similar.

We do have credit bureaus, and they're quite useful in Tajikistan. Unfortunately, you know, we don't have a database where we could get access with clients permission, for example, and see the taxes paid by the client in terms of the salary taxes and so on. So we have to rely on alternative data sources quite a lot. In addition to credit bureau, we have integrations with mobile operators, we also see how they use Alif mobi. Alif mobi by now is a very popular payment application, and we see the volumes of payments that the user make and the type of payments they make. And based on this sort of integrations, if it's a client where we're not very comfortable with, we can assign a smaller limit or if you know if we have additional data points, we can assign a higher limit. And then the clients was smaller credit limit can also over time get access to too high credit limits as they work with us and as they, you know, show that they're consistently being responsible.

In Uzbekistan, we do actually have access to data that can show us the financial inflows and outflows of the client. And broadly in both countries, we're also working on the AI implementation. So we're calling the model Osijoi, it's a traditional name for Central Asia. So people from from the region will probably smile at that choice, but it's a name for girls, and she does the scoring for increasing number of those applications.

Brendan Le Grange 15:40

You've mentioned Uzbekistan. Obviously Alif is still a young upstart, but you've already got growth through the region. And I'm sure you've got big ambitions.

What are your regional ambitions and maybe what challenges did that move into Uzbekistan bring? And what did it teach you as you've looked to expand your footprint wider?

Abdullo Kurbanov 15:59

Yeah, expanding to Uzbekistan, I think it was one of the best decisions we ever made. It was 2018, we had a trip to Tashkent, with my co-founders - Firdavs and Zuhursho - we looked at the market we really liked number of indications and observations. Doing business in Uzbekistan is quite straightforward. There is rule of law, the court system is very efficient, foreign investors are welcome. And we felt that we could come here and actually attempt to to do business for the first time outside of Tajikistan.

So in 2019, Zuhursho took the challenge, he relocated to Tashkent, and we started building our services and our team there. And in these almost four years now, we are active in all the regions of Uzbekistan. And by our estimates, we have about 35% of the point of sale financing market, we brought in the payments app to the country as well, we just launched it a year ago. Now it's growing very fast.

And it taught us a lot of things. First, it made us a bit more positive in terms of expanding to new countries. So we started by targeting the markets where we felt our products could be of help, and where the impact could also be felt in terms of the scale. So we went to countries like Bangladesh to Pakistan to the United Arab Emirates to Saudi, we made our remote research of Indonesia and Egypt. And after a lot of deliberation, we decided, 'okay, we will try to establish our presence in Pakistan'.

So we applied for a digital banking licence there. And we will try to work on remittance piece of the puzzle in the Gulf areas, starting from the United Arab Emirates. We're launching a service which will help the migrant workers in the United Arab Emirates to send money home - in situations where they don't have the funds, we can send it for them, and they can pay us back later.

Secondly, it made us rewrite our software so that it's compatible with multi-user, multi-language, multi-tenant and a hybrid data infrastructure. We actually took a whole year to rewrite our mobile app and mobile and it became a case study with AWS, because of the way we built this hybrid local versus cloud data architecture.

Our long term vision, Brendan, is to build a global champion in Islamic FinTech and hopefully, you know, serve as many of 2 billion plus Muslims in the world as we can.

Brendan Le Grange 18:25

As we start to wrap, Abdullo, one of the marks of a great leaders always been said, yeah, how well are they building up their replacements? How well are they developing other leaders as well?

And I see that you've recently done just that you've handed over the reins as CEO of Alif, how did you manage that process? How did you think through the idea of okay, I'm going to go give this thing I've created to somebody else to run while I take on new challenges?

Abdullo Kurbanov 18:49

Myself and the team here, we working on Islamic finance propositions within digital asset space, right. So thankfully, we've been always, you know, growing quite rapidly and everyone in Alif had to grow in that process.

That transition plan started more than a year ago, in January we appointed (January of last year) we appointed the management board in Alif Bank. It consists of three people Gulanor Atobek, Daler Karimov and Dilovar Amonov. Dilovar and Daler had been with Alif for many years now, and Gulanor had joined recently from Deloitte, where she had worked for about 17 years. She was leading the practice in Tajikistan for the past 13 years or so.

And I should be naming 20, 30, many more people that are, you know, in the senior management of Alif because we're truly blessed with some of the best people. And we've actually had zero churn in our top management from the very start.

And I actually want to take a step back here, if you don't mind, and just make a few remarks about people in Alif overall, about about our efforts in combining technology and education. I don't know if you if you knew this, but the average age of our employees is 25. We have a lot of students, recent graduates. We train them ourselves. So to give an example of specific training, IT skills is an area where we felt that we could contribute to the education system in Tajikistan. So we established Alif Academy in 2017, as a nonprofit where we promote it education. So we provide free programming courses, including special courses for girls, for kids, for Afghan refugees.

So far, we've had more than 2,000 graduates of these courses, and some of them working, at least some of them work in other companies. And hopefully now in the new countries we had, and we have the privilege of being able to attract some of the most bright, kind, noble, energetic individuals throughout all these years, we had more than 50,000 applications to to our vacancies. And we've chosen and retained the very best.

And we really wanted them to feel the ownership of Alif in all ways, including the financial aspects. So we have a an employee stock option plan where more than 25% of Alif's shares is dedicated to employees, and that we distributed quite widely, more than 300 of our employees are also shareholders. So I can go on and on about our team for four hours. Because yeah, they're the greatest blessing we have.

Brendan Le Grange 21:15

Remarkable that such a fast growing, fast changing environment, you've managed to keep this core of people there and growing them and developing them, I guess, giving them these challenges for the future that keep them fulfilled. So yeah, lovely story to hear.

And for yourself, I know, you're not just stepping away to take some time off, you've got some exciting challenges that you are looking at for Alif as well. So do you want to finish by just talking about what you're going to be focusing your energies on?

Abdullo Kurbanov 21:43

In addition to the geographic expansion that we're having, we're also considering the technological expansions that we make and blockchain is surely has been one of those technological advances that have caught a lot of people's attention.

And we've been studying this for more than a year now. And we feel that we could possibly bring very valuable, very transparent and ethical Islamic finance solutions into the digital asset space.

And we're working on it. We are planning to launch our first service within the next couple of weeks. In terms of the longer term roadmap, hopefully, the results will speak for themselves, but it's an interest free, short term loan that we provide to our clients in stable coins. They provide us with collateral in other common cryptocurrencies like Bitcoin, Etherium, and so on. And it's fully interest free that users can leave a tip if they want to.

We have had a similar product in Tajikistan and it's used quite commonly, you can check it on waad.io

Brendan Le Grange 22:47

So if people want to follow the Alif story, if they want to learn more about what you're doing, where's a good place to go to follow you or to keep in touch with that growth?

Abdullo Kurbanov 22:57

Yep. LinkedIn is probably the best place myself, Abdullo Kurbanov, my co founders, dear friends, Zuhursho Rahmatulloev, Firdavs Mirzoev.

Brendan Le Grange 23:05

been put the links in the show notes. Thank you again for your time. It's been wonderful hearing about what you've achieved and exciting to hear what your ambitions are for the future.

So yeah, thank you very much again.

Abdullo Kurbanov 23:16

Thank you very much, Brendan.

Brendan Le Grange 23:18

And thank you all for listening. Please do look for and follow the show on your favourite podcast platform, and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.

This show is written and recorded by myself Brendan Le Grange in Brighton, England and edited by Fina Charleson of FC Productions. Show Music is by Iam_Wake and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show

And I'll see you again next Thursday.