Could Pakistan be the latest world stock market to see an explosion of interest from retail investors? Ali Farid, the co-founder of KTrade, thinks so. The online broker is today announcing a $4.5m funding round that Farid believes will position KTrade perfectly as a new generation of Pakistanis embrace the stock market. “It is time for people to get their money out from under their mattresses and get a better return from more formal types of savings,” Farid insists.
KTrade launched in 2019 and has already racked up more than 200,000 users. Farid founded the business after a stint serving as CFO of the fintech SafeCharge, where he saw early evidence of the worldwide boom in online trading. “Online brokers became our biggest customer segment,” says Farid of an industry where firms such as Robinhood in the US have seen exponential growth in recent times.
He believes Pakistan is now set for a similar trajectory. Already, the volume of shares traded on the Karachi Stock Exchange has risen seven-fold over the past 18 months, primarily driven by surging interest from retail investors. Retail investors, for whom international stocks are off-limits under Pakistani investment regulation, now account for more than 65% of overall trading volume compared to around 45% only two years ago.
That increase in demand reflects strong performance from the Pakistani stock market in recent times, but also growing confidence in the calibre of the companies listed on the market and the regulation of investment. Many of the leading constituents of the Pakistani indices are domestic subsidiaries of well-known multi-national businesses – Nestle and BAT, for example – while a consortium of Chinese exchange investors in the Pakistan Stock Exchange has helped drive international corporate governance practices. A growing number of new issues from innovative and entrepreneurial smaller companies adds to the appeal.
However, it is the potential customer base that gives Farid so much confidence in the potential of KTrade. “Pakistan has a population of 200 million people, many of whom are young and internet-savvy,” he explains. “But until now, there has not been much of a culture of formal savings and investments – around 50% of people keep all their savings at home where the money is earning no returns.”
In addition to the domestic user base, KTrade is also targeting 9 million Pakistanis living overseas, particularly in the Middle East, Canada and the UK. “Many Pakistani expatriates are very keen on the idea of investing back into Pakistan,” Farid says.
Combining these two target markets, KTrade believes it can increase its user numbers to 10 million by 2023. It operates through a mobile app that has become Pakistan’s most downloaded investment app, enabling customers to trade equities, bonds, commodities and mutual funds. The service operates with low-cost commissions in the model of online brokers in markets where price competition has become cut-throat.
“Covid has been a real inflection point,” Farid adds. “During lockdown, many people all over the world had more time to explore new ideas and online trading has been one beneficiary of that trend.”
KTrade’s fundraising will support a significant expansion of its marketing activities in a country where regulators and policymakers have traditionally devoted relatively meagre resources to building public understanding of savings and investments. “We have to invest in education,” Farid explains. “We need to persuade people to get their money out from underneath the mattress.”
That will mean conventional advertising and marketing campaigns, but KTrade has also invested in online learning, running online courses to teach people the basics of stock market investment. Fantasy stock picking contests have also proved popular.
The funding round takes in a range of global investors and institutions, and is led by Hong Kong-based TT Bond Partners and HOF Capital from New York. German fintech investor Christian Angermayer, the managing partner of German bank Berenberg David Mortlock also participated in the round.
“Pakistan and South Asia have some of the most exciting market dynamics and demographics globally, and KTrade is well positioned to take advantage of the democratisation of finance in the region,” argues Jonathan Bond, managing partner of TT Bond Partners.