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Founder at Work: Abdul Gaffar Sadi, Co-founder, and CEO, Drutoloan

Abdul Gaffar Sadi is the Co-founder and CEO of Drutoloan, a Dhaka-based fintech startup that looks to simplify SME financing in Bangladesh and beyond. Before starting Drutoloan, Sadi studied business at the Bangladesh University of Professionals (BUP). Trained in business administration and coming from a middle-class background, Sadi saw the struggles of SME entrepreneurs when it comes to accessing investment and finance, which eventually led to the idea of Drutoloan.

In this excellent conversation, Mr. Sadi joined Ruhul Kader to talk about everything Drutoloan, SME financing and fintech, and entrepreneurship. They discuss Sadi’s personal journey and the origin of Drutoloan, optimism, and entrepreneurship, growing Drutoloan in the early days, the current state and evolution of Drutoloan, the evolution of its business model, operations and distribution strategy of Drutoloan, the challenges, and priorities for Drutoloan, the market and the market dynamics for SME focused fintech startups, the ambition of Drutoloan, his lessons from his journey so far, the ups and downs of a founder’s journey, and much more.

Personal journey and the origin of Drutoloan

Ruhul Kader

Thank you for agreeing to this interview. Can you please tell us about yourself, your background and how did you come to start Druto Loan?

Abdul Gaffar Sadi

I'm a finance graduate from the Bangladesh University of Professionals. After my graduation in 2018, I and some of my friends started Drutoloan in February 2019 with the simple concept that although MSMEs contribute more than 25% of our national GDP, they struggle to access finance from traditional financial institutions.

We wanted to build a fast, instant, and efficient lending system for the MSME, which eventually led to Drutoloan. We want to provide end-to-end digital and at-location services to MSMEs.

Ruhul Kader

You graduated from university in 2018. You started the company in February 2019. You thought MSMEs face a lot of challenges in accessing loans and financial services. This is a problem that needs a solution and we can solve it. Let's put together a company and build a solution. What happened after that? Can you tell us about these early days? How did you put together the initial resources?

Abdul Gaffar Sadi

If you want to start anything in the financial industry, the most challenging part is the regulation. You need regulatory authorization to start lending or collect deposits. At that time, it was not possible for us to get a banking or MFI, or an NBFI license. So we started a cooperative society. We got a cooperative society license and started collecting deposits and lending in a particular zone. We have since expanded our operation. But initially, we operated only in one area.

So the first challenge was the regulation. To address it, we took a cooperative license and we started lending to these small businesses.

The second challenge was the fund. We didn't have any support from the bank or MFI or NBFIs. We also wanted to learn from the field before going to these organizations and expanding our operations. What we did was we started collecting deposits. We launched a nano deposit scheme for the lower middle class and lower class people and small businesses.

The idea was that it is challenging for low-income people to deposit large amounts of money in banks or NBFI. Since their income is limited, they can't save a lot. We started a nano savings scheme, where they can save daily, weekly, or monthly according to their ability. The product was hugely successful. We collected more than one crore taka within a short time and started lending from that deposit. We also gave some returns to our depositors.

Initially, it was not easy. Earning the trust of the customers was a challenge. However, with time, proper services, and honesty, we managed to overcome those challenges. When they saw how serious we are, they started trusting us and putting their hard-earned money with us.

That's how we started our lending service.

There were many more challenges. As freshers, understanding the regulatory requirements was difficult for us. It took us time. However, we learned everything through trial and error. We would try things, and if it didn't work, try again differently. We had to change many things and our approach many times. Over time, we learned and improved.

In lending, it is important to understand the psychology of the borrower. We had to understand the parameters to select borrowers and assess their creditworthiness. We were a small team and we worked hard. We were constantly in touch with our customers and formed a close bonding with them. We knew everything about them including what is going on in their personal life.

As things progressed, we started to introduce several other products.

One problem we noticed these MSMEs faced was making multiple trips to the banks and other financial institutions to get a loan. To make these trips, they had to leave their business, which was tough for them and they were unwilling to do it. Very few of them had employees.

Most of these small business owners work alone, with one or two helping hands. Usually, the owner runs the business. If they need to visit a bank for a loan, they essentially need to shut down their shop for a day.

We came up with a solution that we would provide at-location service, where he wouldn't have to leave his business infrastructure. He can complete the whole lending process, from applying for a loan to verification to collection, from his shop or his home.

We introduced an end-to-end digital platform where you can do everything from your phone. However, we never put technology at the center. Technology is not important unless people use it. We had to teach them how to do it, what the benefits are, and how their money is safe with our application. This is how it started.

We always had and still have two things in mind. We focus on how healthy the product is for the customer. To give you an example, let's say we have a one lakh taka loan product for MSMEs.

We design our product in a way that is beneficial for them. For example, if a shop owner borrows one lakh taka, he can circulate that money two or three times in his business in a month. If his margin is 10%, we design the installments in a way that his revenue is always more than our installment. In that way, at the end of the year, he will be able to repay me as well as create a small capital for himself from that loan. We have always focused on that. We believe that if his business is healthy, he will be able to repay us.

Our products are fast, easy, and flexible, designed with a view to making our customer’s lending journey comfortable through a “PHYSI-TAL” approach. The application process, the verification process, and disbursement and collection all are fast, easy, and flexible and follow a hybrid model of physical and digital operation to provide the customers with a unique financial experience

We regularly organize seminars and programs where we teach our MSME Entrepreneurs basic financial literacy and accounting lessons. There are about 2.5 million retailers in Bangladesh, and only 2% of them are under the banking umbrella. There are 7.9 Million MSMEs in total out of which 95% don’t have access to formal financing, creating a credit gap of USD 2.8 billion.

Bangladesh has one of the highest unbanked populations in the world. So, we have partnered with different banks. Now, if someone opens an account in Drutoloan, if he doesn't have a bank account, with his consent, automatically a zero balance account will be created in one of our partner banks for him. In this way, we are bringing them under the banking umbrella. Since day one, our focus has been to help these MSMEs grow, and we're still on that path.

After working for a while, when we thought that we had enough experience and learning from the market, we took an MFI license. We now partner and work with other banks and NBFIs and MFIs who have better access to finance to make customized products for these MSMEs.

In the last four and a half years, we have disbursed more than 2600 loans of approximately BDT 11.28 Crore and served more than 10000 MSMEs in various ways, and raised deposits of BDT 6.82 Crore approximately. Until now, our default rate is 0%. We have understood from our learning from the market that there is no exact formula and process to keep the repayment 100%. Rather it’s a gradual process. We are flexible in how we work with these entrepreneurs. When an MSME entrepreneur comes to us and asks for a loan, we say that you should find a way to earn our trust.

We have more than 50 data points in our credit scoring engine across three basic categories that include financial discipline, business performance, and compliance. We use various data points and sources to provide scoring on these three categories because the rigid credit scoring system doesn’t work for these entrepreneurs. You do not have financial transactions in MFS or banks, show me your rent payment data for the last 12 months. If you do not have sales data, no problem, get me your purchase data.

For example, most of these MSMEs do not have a tax identification number or trade license, or both. We help them open the TIN and we assign a score to that. The trade license, the deeds, and how he keeps his accounts, we look into all these things. We also score on a psychrometric level such as how he thinks, his vision for and commitment to the business, and whether he is into it for the long run or short run. We try to know an entrepreneur.

We are now working with two Banks, two NBFIs, and two MFIs.

We have been bootstrapping for the last four years. We recently started a fundraising drive, which we hope to close in the next few months. We have already secured a fund a few months ago.

Last four years, we have mainly been focused on our operations. We didn't apply for anything. We didn't participate in any program. Now, we are looking into these opportunities to expand our operation.
Optimism and entrepreneurship

Ruhul Kader

You started in 2019 as a cooperative society, covering one particular location. You had to overcome regulatory challenges, gain the trust of your customers, and build an operation. What was the motivation behind working in the vertical? Where did you start working first? How many businesses were you working with in those early days? Tell us about your experience in the early days.

Abdul Gaffar Sadi

We started playing with the idea in 2018. The idea comes from our personal experience. My father is a small business owner. Growing up, I saw that no matter how much he puts his effort into the business, the business would not grow because he couldn't inject additional capital into the business. He didn’t have access to capital from banks and financial institutions. My father was brilliant at his business, but he couldn't grow because he didn't have access to finance.

These are common challenges small businesses face. We all have heard these stories. In the environment I grew up in, I saw these things, and it always bothered me.

I could see the potential and passion in these entrepreneurs. But they couldn't get finance because they didn't have the particular credit-worthy points that the bank required to get a loan. In fact, the majority of them never thought of going to the bank or other financial institutions. It's a sign of giving up hope.

We started with the basic idea of simplifying the financing process for MSMEs. The existing system is bureaucratic and sometimes even discriminatory towards these entrepreneurs, which is unfortunate.

Once I had the idea, I shared it with a few of my friends. When we started discussing the idea, the first things that came to mind were the negative ones, because we're dealing with money. Why would people deposit with us instead of a bank? The second question was what license we were going to get and how we were going to get it. Why would people take loans from us, why not banks, NBFIs, or MFIs? How would we recover loans? If somebody doesn't repay, what would we do?

I had a whiteboard in my room. We started doing a SWOT analysis on it — writing down the good and the bad things. In no time, the board was filled up with all bad things and had no space to write any good things.

What happens with a 24-year graduate is that they're relentlessly optimistic. Although there were so many negative points of view from my own teammates and from myself, we decided to move forward. We said you know what, let's start and we would figure it out as we go.

I think every startup and every business starts like this. Optimism is the reason why people start. At least that was the case for us. Otherwise, we wouldn't have. In any logical way, this is not something anyone should start.

The first thing was the regulatory challenge. After much effort, we got a cooperative license, which is another story. Getting a government license is not easy. Cooperative has a bad reputation. The license was not easy to get, especially for kids like us. Many people told us not to waste our life on this and that we would be in trouble.

As I said before, the problem with 24-year-old guys is that they're relentlessly optimistic. No matter what everyone was saying, we started anyway. We got the license after much back and forth. Once we got the license, the team became confident. They started to believe that we might in fact be able to do it.

We wanted to start by lending money, but we didn't have money. The little money that we had, we spent on getting the license. We were in a bind.

There was a factory near our office. There was a tong shop there where we used to hang out with friends. One day, I saw a huge crowd coming out of the factory at the time of closing.

The scene gave me an idea. I thought that I couldn’t go to a few people and get some money but if I could convince all of these people to deposit only 10 taka each, there were more than 40,000 people in that factory, so it would be a lot of money.

The next thing, I started talking with these people. We made a credit policy. We didn't know how to make one. We studied other similar policies and made one, changed it as we made progress. We created our first deposit scheme, which we had to make changes to as well. For the first few months, our credit policy, and our deposit policies used to change every week. Because we were learning new things from the market and would improve it based on the market feedback.

I still remember I would meet a customer and ask him to open a deposit/savings scheme. I shared our returns with him. He would say that the return is low for me. We would change and make it higher. Then we would meet another customer who would tell us that your return is high. If you commit this return, you won't be able to repay us and you would be in trouble. People will not trust you because when there is something greedy about it, there is something fishy about it. Then we would lower the return rate. These things happened daily.

Every day, a team member would get demotivated and would want to leave. The rest of us would bring good food and cajole him to stay. Someday I would feel super down and

announce, let's quit. The team would encourage me and say that we have to do it.
The team is the most important thing for a business. It doesn't matter how talented the team is, or how skilled, more important is how much the team believes in the dream. That's important. We had an excellent team.

However, I think we survived for a completely different reason. As I mentioned, we started with personal deposits and loans. We used to give small nano loans to individuals. We also had a maternity loan and an emergency loan.

Two incidents happened.

The wife of one of our borrowers was going into labor. At the time of childbirth, he didn’t have enough money to pay the hospital bills. He called us and explained his situation. Our teammate who attended his call told him not to worry and to go to the hospital and take care of his wife and that he would come to the hospital with the money. Before they reached the hospital, our team member was there.

After the delivery, the guy came to our office with sweets and the baby and his wife to repay and he started crying saying that he didn't know what to do, couldn’t get help from anywhere at that time and he could get our help. It was a huge moment for us.

These things matter and inspire you to stay on course.

There was another similar incident related to an accident involving the husband of one of our borrowers. In an emergency, she needed some money to take him to the hospital and she was not able to get money from anyone. She asked us and we gave her a loan. Once her husband was released from the hospital, she came to our office to repay and she started crying.

In December 2020, we provided a small loan to an MSME entrepreneur. At that time, he had a small shop at the corner of a big shop. Now after three years, his business is big and we worked as the financial company that we promised him to be. These things have been a constant inspiration for us to keep going. For none of us, it was about personal gain. It was about that intrinsic value we were creating for other people.

A Drutoloan representative speaking with a customer
A Drutoloan representative speaking with a customer | Photo by Drutoloan

On growth in the early days

Ruhul Kader

How big was your team at that time?

Abdul Gaffar Sadi

We started with three people: me and two of my co-founders. After a while, some of our friends got interested in joining, not as partners but they wanted to work with us. For the first few months, they worked for free. When we started, we were a three-person team, within two months, we became a team of 10-12 people.

Ruhul Kader

How many people deposited money with you in the first year, and how many people received loans from you during that same period?

Abdul Gaffar Sadi

The first year was tough. Gaining trust was an uphill battle. It was hard. Maybe around 200 people opened savings accounts with us. It was around 2.5 lakhs or 3 lakhs in total. We disbursed around 10 lakh taka as a loan that year, we invested the rest of the money from our own pocket. When we survived the first year, things gradually started to fall into place.

In the second year, around 500 to 600 people deposited more than 20 lakh taka, a 200% YoY growth. It has been an exponential growth from there. For instance, in our fourth, we disbursed more than what we have disbursed in our first three years combined. In the first three months of this year, we have disbursed more than we have disbursed in the last four years combined. We have gained trust.

Now that we have partnered with different banks and financial institutions, we have the ability to lend more. Earlier we didn't have to worry about repayments, our worry was disbursement. I knew that the customer was not going to default and that he needed the money. I knew that he should get the money even if not from us then from somebody else to grow his business because he had that caliber in him and that honesty to make repayments on time. But we couldn't lend him because we didn't have that money. However, it has changed over the years. Now, if he's not eligible for bank loans, we can lend him from MFIs.

On the overview and evolution of DrutoLoan

Ruhul Kader

You briefly talked about the evolution of your products, services, and the partnership you have with NBFIs and banks. In order to consolidate all these aspects, can you provide an overview of the company across a few key areas? First, tell us about the products and services you offer. I understand you provide personal loans, MSME loans, and deposit services. Please elaborate on these offerings and provide insights into your target customers. Additionally, can you outline the geographic areas you cover? Secondly, please tell us about your operation. It’ll be helpful to hear more about the partnerships you mentioned with banks and the MFI.

Abdul Gaffar Sadi

When we started in 2019, we started with two major products: personal loans, and nano savings. Under the personal loan program, we have several products such as emergency loans, travel loans, maternity loans, and education loans. Our verified customers could get instant loans from us. We have created a system that allows us to understand a customer before giving him loans.

People usually start by opening an account with Drutoloan and making some deposits with us. When we see that your frequency of deposits is good and you have good financial discipline, we verify that particular borrower, and once he is verified, he can get instant loans from us.

The first loan usually takes two to three weeks. From the second loan, the processing time is almost instant.

When we are doing that, we also introduced purpose-driven loans such as a 28-days travel loan. We used to take a service charge for loans — a loan processing fee, which was charged based on the time of repayment. However, if you repay earlier than your schedule, we waive a percentage of that fee. For instance, for a four-week loan of 1000 taka, we may change 100 taka as processing fees. If you repay within two weeks, you get an early settlement fee waiver as an incentive and your processing fees come down to half, 50 taka.

Then we introduced maternity loans. We also introduced another product, which was more like a seed fund than a loan. In our case, everything was happening due to necessity. We didn't have the fund, we thought that if our users had funds, we could give them a platform where they could lend to each other. So we started a mutual turn loan. It is a common thing in rural areas where 10 to 12 people gather an equal amount and every month someone new could take it through an electric lottery. We started that. It was easy for us because we had customers from different areas. We used to ensure that everyone paid back at the same time and we used to do the lottery and everything.

When we gathered some capital, we started a nano business loan, where people could borrow between 10,000 to 50,000 taka from us. People could take 10,000 taka for one month, 20,000 for two months, 30,000 taka for three months, and up to 50,000 taka for five months and you could repay weekly or daily or monthly according to your comfort. From day one of our business, this was our main goal to help the nano/micro/small businesses.

After that, when we got connected with different banks and MFIs, we started MSME lending. Right now, we are providing MSME solutions. We also have personal loans as a project and we provide these loans only to MSME entrepreneurs. Our tagline is we want to be your financial companion. We thought if we are taking care of their business, we should also take care of their personal needs. If someone is sick in his family, he can take a loan from us and he can repay us back. This is how our products have evolved.

Currently, we provide MSME loans from 10,000 to one crore taka. Depending on the amount and financial institutions, the rate of return, the repayment process, and the repayment tenure vary.

The way we charge is slightly different from the traditional way. We are following a Murabaha-type business model, where we earn from the markup instead of interest.
Let's say, a garment factory needs a machine, which costs 100 taka. We buy that machine at 100 taka, add a markup, and sell it to them at 110. They repay accordingly. This is how our business model has evolved over time.

Even when we were providing nano business loans and personal loans at the beginning, we only used to charge the loan processing fee. We didn't have interest back then. However, now the deposit rate and the interest rate depend on our partner banks since we have to follow their credit policies.

Ruhul Kader

Do you still have the saving products that you started with?

Abdul Gaffar Sadi

We do savings for multiple institutions as well as for ourselves. Let's say a borrower is taking a loan from XYZ Bank, whatever deposits he makes, we give it to that bank. If we are working with MFIs and if someone deposits with us who is also a borrower from that particular MFI, that money goes to that MFI. The deposit is not with us but with the lender. In this way, we are taking savings, yes.

We have an MFI license, where we provide loans, and people can also save with us.

Ruhul Kader

Is it like people who get loans from you are people who have savings with you? Is there any kind of ratio to that? For example, I want to borrow 20,000 taka for which I would need to have a minimum amount of savings with Drutoloan.

Abdul Gaffar Sadi

There is no fixed rule from us. However, sometimes banks, NBFIs, or MFIs that we work with may have their own policies.

Usually, banks and NBFIs don’t have these rules. However, MFIs have some policies where you have to have a minimum of 10% of the loan disbursed amount as savings. If you have 10,000 taka, you can get one lakh taka as a loan.

A Drutoloan representative speaking with a customer | Photo by Drutoloan
A Drutoloan representative speaking with a customer | Photo by Drutoloan

On the evolution of the business model

Ruhul Kader

Please give us an overview of your business model and highlight how much it has evolved over the years. How do the different parts of your business model work?

Abdul Gaffar Sadi

The business model has changed because earlier we were working with the customers for both savings and lending. Now we are working with banks and other financial institution partners, which creates new policy maintenance requirements.

Similarly, when we were working with a cooperative license, we had to maintain cooperative regulation only, when we got the MFI license, we had to maintain the MFI regulation as well. However, since we are now working with different kinds of organizations such as banks, MFIs, and cooperatives, we need to make customized models with these organizations.

For example, MFIs can share revenue with us because their interest rate is higher. However, for banks, it is tough to share revenue with us. So we work with different models for different institutions. For banks, we have one model. For NBFIs, we have another.

However, we have been trying to find a common model for all. For instance, if a bank disburses a one lakh taka loan, we buy the product and add a markup of 15% and sell to that person for 115,000, and from that, we give the bank 9,000 and we keep the rest. This is just an example. The point is in this way we're trying to find a common model for all.

While we are trying to find something uniform, it varies from institution to institution. For example, for one bank, what we do is that we charge the customer for loan readiness as we are helping them to get a trade license and everything. We charge the customer loan readiness, for our credit scoring, and our bank partners share a small portion of their revenue with us where applicable.

In simple terms, the basic model is Murabaha and we earn money from the markup.

Ruhul Kader

How does the credit scoring model that you talked about work?

Abdul Gaffar Sadi

Our credit scoring model has three parts. The first part covers financial discipline. The second part covers business performance and the third part is about compliance.

In business discipline, we look into whether the business has existing financial data or banking data. If it doesn't, we look for purchasing data with suppliers or any credit history with other banks or NBF or financial institutions, if he's getting any credit facility from his supplier, does he pays his rent on time, whether he pays his children's school fees on time, these kinds of things. There are different data points and data sources.

We have our direct selling agents (DSA), we call them Druto Sailor. They work as sales representatives of different supplying companies and work with us under this program on the side. They also provide us with meaningful information about these businesses because they have daily transactions with these businesses. We use these data points and sources to create a financial discipline score for each business.

Then we look into his business performance data such as the last six-month purchase data, average sale data, etc. We try to understand his knowledge of the business and know his suppliers, his buyers, and clients. We use this knowledge to put together the business performance.

In compliance, we look at the documentation such as trade license, bank account, age of the business, other sources of income, the background of the family members, guarantors, the characteristics of the guarantors, etc. We triangulate all these data to come to a meaningful credit score.

The reason many of these businesses do not get formal financing is because of the rigidity of the data points. They try to judge the creditworthiness of these MSME entrepreneurs with data that they do not have, whereas maybe there is different data, which can help understand their creditworthiness. That's what we do.

We are also opening SME centers where our MSME entrepreneurs will get all kinds of financial services as well as other services.

We have partnered with many Saas Platforms that can help these MSME entrepreneurs to grow; their services will also be available alongside financial services.

We aimed to install 1000 SME centers in the next 2 years to ensure a “Holistic Financial Inclusion” of the MSME entrepreneurs. And that’s our goal backed by our vision “to make business loans available at the fingertips of the entrepreneurs.” This network will help MSME entrepreneurs in various ways.
On operations and distribution strategy of Drutoloan

Ruhul Kader

That's an interesting idea. You can't have a one size fits all model for everybody. A custom model for different people makes sense. Tell us about how your operation works. How does your distribution work? How many people do you serve now customer-wise?

Abdul Gaffar Sadi

Earlier, we used to operate only in Uttara Zone, where we used to cover 7-8 thanas in Dhaka north. Currently, we are covering the whole of Dhaka and the Savar Zone.

Within the next few months, we will be covering outside Dhaka locations such as Bogura, Sherpur, Faridpur, Comilla, Gazipur, Tangail, Narayanganj, Munshiganj, Madaripur, etc.

In terms of operation, our co-founders look after various core functions. I'm the CEO. One of my co-founders is COO and another co-founder works as Chief Lending Officer.

One of the reasons we do not have any default is that we never overlap each other's boundaries. Our CLO alone has the authority to approve loans. I don't have that authority or my other co-founder does not have that authority. We have other lending officers as well. Three of us look after the main three departments.

We have an accounts team, we have a digital marketing officer. On the operations side, we have a strong team of collection officers. Our collection officers make sure that the repayment is on time. While repayments can be made through MFS, collection officers physically visit our borrowers on the installment date so that the repayment is ensured. We believe collection prowess plays a vital role in effective recovery.

We have verifying agents who verify the loans, and documents and run contact point verification. A field officer monitors the field operation including the verification team. We have several marketing executives who work with our direct selling agents and acquire customers. In total, we have 15 people on our team.

Other than that we have partnerships with various Saas platforms that give us exposure to more than 2 lac MSMEs with data required for the alternative credit scoring. Through these platforms, MSMEs can easily apply for loans from Drutoloan, and with customer consent, these platforms share customers’ data with us so no further KYC is required. Moreover, through the traction of the MSMEs on these platforms, we can assess their creditworthiness.

Ruhul Kader

How does your marketing and distribution work?

Abdul Gaffar Sadi

80% of our customer acquisition is done through our website. If you go to our website, there is an apply now button. We receive a lot of applications online.

After reviewing the applications, our marketing executives contact applicants over the phone and help them understand our process. If they agree to proceed, they upload their documents, and our verification officer goes there and ultimately our Lending Officer decides if he's going to lend or not.

Once the lending is done, our collection officer goes on the date of collection and collects repayment. Acquisitions are mostly done through our website. And also there are our DSAs, Saas partners, and SME centers.

On the challenges and priorities for DrutoLoan

Ruhul Kader

What are the challenges for DrutoLoan now?

Abdul Gaffar Sadi

The systemic risk is increasing for every entrepreneur. That's the main challenge we are facing. We have enough resources to expand, but we are not expanding in the way we should because we don't know what will happen in 2023. We're keeping everything in control to survive this year, maybe next year will be better and we will expand all over Bangladesh.

Economic and political uncertainties across the world are a major risk. In every other business, when you sell, your tension goes away but in lending, the tension starts when you start selling. When we're lending to someone, we have to think about the next year.

Last week we disbursed a loan of 25 lahks to an MSME. He will repay us in two years. We have to make sure that we survive the next two years. That's why we're facing a little bit of a problem with expansion. Not because we don't have that resource or there are other issues.

All our loan is disbursed following due process, which ensures higher repayment.

We have built an organization that runs on processes. There are processes for everything. No part of our operation is dependent on any individuals. Someone new can join tomorrow, and within a month he will be ready to deal with everything because everything is process oriented.

However, with the uncertainty of not knowing what's going to happen in the next few months, everyone is a bit scared. That's a problem. I think that's the challenge we're facing now.

Another challenge is that, when we were working alone, we used to be faster. However, since we now work with partners, it takes time to process things. I think that's another major challenge of working with these institutions. Earlier we used to be operation focused. We used to focus on our customers.

Now my team focuses on customers and I focus on Financial institutions, Strategic partnerships, and fundraising. That's a problem right now. However, as we scale, I think this problem will go away as well, once we earn the trust of these institutions.

These banks and MFI didn't work with us before. They're working with us now and they're trusting us. I think if this trial goes well, trust increases and they trust us, things will get easier.

Ruhul Kader

How big is the market for a company like Drutoloan? How do you see the competition? How big is the market? Who are some of the important players in the market?
On the market and the market dynamics

Abdul Gaffar Sadi

The market is huge, the credit gap in the MSME sector is USD 2.8 billion, and growing at a 9% rate annually. I think monopolies are not good for any industry, especially when it comes to MSME lending because they are contributing 25% of the total GDP.

If you look at the markets like the USA, 65% of the GDP is contributed by MSMEs. I think we should have more players here. There are several 100 banks and MFIs, but still, 95% of the MSMEs do not get formal financing.

I'm not worried about the competition. I think more MSME-focused startups and fintech should come to the market. Many of the people who operate in this space are not our direct competitors. They offer MSME financing embedded with their primary function. None of their core products is MSME financing. Drutoloan is probably one of the rare companies focusing solely on MSME financing.

Lending is an execution game, no credit scoring is going to work and no formula is going to work if execution is not right. It's a gradual process. You learn every day. You have to be very focused. If we talk about banks, banks are not focused on MSMEs. They talk a lot about

MSME financing and do a lot of seminars, but they cannot reach there. Because you need a “PHYSI-TAL” approach, which we do at Drutoloan. We have created a system where it is end-to-end digital, but you have to provide physical appearances where it is needed.

If you look at India, there's a company called LendingKart, one of two fintech companies in India that are actually profitable. Zerodha is another one, that’s stocks, so it's different things, but Lendingkart is a company that is extremely profitable because they focus on a single thing which is MSME financing. That's what we do. We had to start with personal loans because we didn't have the funds to do MSME financing from day one.

The market is huge and it's gonna be a trillion-dollar market in a couple of years. Bangladesh is a developing economy. Government is extremely passionate about MSME development. I have talked to the SME Foundation, and I've talked to the SME development board and they want to work more.

They're willing to give 0% interest loan if necessary but that money is not reaching the MSMEs. This is because we do not have enough inclusion of banks and fintech yet.

The problem with our startup ecosystem is we are very excited about our business. We are open to new ideas. One day we are working on something and the next day some new idea comes and we start working on that. That is one of the reasons traditional banks and NBFIs don't want to work with fintechs because like I said we are relentlessly optimistic and it is very hard for us to stay focused as startup people.

I think the market is huge, a lot more people should come to this market. Five things we should focus on. The first is we should enable technology but like I said technology is not important unless your consumers use it. We need a physital approach. Look at bKash. bKash is turning this economy into cashless. They're trying it and even they have agents in every corner of the country. They are doing it because a fully digital approach is not still possible. We need a physital approach.

Secondly, I think we should all have a focus market, your target group. And it should not change with time. I want to serve the MSME entrepreneurs, I will always do that. I will never move to any other target group.

Third, collaboration is the key to reaching more people. We do not want to reinvent the wheel. I think startups and fintech companies should collaborate more. If I do lending, I'm not good at customer acquisition, I can collaborate with a SaaS platform and do that.

Fourthly, the focus should be on customers. We should design products, which is healthy for the customers. It shouldn't look tasty, it should be healthy, especially in finance. The last thing I would say is that decisions should be data-driven.

Finally, companies who are embedding MSME financing with their primary product should stop it. Because they are creating bad examples. They provide loans but they're not focused on it. They're focused on loan disbursement but they're not focusing on repayment.

The lending business is incomplete without repayment. A good lending business should have 100% repayment. Maybe a 1%-2% default is a market standard, there will always be defaults. I think these companies should work with fintech companies because they have that expertise in lending. As I said, it's an execution game.

I think we do not have any direct competitors at this moment. Moreover, we want to collaborate with everyone. Say MFIs are my competitors but I'm working with MFIs. The same with other financial institutions.

On the ambition of DrutoLoan

Ruhul Kader

What are the future plans?

Abdul Gaffar Sadi

The ultimate vision for the company is to make business loans available at the fingertips of entrepreneurs. And we want to do it for entrepreneurs anywhere in the world. That is our ultimate vision. We want to make funds available for the businesses so that they can focus on building their businesses.

By next year, we want to serve every corner of this country. After that, we want to expand to South Asian countries and other markets.

Finally, we want to build a multi-generational company. I don't want to build a unicorn. I don't want to raise lots of funds. I want to build a multi-generational startup that's what our country needs right now. We want to build a company that will last a long time.
On lessons learned

Ruhul Kader

What are some of the lessons you have learned from your journey so far?

Abdul Gaffar Sadi

I'm learning every day. One thing I would like to share is that in business, you should have a neutral way of seeing things. You should not get overly motivated by good news or demotivated by bad news.

Instead, you should be neutral about things. When looking at things, you should be calm and neutral. What often happens is when something good happens, we get excited and when something bad happens, we get demotivated. That's not how we should run our business, we should be neutral.

Second, it is important to do things that matter, which is necessary, even if you are not able to do it. For us, helping these MSMEs to grow is important. Even if we don't make money, or even if Drutoloan doesn't become successful, it won't really matter to us because we have already helped 2000 businesses to grow. Maybe we should focus on these things when building our business.

Ruhul Kader

That's very important. We easily tangle our emotions and ego with things, which can cloud our judgment and render us ineffective. That was beautifully put. Thank you so much for the work you're doing and thank you for speaking with us.

Abdul Gaffar Sadi

Thank you very much for taking the time and doing this. Really appreciate it.

Mohammad Ruhul Kader is a Dhaka-based entrepreneur and writer. He founded Future Startup, a digital publication covering the startup and technology scene in Dhaka with an ambition to transform Bangladesh through entrepreneurship and innovation. He writes about internet business, strategy, technology, and society. He is the author of Rethinking Failure. His writings have been published in almost all major national dailies in Bangladesh including DT, FE, etc. Prior to FS, he worked for a local conglomerate where he helped start a social enterprise. Ruhul is a 2022 winner of Emergent Ventures, a fellowship and grant program from the Mercatus Center at George Mason University. He can be reached at ruhul@futurestartup.com

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