Lendtech Players: Public-Private Entities Restricting Fintech Operations

Challenges in Digital Economy and Flendtechinancial Accessibility

Lendtech industry stakeholders believe that the growth of the digital economy has not met expectations, and liquidity is hard to come by for businesses. They argue that public-private entities limit the operational freedom of lendtechs. Additionally, they emphasize the importance of learning from past branding failures in the leasing industry and highlight the utility of technologies like blockchain for risk management and enhanced security.

According to Iran digital economy annotation, in the first segment of the Iran Fintech event, industry experts discussed the primary challenges facing the lendtech sector, the convergence with other technologies like blockchain, and potential future scenarios.

Liquidity Challenges and Digital Economy Growth

Armin Farhang from DigiPay’s corporate collaboration and investment division noted that accessible liquidity is decreasing. Lendtechs are influenced by price changes, and the official value of loans in banks and financial institutions is declining, making it harder for businesses to secure funds.

Farhang compared data from Shaparak, indicating that the growth of the digital economy has not matched expectations, with digital transactions reverting to levels seen during 2020 and the COVID-19 pandemic. He pointed out that technological changes, particularly in digital government, increase data transparency and create more opportunities.

Reports suggest Iran has strong financial inclusion at basic levels, scoring 90 for bank account access according to Core Banking. However, this figure is much lower in lendtech, with around 40% of Iranians feeling unable to incur debt when needed, indicating limited access to financial services.

Target Demographics and Financial Literacy

Arian Afshar, Chief Growth Officer at Tara, stated that their platform targets the 5th to 8th deciles of society. Financial literacy is crucial in the 4th to 8th deciles, with over 70% of the population lacking financial knowledge. Tara users primarily utilize the platform for essential expenses like meat and rice, although it also facilitates small-scale investments in cryptocurrencies. Afshar emphasized that users value credit scores due to their impact on future financial behavior.

Blockchain Technology in Lendtech

Sohrab Sameti, CEO of Zarban, emphasized that cryptocurrencies are just a part of blockchain services, which offer a highly secure computational environment. Blockchain supports two major services: non-censorable, irreversible transactions and enforceable contracts between individuals.

Sameti highlighted Ethereum’s high transaction volume, reaching $6 billion daily, attributing this to the computational environment rather than just cryptocurrency trading. He noted that decentralized applications like Uniswap demonstrate the computational space’s value, with higher transaction volumes than Bitcoin. Lendtechs hold significant transaction volumes, ranking second and third in the application hierarchy.

Components and Actors in Iran’s Lendtech Market

Babak Moghaddam, Deputy CEO of Kipa, outlined the components of Iran’s lendtech market, including verification and credit scoring, financing, collateral management, merchants, default management, and fraud prevention. He identified key market players: credit issuers, regulators, the banking system, credit rating agencies, and collateral institutions. Public-private entities dominate this cycle, restricting lendtechs’ operational flexibility.

Moghaddam envisioned two development scenarios for the coming years: one based on the banking system and the other on decentralized development by the private sector under Article 44 of the Constitution. The second scenario could enable innovations like peer-to-peer financing, neobanks based on lendtech, a network of private sector CSPs, intelligent electronic collateral systems, data aggregation, and AI-driven individual and collective credit scoring.

Challenges and Innovations in Digital Lending

Arash Lorestani, CEO of Apsan, discussed COVID-19’s transformative impact on the payment industry. He noted that BNPL (Buy Now, Pay Later) emerged as a payment tool during the pandemic. While the Iranian market claims to offer BNPL, it often lacks zero-interest and fee-free financing. Lorestani suggested adopting global models initially to refine local offerings.

Microfinance and Sustainable Development

Sara Shahrokhi, founder of IFA, highlighted their Zagros project, which aims to support rural communities through microfinance and patient capital. She noted that 45% of Iran’s water and 70% of its livestock are in the Zagros region, facing environmental degradation and traditional method challenges. IFA seeks to empower individuals through sustainable financing and employment, focusing on rural areas.

Shahrokhi reported that 25% of Iran’s population is rural, with 49% engaged in agriculture. IFA operates in 230 villages, having funded 1,700 projects worth 45 billion tomans. They aim to modernize jobs and empower communities using microfinance and patient capital, widely practiced globally.

Lessons from the Leasing Industry

Ali Norouzi, CEO of Matin Khodro, shared experiences from the leasing industry’s branding issues. He cited problems such as limiting leasing to specific products like vehicles, dependence on car manufacturers, and ignoring market demand for private leasing companies. These issues culminated in fraud and tarnished the leasing industry’s reputation.

Norouzi warned that similar fraud risks are emerging in some lendtech platforms, indicating the need for vigilance and better practice.