“Pakistan’s manufacturing industry hasn’t changed much in 70 years,” says Ahsan Ali Khan, co-founder and CEO of Zaraye, a business-to-business procurement marketplace that is today announcing it has raised $2.1 million of pre-seed finance. “We have some great businesses, but they’re struggling to compete in the global marketplace.”
The business case for Zaraye is based on Khan’s and his co-founders’ diagnosis of two issues holding Pakistani manufacturers back. First, these are businesses that operate on paper-thin margins and for which raw materials account for as much as 65% of total costs; the difficulty of sourcing competitively priced raw materials is therefore problematic. And second, manufacturers are struggling to secure finance to underpin their working capital, which is inhibiting their ability to grow.
Zaraye aims to solve both those problems. It has built an online marketplace through which suppliers of raw materials can connect directly with manufacturers looking to make purchases. Buyers post their requirements and suppliers then compete to offer the keenest terms. In addition, for those manufacturers struggling with working capital as they expand, Zaraye also offers financing.
The platform has initially focused on two manufacturing sectors in particular, targeting buyers in textiles and in construction. Some 300 suppliers based in locations across Pakistan have signed up to Zaraye to offer raw materials to these buyers, though the platform is initially aimed at firms based in two cities, Karachi and Faisalabad.
The deal for both parties is that it is free to sign up to the platform. Zaraye earns a commission – typically between 1% and 7.5% – in the event that the platform facilitates a deal, but buyers and sellers pay nothing otherwise.
On the working capital side, Zaraye points out that many manufacturers in Pakistan simply find the banking system closed to them, requiring them to negotiate credit agreements with suppliers or to arrange expensive financing deals with informal lenders. The platform promises to significantly undercut the latter, enabling manufacturers to reduce the cost of acquiring raw materials as they target growth.
Zaraye’s founders argue that their proposition offers a win-win situation for all concerned. “We aim to strengthen the backbone of the country’s economy by helping the entrepreneurs in finding avenues to optimise and scale,” says Khan.
Traditionally, manufacturers have had to connect with a handful of intermediaries or deal directly with individual suppliers, an extended process that is costly as well as time-consuming; through Zaraye, they can approach multiple buyers in one space. For suppliers, meanwhile, the platform provides access to significant demand, aggregated in a single location.
It is a pitch that appears to be resonating. In addition to the 300 suppliers who have signed up to offer their materials, Zaraye has also brought 400 buyers on to the platform. Founded last year, within four months of its launch, the platform was enabling transactions worth an annualised $1 million – the figure currently stands at $3 million and Zaraye expects to reach $10 million later this year.
Today’s fund-raising announcement suggests the business now has the potential to accelerate. Having proved the concept, the platform can grow through multiple routes – increasing the number of cities where it is open to buyers, expanding into other sectors of the manufacturing industry, and even pursuing cross-border opportunities.
Financial support from investors, led by Tiger Global and Zayn Capital, will help in that regard. Zaraye envisages investing its funds in new hires and improvement of the technology stack. “We can aggressively build volumes to give us efficiency to build value for customers,” Khan adds.
His two co-founders relish the opportunity. “Small and medium business owners have been trapped in a cycle of high competition and a lack of financing options,” says Hashair Junaid Ahmedani.
Taha Iqbal Teli adds: “Our goal is to help these entrepreneurs focus on manufacturing and selling their products – Zaraye will handle the entire procurement process, all the way from getting quotes, assuring quality, delivering to their doorstep, to providing after-sales assistance.”