After long falling short of its potential and lagging behind other emerging markets, the tech sector within Pakistan has suddenly sprung to life and shows no signs of slowing down.

Investment floods Pakistan’s tech ecosystem

What a difference a few years can make. Pakistan’s tech ecosystem has gone from embryonic to alive and kicking within the space of just over two years. Investment levels are skyrocketing to new records. In 2021, on the back of an $85 million funding round raised by Airlift Technologies (the largest single private funding round in Pakistani history), investment in the country’s startup ecosystem hit an impressive $200 million. Last year’s investment numbers were even more impressive, with Pakistani startups raising approximately $375 million, more than in the previous six years combined. This year, the fundraising activity is already on track to smash records.

In Q1 2022, Pakistani startups have already clocked in their best quarter ever, raising $177 million between January and March. Startups in the E-commerce sector led the way, followed by fintech, transportation, and logistics, with most of the deals in the accelerator, pre-seed, and seed stages.

Large international investors have joined a growing local investor base. They are now starting to lead significant investments on a par with those seen in other very active and budding tech markets like Egypt. One need look no further than Dragoneer Investment Group and Tiger Global’s recent $70 million Series B funding of Bazaar, a Pakistani startup offering e-commerce, fintech, and last-mile supply chain solutions, as an example.

What’s driving investment?

We see the rapid acceleration of investment in Pakistan’s tech ecosystem driven by three primary factors:

Undisrupted large size verticals

Financial services

With 100 million adults without access to a bank account, Pakistan is among the most unbanked nations globally. Of the country’s over 3 million SMEs, just a third have access to credit lines. Cash remains by far the most preferred and used mode of payment. Consumers use cash to pay for everything from small expenses like eating at restaurants to buying groceries and purchasing clothes. Cash is even used when conducting large business transactions.

At the same time, mobile phone penetration currently stands at around 85%. Internet penetration is also improving rapidly (up to 34% in 2020 from 22% in 2018). Fintechs have a clear channel to reach the vast majority of the population, including the unbanked and millions of underserved SME businesses.

Of course, challenges remain. Delivering digital banking and financial services will require fintechs to overcome a widespread lack of awareness and low financial literacy rates. There is also a significant trust gap, even for those aware of fintech solutions. Many people still prefer to pay utility bills at a bank as they want a physical payment receipt rather than a digital receipt.

Furthermore, transaction costs remain very high compared to traditional banking channels. For example – an ATM cash withdrawal through a leading mobile wallet like JazzCash or Easypaisa costs more than a regular bank account. One of the critical issues has been that the first wave of digital finance wasn’t driven by banks but rather an offshoot of mobile service providers like those mentioned above. These providers competed with banks, which themselves have been slow to digitise. The next wave of fintech providers will likely see third-party providers like Nayapay, which provide an integrated service.

Onboarding the vast undocumented merchant economy to accept digital payments also poses a challenge. Transaction fees that can exceed 3.5% have slowed many retailers from adopting modern POS systems. Most merchants, especially smaller businesses, prefer to deal in cash to avoid higher tax liabilities. That said, the public sector will have to create incentives to switch citizens over to digital as the transition will not happen if there are higher costs of using digital modes.


Traditional retail is the country’s third-largest sector contributing almost 20% to the national GDP and 15% of the labour force. The industry is highly fragmented, unorganized, and dominated by small operators that lack economies of scale. Retailers (both large and small) also struggle with a lack of supply predictability and suffer from regular stock shortfalls.

Covid-19 has hit brick-and-mortar retail hard and catalysed e-commerce spending in recent years. While the current size of the local e-commerce industry is hard to know, it is estimated to make up less than 1% of the entire retail market of Pakistan. It is tiny when compared to e-commerce sales in neighbouring countries. However, with 60% of the population under 30 years of age, widespread mobile device usage, and a growing and increasingly tech-savvy middle class, there are immense opportunities for technology-enabled e-commerce solutions throughout the retail value chain.

These opportunities are not flying under the radar. Global e-commerce giants like Amazon and AliExpress have already moved into Pakistan, and with such a vast and untapped e-commerce market, more will likely come. There is also an expanding group of local e-commerce companies vying for a slice of the pie like, Telemart, Shopon, HomeShopping, and limelight, to name a few. Services like foodpanda, which already have a delivery platform, have also sensed the opportunity and expanded quickly into household goods. Daraz, perhaps the largest and most established online retail platform, is on track to host up to 300,000 SMEs in the next two years. The company has recorded 100% YoY growth and it will likely surpass $1 billion in sales this year.

Karachi- based B2B e-commerce and fintech startup Bazaar has secured over $100 million in funding. The company provides an operating system for traditional SME retailers that empowers merchants to simplify their operations and grow faster. Its integrated procurement solution enables retailers to choose from several thousand items of stock listed on the Bazaar platform, with next-day delivery guaranteed. Last year, some of Pakistan’s most well-known tech industry veterans joined forces to launch Dukan, a mobile-first platform that helps micro, small, and medium businesses sell online.


Pakistan’s transport infrastructure is inefficient and burdened by delays, long travel times, high costs, and poor reliability. These are estimated to cost the economy as much as 4% of GDP each year.

Most of the population relies on a highly fragmented public transportation system and non-uniform transportation services that cannot meet demand. Severe traffic congestion on poorly planned and built roads has also led to growing air pollution. The existing road network simply cannot ensure the availability of goods and services to the population.

Several startups are vying to address the myriad of problems faced in the transport sector. However, the space is still very much nascent compared to many other emerging regions like Southeast Asia, Latin America, and even some parts of Africa.

Bykea leads the ride-hailing market in Pakistan with the motorbike-hailing company often called the “GOJEK of Pakistan”. Bykea works with over 30,000 drivers. However, with approximately 17 million two-wheeler vehicles on the road in the country today, the motorbike-hailing space is wide open for growth. Airlift Technologies started as a transit business, building an app that allows users to book rides aboard buses. However, the young startup has pivoted to focus on providing a quick commerce service that enables users to order groceries and other essentials like medicines through the Airlift app and receive them in 30 minutes.

Karachi-based Truck It In (founded by ex Careem execs) is focused on the $25 billion road freight industry, which is highly fragmented and dependent on costly intermediaries. The startup’s platform helps match businesses who need goods delivered with truck drivers able to meet that need.

An expanding local investor ecosystem

Just a few short years ago, Pakistani entrepreneurs had almost zero access to capital to build their businesses. Banks rarely approved loan applications, and access to private investors was often challenging. Entrepreneurs were primarily reliant on savings or lending from family and friends, limiting entrepreneurship to small community members of “business families.”

That’s much less the case now. A fast-growing ecosystem of local investors has emerged to fund early-stage technology startups. Indus Valley Capital, for example, is an early-stage VC fund focused on Pakistani startups transforming various industries. Its founder, Aatif Awan, moved back to Pakistan in 2020 after more than a decade of working for some of silicon valley’s biggest tech companies and serving as an angel investor in US startups. Last year, Indus raised $17.5 million for its maiden fund, overshooting its target fund size of $15 million. The fund has already put that money to work, making several investments, including a recently led $3 million seed round in Lahore-based Colabs.

Fatima Gobi Ventures is a joint venture between Pakistani venture capital firm Fatima Ventures and Shanghai-headquartered VC Gobi Partners. The joint venture closed its $20 million debut fund in late 2020 and has since made several investments across travel, logistics, fintech, healthcare, and other sectors, including Sastaticket, Airlift, Tajir, SafePay, and InventHub.

Another active local investment fund is Lakson Venture Capital (LVC). LVC is a part of Lakson Investments Limited (LI), the investment management arm of The Lakson Group. The VC focuses on investments that leverage technology to enable, enhance and disrupt existing business models. Over the last few years, they have made investments in many local startups, including bookme, Knowledge Platform, Mandi Express, and Roomy.

Ultimately, the expanding local ecosystem will help an increasing number of start-ups scale, thereby attracting more international capital into the market.

Favourable regulatory environment

Under Governor Reza Baqir, The State Bank of Pakistan (SBP) has been actively promoting the digital transformation of the financial services sector. It has introduced several key initiatives that pave the way for new business models and more efficient business practices.

The Raast instant payment system

The Raast instant payment system launched in 2021 to modernise Pakistan’s economy. Raast is a secure, efficient, and low-cost digital infrastructure that will significantly reduce transaction costs and improve the end-user experience. The system will also promote innovation in the coming years by providing a level playing field for financial services providers of all sizes.

Electronic Money Institution licence

In the past, digital payments platforms in Pakistan have had to acquire a costly banking licence to operate. The introduction of the Electronic Money Institution licence will make it much quicker and cheaper to launch such businesses by easing barriers to entry.

Regulatory framework for digital banks

The State Bank of Pakistan’s new licensing and regulatory framework is part of several initiatives by the SBP to digitise banking and payments services across Pakistan to increase financial inclusion through the delivery of cost-effective digital financial services. During an open application process between January and March of this year, SBP received twenty applications from applicants, including local commercial banks, microfinance banks, and Fintechs.

Is Pakistan’s tech ecosystem finally taking off?

It’s been clear for quite a while now that Pakistan’s tech ecosystem has the potential to rival or even surpass those in many other leading emerging markets. The country has all the components to become a new tech Eldorado and is on track to pass the $1bn investment mark. With a large, young population of 220 million people, growing middle class, educated talent pool, vast untapped industries, and expanding local and international investor ecosystem, the future looks extremely promising for local entrepreneurs and investors alike.

DAI Magister is backed by DAI, one of the largest global development firms, who are actively participating in the development of the ecosystem. In particular, DAI played a part in formulating the policy approach for Pakistan’s first e-commerce policy, which was approved by the Government in 2019, through their involvement in USAID Promoting Regional Economic Integration Activity. The policy promotes payment digitisation and will facilitate e-commerce with the supporting infrastructure and regulation needed to drive sustained growth.

Together with DAI and through our unique expertise in drawing international growth capital into the most promising emerging market tech companies we’re excited to continue our participation and monitor new developments as the Pakistani tech ecosystem evolves and matures in the years to come.

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