Financing Growth in the Auto sector

Karandaaz facilitates access to finance for Alsons Auto Parts

The Alsons Group is a family business that started back in 1953 in Karachi as the Allana Watch Company, a clock manufacturing operation. The Allana family soon branched out into precision engineering and then to the manufacture of auto parts.

In 1992, the automotive parts unit was set up as a separate unit within the group. It is an industry leader and was one of the first to start local manufacture of automobile parts and components for Pak Suzuki, Indus Motors, Atlas Honda and Yamaha.

Akbar Allana, Group Director, Alsons Group of Industries and Director Alsons Auto Parts, says that with government policies encouraging newcomers to enter the automobile manufacturing sector, the industry will become a vibrant one over the coming years. Current size of the auto industry in the country stands at around Rs370 billion. Of this, around Rs20 billion has been invested by domestic vendors, who are providing spare parts and accessories for different automobile categories, according to statistics provided by the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).

According to Imran Jaka, COO Alsons Auto Parts, the company, a medium-sized enterprise (ME) has huge annual turnover that requires substantial working capital to maintain stocks of raw goods, inventories of finished goods and support a large working process. The company has had limited lines of credit with banks in the past and had to approach market sources charging double the rates of interest, thus limiting growth and profitability.

This is where Karandaaz Pakistan, with funding from UK’s Department for International Development (DFID), stepped into the picture. Working for financial inclusion of in, Karandaaz promotes access to finance for small and medium enterprises (SMEs) through a commercially directed investment platform, and financial inclusion for individuals by employing technology enabled solutions. It has a supply chain finance programme with Meezan Bank to provide access to finance for vendors and distributors working with leading companies in Pakistan. Meezan is one of the fastest growing financial institutions in the banking sector of the country. With its vision of establishing ‘Islamic banking as banking of first choice …’ – the bank commenced operations in 2002, after being issued the first-ever Islamic commercial banking license by the State Bank of Pakistan. Under this supply chain finance programme, Karandaaz has committed USD 10 million and Meezan Bank has committed a minimum USD 40 million to finance vendors and distributors of partner corporates that have entered corporate framework agreements with Karandaaz and Meezan Bank. Under the programme, Meezan Bank is seeking to provide term and working capital finance through cash flow based products (lower collateral thresholds) with efficient loan processing timelines.

As a supplier to Pak Suzuki, Alsons Auto Parts availed financing through this programme to fuel its growth plans.

Ahmed Zafar, Group Director Strategic Planning and Business Development at Alsons, welcomes the initiative. He says that Japanese OEMs are looking for more localization and that means bringing in new technology and tools that requires financing. He says that the auto sector is the country’s industrial backbone and can be termed “the mother of all industries.” As such, it requires the support of financial institutions to realize its potential.

Jaka says that the company’s goal is to bring in technology and capability currently not available in Pakistan. “We believe that the vision and strategy should be ‘Build in Pakistan,’ he says. “ That is going to take care of the problems our economy is facing, being import based with a huge balance of payments deficit.”

Akbar Allana underscores the role finance plays in business growth. The company employees over 300 workers, both men and women, and is supplied by over a hundred vendors. As its growth plans take shape, new jobs will be created along with a larger market for downstream suppliers. “Through organisations like Karandaaz,” says Allana, “businesses like us can get easy and quick access to finance and that helps us get a start in further activities. It’s a blessing for us to avail those opportunities.”

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