Firas Ahmad Talks AzamPesa and the Future of Tanzanian Fintech

Originally published in Atoms & Bits Magazine (Q2 2024) as "12 Questions With Firas Ahmad: A Pioneer of East African Fintech". Discover more about the first edition here.

Atoms & Bits interviewed Firas Ahmad on June 6 and 14, 2024. Why? He is a key figure in Tanzania's financial technology (fintech) sector.

Firas co-founded and serves as Group Chief Executive Officer (CEO) of Sarafu and AzamPay, as well as co-founder and Director of AzamPesa.

His e-commerce, payments processing, and mobile money companies are increasing the usage of digital financial services (DFS) among Tanzanian consumers.

They are also improving supply chain efficiency and transparency for retailers and manufacturers in Tanzania’s commercial capital, Dar es Salaam.

We asked him twelve questions. He gave us detailed answers.

Q: How did your education at Harvard and Georgetown shape your worldview and approach to business?

A: The American education system encourages innovation. You're taught to recognize your ability to turn possibilities into reality. It is also relatively good at training you on how to be diligent and comprehensive in getting your work done.?

However, it wasn't just classroom learning that was valuable. At a place like Georgetown, you are connecting with a lot of self-motivated, intelligent, and ambitious people early in their careers.

One of the first people I met on campus as a freshman was Abubakar Bakhresa. We became fast friends and remained in touch over the years. That friendship and trust are the foundation for the various businesses we co-founded in Tanzania, including Sarafu and AzamPesa.?

Mzee Bakhresa's original vision is of course the driving force behind the group’s success, but I believe one of the reasons you see the AZAM Group innovate as much as it does across so many different sectors of the economy is Abubakar’s ability not only to see the future but to execute in an extremely complex and dynamic environment like Tanzania.

He brings a rare mix of vision and knowledge of the market with a capacity to carry through on the idea that I am not sure anyone else in the country matches.

Our time at Georgetown together, I think, played an important role in not only building out friendships but also in exposing us to the underlying business concepts and thinking necessary to make these companies successful.?

My time at Harvard actually started me on my entrepreneurial path as I connected with a professor, and we started working on a startup he founded that turns waste into energy in South Asia. The company did not ultimately succeed, but it taught me a lot of lessons about how to recognize opportunities and operate in emerging markets.?

I do think people who study overseas at US universities have an advantage, especially in Tanzania’s startup space. That’s because the discipline and rigor required to do well in some of these top schools are the same kind of discipline and rigor you need to systematically solve problems in a small company. I don’t think these skills are taught in Tanzanian universities.

Having said that, it does not mean a lack of foreign education would prevent anyone from success. It just means you need to find a way to acquire those skills in another way.??

The USA has an innovation ecosystem—a reinforcing environment of people who believe in possibilities, with access to capital and resources to make those possibilities real. That's a challenge in Tanzania, where capital is constrained in the hands of very few people, and few people have the thinking to turn ideas plus capital into a scalable business.

Also, Tanzania is relatively smaller than the US market. This can be an opportunity for building foundational infrastructure for things like digital commerce, but it also means your company will have a hard limit in terms of size if you only address the Tanzania market.

Tanzania’s national gross domestic product (GDP) is similar to the city of Rochester’s GDP. Rochester is the 10th largest city in the State of New York and the 108th largest city in the United States. So you have to keep this limitation in mind.???

Q. What inspired you to focus on financial services and e-commerce in Tanzania?

A: First: I am inspired to build businesses in Tanzania by the potential for large-scale impact. Because the economy is relatively small, incremental changes in fundamental infrastructure propagated across the economy can have a huge positive impact on the lives of ordinary people.

Mobile money is a good example. In developed markets like the USA, where the economy is so massive, most startups focus on small aspects of specific verticals.

For example, making a specific automotive part cheaper or more reliable could be a billion dollar business, given the scale of the economy. The overall impact in terms of improving lives is less, but the business itself may be much more lucrative.

So in general, I was drawn to Tanzania because the opportunity to build a business that could materially impact the lives of many people was more likely than in developed markets.?

The inspiration for focusing on e-commerce stemmed from my partnership with the AZAM Group, a large FMCG (fast-moving consumer goods) manufacturer. I observed inefficiencies and a lack of transparency in their distribution network, with retailers often having to contact multiple group offices to order different products.

This led to the idea for Sarafu, a B2B e-commerce marketplace designed to streamline the ordering process and create transparency in the supply chain. The theory on which we built Sarafu was that if you make supply chains more efficient and transparent, some retailers will be willing to pay for the value created from that process.

The genesis of AzamPesa, our mobile money platform, came in part from my experience in Bangladesh, where I witnessed the success of bKash, a non-telco-led mobile money provider. We saw an opportunity to bring value-based competition to Tanzania's mobile money market, where telcos dominate and lacked the same level of innovation.

The vast majority of payment volume globally is between businesses, but in Tanzania, there's a strong preference for cash transactions, even in business-to-business dealings. To address this, we built AzamPay to help lower the cost of digital payments for businesses while reducing failure rates on transactions. Hence, making digital payment methods a more viable option.

All the concepts we develop across this ecosystem are related to the foundational elements of digital infrastructure for the country.

In other words, we are trying to build the core platforms on which commerce can transition from informal to formal activity. This will not happen overnight, but the long term thinking is that if we can provide these foundational services, there is an opportunity for scaling and growth as the country matures.?

3. Can you elaborate on the impact that AzamPay and Sarafu are having in Tanzania?

A: AzamPay is a payments processing platform that integrates with local banks and mobile network operator (MNO) wallets across East Africa. We're enabling businesses to accept payments, make disbursements, and manage their financial operations more efficiently with fewer payment failures and real time payments processing.

There are a range of business challenges around accepting payments or remitting payments across various verticals and applications. We built AzamPay from the ground up in Tanzania for Tanzanian businesses, so we know the challenges and try to make sure we solve them step by step.

Sarafu, on the other hand, is changing the B2B e-commerce space. We're digitalizing the informal supply chains that dominate Tanzania's retail sector. By providing a platform for small shop owners to procure supplies and manage payments digitally, we're increasing transparency, efficiency, and access to a wider range of products.

For example, when we launched Sarafu, we required retailers to order and pay on the app all digitally. We did not offer a call center to place orders. Many customers did not want to order on the app and even went so far as to call the sales representative and ask them to log into their account and place the order for them.

Some people on our team wanted to open a call center as a way to drive faster growth. I insisted on sticking to our vision because scaling the business would be more difficult without fully automating the ordering process.?

Despite the initial pushback, a year later, the purchasing patterns changed dramatically. Initially, 95% of orders were placed between 11 a.m. and 3 p.m. But after a year, 50% of orders were placed between 8 PM and midnight. Customers realized they could place orders at any time, especially when not busy with customers.

Once they realized that was to their advantage, they not only accepted digital ordering, but they took advantage of it for their own benefit. This behavioral change added real value for their business and demonstrated that sometimes you have to show your customers what is possible even if they do not fully understand the benefits from the beginning.

4. What are some of the unique challenges you've faced in the Tanzanian market?

A: One of the biggest challenges is the dominance of cash in the economy. About 97% of point-of-sale (POS) transactions are still cash-based. This is partly due to the fee structures associated with digital payments, where both merchants and consumers often bear the cost.

Another challenge is the fragmented nature of the retail market. Tanzania doesn't have large retail chains. Instead, small, independent 'duka' shops dominate the market. This presents both a challenge and an opportunity for digital transformation.

We're tackling these challenges with localized, experimental approaches. For instance, with our AzamPesa QR code payments for ice cream vendors, we're not charging the seller but adding a small surcharge for the consumer. This works because ice cream is an impulse purchase, and the convenience factor can justify the small additional cost.

With Sarafu, we're launching 'Sarafu Shops’. It’s a program where we partner directly with local dukas to provide them with digital tools, priority inventory access, and branding. It's our way of standardizing and digitizing the informal retail sector without disrupting the existing market structure.

5. What areas in Tanzania have the most potential for new ventures or innovation?

A: Social commerce is growing quickly, but it's still informal. You might have an Instagram page, then someone sends a WhatsApp message, you exchange a peer-to-peer (P2P) transfer, and a Boda Boda delivers the product. These are innovations that have happened organically because people need to transact. There's a lot of potential to scale these activities and create more value for consumers through risk control mechanisms and greater transparency between buyer and seller. In Tanzania, trust is at a premium.

If you can intermediate trust between transacting parties, there are a lot of opportunities to grow your company.

In fact, Sarafu and AzamPay are really in the “trust” business, helping buyers and sellers transact more transparently.?

However, we face challenges. Tanzania's discretionary income is limited, with a GDP per capita of around $1,100. This means we need to focus on essentials like food and daily consumables, which have tight margins and competitive pricing. Because Tanzania has a relatively small, albeit growing economy, there are no guarantees.

Even if you successfully build a product that a large part of the market accepts, it may not scale to a level that attracts exit opportunities.

You'll have to figure out how to make it work.

That said, compared to Kenya, which has received a lot of investment in these spaces, Tanzania is still far behind. There's an opportunity to catch up and build digital infrastructures that can facilitate commerce and improve life for consumers.

Other promising areas include electric vehicles, where we've seen significant cost savings in our pilot program with Sarafu. There are likely opportunities in other sectors, like agriculture, health, and energy. But I'm not an expert in those areas, so I will let others comment.

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6. Any advice for aspiring entrepreneurs in Tanzania?

A: At the start of your career, try to get the best job at the most professional company you can for at least a few years.

Working within a corporate structure that requires you to produce quality output and be rigorous with how you manage your time and effort is invaluable early in your professional career.

You won’t necessarily learn that in a startup. And in many companies in Tanzania, it's possible to skate by and earn a paycheck by currying favor with the owner or boss in lieu of getting anything done. Don’t do this, you will waste your time and your career.

Being around professionals who demand you take ownership of your work, perform at a high level and push yourself to improve is the most important thing you can do early in your career.?

Could you get a job outside Tanzania at a company that does not operate in the country? If you can, it's a good sign you have some key skill sets that are transferable across any part of the world. That is global knowledge, and you cannot raise capital or form partnerships with companies outside of Tanzania without at least some level of global knowledge.

Having said that, one of the key advantages of doing a startup in a country like Tanzania is the advantage of local knowledge, something not to be underestimated when it comes to solving local problems. It's a combination of global and local knowledge you should aim to acquire to position yourself to build a successful startup.?

Focus on solving real problems, not just chasing the latest tech trends. Understand your market deeply; what works in Silicon Valley or even in Kenya might not work here. Be prepared to experiment and pivot.

And most importantly, build strong teams and partnerships. The challenges in our market are complex, but so are the opportunities.

Remember, in Tanzania, capital is usually scarcer than labor. That's why the cost of labor is so low relative to other countries. Access to capital is almost impossible in Tanzania. You either have capital or you don't. Even among the startups you see in Tanzania right now, I'm a privileged startup coming from the Azam (Bakhresa) Group. It is difficult to compete? with me in certain areas, given my access to a very strong local brand and capital.

7. How do you spend your free time, and what causes do you care about?

A: I spend a lot of time with my family - my wife and three boys. . My oldest is 14 and my youngest is 6, so I expect most of my free time will be with them for the next few years.

I'm also basketball player. I played in high school. Even in Tanzania, I have a group of friends I play basketball with once a week at the Starlight Arena. I also read quite a bit.

As for causes, one thing I have done for better or worse in my career is make my career itself a cause. In other words, the core vision of this ecosystem of businesses we built revolves around greater transparency, trust and efficiency in the payment and commerce infrastructure of the country.

The ultimate beneficiary for this is the consumer and the small business owner, who now has better, less expensive access to certain products or services. In this regard, I do hope that when all is said and done, the businesses themselves will contribute materially to the well being of the people of Tanzania.

Having said that, I do also look for charitable causes and, in one instance, started supporting a small orphanage in Goba, Dar es Salaam. This started when my last son grew out of his clothes and shoes. I would bring them to Tanzania to distribute at the orphanage via our CEO of AzamPesa, Ibrahim Malando. After doing this a few times, we thought about how this could be scaled given all our distribution infrastructure in the country.

Right now, we are working with some international charities to figure out how we can support the direct delivery of donated food and supplies to charitable community organizations.

The idea would be that anyone anywhere in the world could directly support an orphanage, a women’s shelter, or a similar community group via direct support, where we deliver food and supplies via Sarafu so no cash changes hands (moves from one person to another).

This means the donor will have peace of mind around the transparency of the transaction, and the organization can avoid potential misuse of funds associated with cash transfers.

We are in a unique space given our e-commerce and payments ecosystem, so this is a project we are quite excited about in terms of having a positive impact.?

8. What motivates you to write and share your knowledge online?

A: First, writing clarifies thinking. You can't claim to have thought deeply about something unless you clearly state your argument or observation.

As soon as you start writing, you have to focus on systematically bringing the reader along your thought journey.

If you cannot write it, you may not have something meaningful to say.

For me, the writing process is analysis. I think about something, consider if it makes sense, and then write it down to see if I can make a clear, concise point. If I can, it means there's some kernel of truth there—something meaningful to understand and bookmark. The writing is the outcome of connecting various dots and trying to observe and articulate some insight that has come through building these various businesses.?

I write because I am compelled to better understand the situation I am in. I share the writing because I am happy for others to benefit from my thinking if it is useful for them.

Each piece of content you produce and publish is like a public good. If others benefit, that is great. If not, it doesn’t matter because the goal was to clarify my thinking, and that was already accomplished.?

My blog posts and articles also often serve as resources. For example, I was at a Bank of Tanzania (BoT) conference earlier this year, presenting on AzamPesa. A director asked several questions, and in a follow-up later on,

I could point them to various articles I wrote to clearly explain my point. It demonstrates depth of thinking and also helps serve as a resource for specific issues and challenges we face as a business.?

Ultimately, writing is something that comes naturally to me, so the idea here is how I can use my talents to further my business.

With social media like LinkedIn and X (formerly Twitter), writing still holds a lot of sway in the market. If I were good at making videos, I would do it, but filming just isn't my thing. I prefer writing.

Our interview with Firas Ahmad continues.

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9. How do you promote a culture of trust and excellence within your teams?

A: Leadership at an executive level starts with two key things. If you do these two things really well, everything else kind of takes care of itself. First, you need to set a vision and be the keeper of that vision.

Everybody in your company should know where the company is going, and they should know what role they play in helping the company reach that goal. This has to be a constant reminder over time.

Second, and equally important, is finding the right people to work in your company. You need to hire people who are aligned with that vision and whose self-interest is aligned with the company’s interest. The last thing you want are people whose self-interest is opposed to corporate interests. That's where you go off the rails.

In Tanzania, if you're trying to build a company, especially from scratch, the skill sets required are much different than those for running a large, established company.

Most professional employees end up focused on tasks, punching out widget A or widget B, then going home. In a small company or startup, you need people to think beyond tasks. They have to understand how their job fits into a larger process and make sure that process gets done, not just their job.

We focus on hiring individuals with a strong work ethic, a willingness to learn, and a commitment to our vision. We emphasize principles of integrity, ownership, and accountability - encouraging our team to take responsibility for their work and contribute to the company's success.

‘Own the process, your position, and the result’. If you can get enough people to do that, then you start to see things moving in the right direction.

10. What lessons from other markets have you applied to your work in Tanzania?

A: I spent some time working in Bangladesh for a renewable energy company. While there, I was friends with one of the founders of bKash, one of the largest mobile money companies in South Asia.

As I said earlier, one interesting thing about mobile money in the Bangladesh market was that it was not telco-led. A third-party financial service provider led the market. They grew very quickly, capturing a large market share before the telcos even got into the mobile money business.

Coming to Tanzania in 2015–2016, I saw that the mobile money market here is quite mature, not like Bangladesh at all. But the parallel I saw was a very siloed financial services market. What we saw in the Tanzanian market was that competition was primarily based on access.

The SIM card was your access, and your service was the mobile money wallet on that SIM card. You really didn't have a choice; if you wanted to get another mobile money wallet, you'd have to go get yourself another SIM card.

With AzamPesa, we thought we could bring competition to the mobile money market based on value. We saw an opportunity for a number of different values to be created, and we're starting to build those out now.

We think, overall, there is a big opportunity to expand the mobile money pie.

Most of Tanzania's transactions are still cash-based. I think estimates are that 90 to 95% of all transactions are still cash.

So we think that through this type of competition based on value and innovation, we can expand that to a larger number of transactions that are digital-based.?

In general, there are always things you can learn from other companies and other markets, but you have to make sure you localize the application to consider the preferences of local consumers.?

11. How do you see the regulatory environment for fintech and e-commerce in Tanzania?

A: The regulatory environment in Tanzania is evolving. You could argue that the BoT’s decision to mandate interoperability across mobile money providers back in 2014 was one of the most forward-thinking moves of any regulator in the region when it comes to financial inclusion and the expansion of financial services.

Unlike Kenya, in Tanzania you have some competition in the mobile payments space, which opens the market up a bit.?

Having said that, as technology changes and new applications start to develop, regulation is always in the difficult position of catching up to changing circumstances.

One challenge we faced was USSD access, one that, to the credit of the regulatory regime in Tanzania, we have been able to address in different ways to ensure consumers have access to our products, especially AzamPesa.

I wrote an essay on why I think USSD is, in fact, a public utility and should receive the same oversight as electricity or fuel prices.?

With the advent of the fintech era, there must also be clarity on who regulates what. Sometimes there can be overlapping jurisdictions or conflicting requirements, which can be challenging for startups to navigate.

This is one reason it was so important to establish TAFINA (the Tanzania Fintech Association), towards which I believe regulators have been quite receptive.?

12. How do you manage remote teams and ensure quality across your operations?

A: Managing remote teams is challenging, especially in Tanzania, where the professional culture requires a lot of direct follow up to make sure teams are not getting stuck somewhere.

First, you must have people you can trust reporting to you. If you do not, you are in trouble.

I am lucky to be surrounded by some great people who I rely on day to day to manage the company and report back to me.

Having said that, to make the right decisions, you need to combine delegation with being hands-on, especially in areas where the company may be struggling, regardless of whether you, as CEO, are an expert in that area.

For example, we had issues when we outsourced some development to a local software team. The architecture and the entire way it was built were done poorly.

I'll give you one example - they left the default character limit for input fields unrestricted. This meant someone could crash our database just by pasting 500 pages of text into the user name or password fields of the app. Such oversights can be disastrous for a fintech company. Sometimes the level of rigor and diligence is not where it should be.?

To address this, I've had to get involved in all different departments at one time or another. I've learned how to manage IT departments despite not being a technical person. I've had to figure out legal and regulatory issues, sales and marketing, everything.

The key is to be aware of everything that's going on. You have to be close to the ground on some level.

People will tell stories whenever it's in their benefit to tell stories. So you have to know whether those stories are true or not.

I spend time in the market myself. I'll go interact with customers and find out what's going on. I've been in the market where a customer told me we were three or four days late on their delivery.

We started digging into the numbers and found out the problem was related to spare parts supplies for trucks.

You can track data on a screen, and that is really important, but talking to a customer gives you a visceral sense of what is happening with your product in the market.

This hands-on approach is crucial in a place like Tanzania.

You can't just assume that what people tell you is what is actually happening.

You need to have your own view and multiple sources of information.