Why only 0.1% of Pakistan invests in stocks

A Rhodes Scholar’s detour back to Pakistan

The episode opens with Muzamil framing the problem his own generation refuses to solve. Going down to the Islamabad Stock Exchange, filling in paperwork, sitting across from a broker — that, he says, is something his father can do, not him. Someone from Ali Farid Khwaja’s team reached out, and Muzamil treated it as the right opportunity to ask what KTrade is actually doing about that gap.

Before any of that, he asks for the journey. Ali Farid Khwaja’s CV is unusually compact. Saint Mary’s Academy in Rawalpindi, then LUMS for a double major in computer science and economics, graduating in 2003. A master’s in economics from LUMS the year after, then the Rhodes Scholarship to Oxford for a master’s in financial economics. He joined UBS in 2006 on the investment banking side, covering the European technology sector — Nokia, Ericsson, Alcatel — at a time when those were among the largest companies on the continent. From there he moved to a hedge fund investing in emerging markets across Russia, Eastern Europe, the Middle East, Africa and Pakistan; then to Berenberg from 2009 to 2014 covering Apple and Samsung, where he was ranked the top technology analyst in Europe. He became CFO of one of the companies he had covered — a London-listed payment processor that handled the credit card page on airlines like Thai Airways — before joining Autonomous Research, an Alliance Bernstein company, as a partner.

Muzamil pushes on the obvious question. Why come back. “Pakistan was as a technology analyst,” Ali Farid Khwaja explains. When he was CFO at Safecharge, the company had $250 million in cash and made acquisitions in Singapore, Tel Aviv, Dublin and Germany. Pakistan, a market of 220 million people, had nothing to acquire. “I said there cannot be a better opportunity than this. Go yourself and create it, and then you will sell to those same companies you used to work at.” Safecharge, where he had been CFO, was eventually acquired for a billion dollars. He knew, on the inside, that all of those firms would eventually want a Pakistan story.

The 0.1% problem

The headline number lands early and the rest of the conversation orbits around it. At the time KTrade launched, around 250,000 people in Pakistan invested in stocks — roughly 0.1% of the population. Bangladesh, Ali Farid Khwaja notes, is at one to two percent. The US and UK sit between sixty and seventy percent. Everyone else in Pakistan was invested by proxy, whether they knew it or not. “People put money in banks, banks invest. People give money to insurance companies, insurance companies invest. It became a product for the rich and the large institutions.”

That is the wedge. As an investor, he tells Muzamil, you go where things are broken, where no one else is looking. That is where the returns live. Pakistan is the sixth largest country in the world by population, with a market that is under-penetrated in nearly every category that matters. If stock participation moves from 0.1% to 1%, that is a ten-times increase without anything else changing. Global technology companies are chasing growth, and growth lives in under-penetrated markets. The trade was obvious to him because he had spent fifteen years pricing exactly that kind of trade for someone else.

KASB, KTrade, and the inverted brand story

Muzamil’s mental model is that KASB was a bank that drifted into securities. Ali Farid Khwaja corrects him cleanly. KASB was the oldest capital markets business in Pakistan, founded in 1952 — a founding member of the Lahore and Dhaka stock exchanges, and Merrill Lynch’s partner in Pakistan until 2015. The bank, the insurance and the asset management businesses came later, ran into problems, and the bank was force-merged with another institution. In 2018 Ali Farid Khwaja relaunched the brand from scratch.

The bet was that the absence of legacy infrastructure was a feature, not a bug. “Our biggest strength was that we had no legacy infrastructure, so we could focus purely on digital.” The brand carried multiple generations of association; the technology stack carried none. That is KTrade.

By the time of the conversation, the app had a million downloads, 260,000 registered users, and around 5,000 paying customers handling roughly $5 million of trades a day. Half of the company’s revenue comes from institutions — every major bank, asset manager, insurance company and large family office in the country. The other half comes from those 5,000 individuals. Among them, Ali Farid Khwaja notes, are his own father, his brother, his old LUMS teachers, housewives, students, professionals, singers.

A pensioner, a zero-risk product, and the dividend habit

The most concrete example in the conversation is his father. Retired, sitting on pension money, parked in a bank account that paid seven percent under the senior citizen scheme. Ali Farid Khwaja opened him an account on a zero-risk product — what he later identifies as ready-future arbitrage — that returns ten percent, sometimes fourteen percent. Active trading is explicitly not what he is recommending.

The wider point lands harder. Inflation in Pakistan runs around ten percent. A bank deposit at five or seven percent is a slow, silent loss of purchasing power. The fix is not gambling on the next breakout stock; it is owning the boring ones. Ali Farid Khwaja walks Muzamil through dividend yields on companies most Pakistanis only ever encounter as complaints. Fertiliser companies like FFC and Engro pay around fourteen percent. MCB Bank pays twelve percent. “You keep money in MCB’s bank account, you get nothing. You become a shareholder of MCB, and you get twelve percent — a share of the profit.”

He turns the complaint mode on its head. Pakistanis sit in newspapers and drawing rooms and complain that power-sector companies are coddled by the government, that a small set of industrial families make most of the money. The cleaner move, he argues, is to become a partner. “Isn’t it better to become a business partner of Mian Mansha, Hussain Dawood, Syed Babar Ali — the main industrialists of Pakistan who have been working for many years, who have domain expertise — and get a share of the profit they are making? Instead of complaining, you become their partner.” Muzamil reaches for the Indian comparison — the Tatas, the Mahindras, the Ambanis building the new India — and notes the cost of the nationalisations of the 1970s, when the same kind of industrial base in Pakistan was broken up.

The Islamic question

Muzamil raises the friction that is going to come up in his comments section before the video is published. The seven and ten percent figures will trigger the it-is-not-Islamic reflex, and Pakistani savers are, as he puts it, effectively walking into a bank, pulling money out of their pocket, and handing it back to the bank for free every month.

Ali Farid Khwaja’s answer is structural. Owning a share of a company is partnership; profit and loss are shared, which is the Islamic test. Meezan Bank maintains an index of the top thirty shariah-compliant Pakistani stocks, and across the full universe of 585 listed companies roughly two to three hundred are screened as compliant by an Islamic board led, he believes, by Mufti Taqi Usmani. Banks are excluded. Companies with too much leverage are excluded. There are two further rules for the investor: no active day trading, and no trading on borrowed money. Hold the stock for at least three days. Inside those rails, the entire instrument is religiously coherent.

Opening an account in 2021

Muzamil walks the audience through the process he himself had bounced off. The honest version: it used to take 36 pages, signed on every page, before a single rupee moved. “It’s literally my friend said yaar I will not sign any more.” That has changed. An account can now be opened entirely digitally without speaking to a broker, although Ali Farid Khwaja is the first to say the design is still not where it should be.

Mechanically: download the app, enter name and email and phone, get a call from a KTrade representative who walks you through the online form on ksb.com. Upload a CNIC, a bank statement matched to your own account, and either a salary slip or, for the self-employed, a one-line letter on a business letterhead with a business card. Housewives get a sahulat account on a simple statement that the money comes from the husband’s income. Students do the same with a letter naming their father. An OTP from NCCPL, which runs centralised KYC, verifies the phone. Within twenty-four to thirty-six hours, the account is open.

The minimum is 5,000 rupees. The trading fee is fifteen basis points — 0.15% — on each buy or sell. There is no account opening fee and no fee to deposit. Orders go directly to the exchange. There is no human in the middle taking a cut on the way in. The same routing that institutions use is the routing a 5,000-rupee buyer gets. “The system does not discriminate,” Ali Farid Khwaja says.

The friend who would not buy Systems

The single sharpest illustration in the conversation is also the most personal. A friend of Ali Farid Khwaja’s runs a software house with about a hundred employees. He told him to buy shares in Systems Limited, the listed Pakistani technology company, at around 100 rupees just before COVID. The friend did not. Today the share is at 800 rupees. The friend, he says, is now finally buying. The point is not the eight-times return. The point is that the friend was a domain expert in his competitor’s business, knew the trade was real, and still let his own complaint about other people’s wealth get in the way of his own.

Crypto is the real competition

Muzamil notes that investing has become pop culture in India — YouTubers livestreaming their trades — and that in Pakistan that energy is going almost entirely into crypto. Ali Farid Khwaja’s view is direct. His competition is not the 200 other brokerages in Pakistan; it is unregulated crypto. A Chainalysis report had recently named Pakistan the third largest crypto adoption market in the world, behind India and Vietnam, with around ten million Pakistanis invested.

His objections are specific. Capital is leaving the country in dollars and may not be able to come back; under FATF, returning funds to a Pakistani bank account is a non-trivial problem. The mentality on the buy side is, in his reading, casino mentality — not a thesis on blockchain technology but a search for a gambling hit. He compares the experience of a price climbing and falling to emotional whiplash. He is careful to separate his view of bitcoin, where he sees value, from his view of the unregulated retail flow. He compares Robinhood unfavourably on the same axis: Robinhood’s free trading is paid for by selling order flow to hedge funds that front-run the trades, so the customer is the product. Pakistan Stock Exchange routes orders directly. There is no order-flow sale in the KTrade chain.

What the $4.5 million is for

Muzamil closes on the recent funding round. KTrade had raised $4.5 million. The use of funds is split between outreach and product. Ali Farid Khwaja wants a million Pakistanis investing in stocks — the Bangladesh number. That requires marketing, education, and physical offices in twenty cities; the firm is currently in six, including Islamabad, Multan, Lahore and Karachi, and expanding. The other half of the round goes into improving the technology, including the onboarding flow that he is openly unsatisfied with.

Stock investing, he says again before Muzamil thanks him and wraps the episode at the fifty-four minute mark, “changes their lives.” That is the line he keeps returning to, and the reason a Rhodes Scholar who used to cover Apple and Samsung is sitting in a Pakistani studio explaining what a dividend is.