Deal focus: CDC backs frontier e-commerce strategy

Myanmar got its first e-commerce payments platform in February through a partnership between VC-backed payment services provider 2C2P and the Myanmar Payment Union (MPU). The 900,000 MPU cardholders became the country's first citizens with the power to pay for goods online.

Daraz wants to provide them with goods to buy. The online retailer recently received EUR50 million ($55 million) in funding from CDC Group, the UK development finance institution, and Rocket Internet to grow its business in Pakistan, Bangladesh and Myanmar. This is very much a bet on the future rather than the present.

Myanmar had an internet penetration rate of 2.1% in 2014, according to the World Bank. This means the total number of people buying goods online - and generally paying cash-on-delivery - was 1.12 million. Pakistan and Bangladesh are more advanced, but their internet penetration rates of 13.8% and 9.6% are comparatively low.

For CDC, backing Daraz is as much a developmental opportunity as an economic one. Beyond the handful of high-end malls in urban centers like Karachi, retail in these markets is held back by unsophisticated offline infrastructure.

"What you are doing is opening up markets so people can get hold of goods and services that otherwise are not available to them. Equally, vendors are getting access to a whole national marketplace that they wouldn't otherwise be able to access," says David Osborne, investment director at CDC. "Daraz has the opportunity to create that infrastructure online from scratch, which benefits the whole economy."

The company was incubated by Rocket and started in Pakistan in 2012 as an online fashion business. It has since become a general marketplace offering products such as electronics and home appliances as well as fashion. Daraz received around EUR10 million in initial funding and joined Rocket's Asia Pacific Internet Group (APACIG) - a Southeast Asia-focused platform set up by Rocket in conjunction with Qatar-based Ooredoo - last year.

Daraz currently attracts around six million visitors and generates net merchandise value (NMV) of EUR1.5 million each month. NMV is growing by an estimated 10% on a month-on-month basis. The fresh capital - of which EUR20 million comes from CDC - will help the company consolidate its position in existing markets and expand into others.

In Osborne's view, Daraz faces two key challenges. First, it must educate vendors so they operate in accordance with Daraz' supplier code of conduct and also have the stock control systems that allow products to be offered online. Second, the company has to set up the physical infrastructure required for e-commerce.

"Daraz is responsible for deliveries and this is done through its own delivery people, and partly through third parties," he says. "You'd want to outsource that as much as possible but where the basic third-party logistics infrastructure does not exist you have to create it yourself."

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• Topics
• Expansion
• Southeast Asia
• Consumer
• Technology
• South Asia
• TMT
• Consumer
• Growth capital
• CDC Group
• Rocket Internet
• Pakistan
• Bangladesh
• Myanmar