February 5, 2018 in Fintech, Latin America
Many of the world’s poorest communities live in what is called the informal economy.
People work and earn money. They make plans to save some of that money for their children’s education or just for a rainy day. They occasionally need to borrow quick cash for an emergency root canal or a new business idea.
But they don’t have access to a bank — or a debit card, savings account, insurance, or a line of credit.
So they rely on informal means of managing their money. That could mean storing cash under the mattress; borrowing from family and friends; or dealing with black market moneylenders when they want to start a business. These informal methods — this shadow economy — can be risky, unpredictable, and outrageously expensive.
In Latin America, four countries (Mexico, Colombia, Argentina and Chile) share a distinction that shows the depth of this problem. Let’s call it the 63/20/20 problem. In each of these countries:
Our mission at Village Capital is to invest in entrepreneurs solving major social problems, and we’ve been thinking about Latin America’s 63/20/20 problem for a few years now. Back in 2014, we opened our Mexico office to meet entrepreneurs building financial technology (FinTech) products that can help people in the informal economy (for example, digital platforms that work in place of a bank, or technology-driven lending services that offer an alternative to predatory loans).
We also brought together ecosystem leaders to figure out why the informal economy is such a tough nut to crack, and why big companies aren’t filling the gaps. We learned that in Mexico the cash economy is still king; that many people lack financial education that would help them use formal products; and that big banks in Latin America are focused on building products that can quickly scale, rather than products that work for everyone (read more insights here).
But rather than just focus on the problem, we prefer to invest in the solution. Since 2014 we’ve invested in Latin American startups like Credilikeme, which taps into a user’s Facebook network to assess their borrowing risk and game-ify the process of paying interest on a loan, and ePesos, a small business lender that recently raised $6 million from investors, one of the largest-ever startup equity raises in Mexico and a sign that investors are starting to recognize not only the trends in the FinTech sector, but particularly the opportunities to serve the unbanked, underbanked, and small and medium businesses in Latin America.
[vilcap_post_cta_links]
Today we’re proud to announce that we’ve closed out our latest investment-readiness program, and we’re offering $75,000 USD in investment to Chile-based Fintual and Mexico-based Mutuo Financiera.
Both these companies are addressing the 63/20/20 problem directly. Fintualis a robo-advisor that helps people manage investments, even if they know very little about their finances. Their product offers access to personalized and balanced risk investments for a fraction of the normal cost. Mutuo Financiera, meanwhile, is a platform that extends credit to small and medium enterprises by offering structured financial products for the supply chain.
The startups were selected for investment during our FinTech: LatAm 2017 program, which we ran with our global partner in financial health PayPal, with additional support from BlackRock and Citibanamex. The companies were selected for investment through our unique model of peer-selected investment, which puts the final investment decision-making power in the hands of entrepreneurs.
Pedro Pineda, co-founder of Fintual, spoke about the process: “Whether you win Village Capital’s investment or not, by the end your startup will have improved just by being surrounded by intelligent entrepreneurs that have been analyzing your business for three months. If you add the fact that you get to know new markets, as well as the Village Capital team that will do anything to get you meetings with the right mentors, lawyers and legislators, I can hardly think of a better program in Latin America.”
The eight other startups that participated in the program were:
Want to get involved with future programs and investments? We’re excited to work with partners worldwide to support and invest in entrepreneurs solving major global problems. We’re currently working with partners in three ways:
As Communications Director at Village Capital, Ben works on sharing what we’ve learned from our work in order to amplify our impact and help catalyze the fields of impact investing and entrepreneur support.
