October 11th, 2021 (Mexico City) — Village Capital – the largest organization in the world supporting impact-driven, seed-stage startups – launched the global report The State of Global Financial Health Innovation, in collaboration with MetLife Foundation, PayPal and Moody’s.
In it, throughout a two-year analysis, Village Capital shares the state of the financial health of individuals and owners of small and medium businesses in regions of Europe, Latin America, Middle East / North Africa, United States, and South Asia.
“The biggest problem we have detected – after evaluating over 1,100 applications from 22 countries – is that these five regions have financial services for some, but not for all. Especially not for women, refugees, migrants and rural communities,” noted Daniel Cossío, Regional Director for Village Capital Latin America.
The report shows that there is a vast economic inequality, large underbanked populations, and obstacles that SMBs face such as access to financing and tools for their growth.
Regarding Latin America, the report highlights that despite major progress being made toward an improved financial health over the past decade, the pandemic halted some of that progress. More than 2.6 million SMBs have already closed or are likely to do so due to the health crisis and its consequences, even though they are the backbone of the region’s economy.
“Most banks and financial institutions still consider SMBs too risky for a loan and set higher interest rates for them than the ones for larger businesses,” the report adds.
Furthermore, there are still challenges to overcome in relation to the underbanked population and informal workers. For example, 70% of Latin Americans lack a bank account and eight in ten do not have a credit card. The report points out that more than half of the worker force in Latin America does so in the informal sector, which means that they lack legal contracts, social security and do not receive payments regularly. This means that during the current economic crisis, they have struggled to maintain their income and make ends meet.
Fortunately, entrepreneurs are working on new business models to fill these gaps in traditional financing systems. Fintech startups that are working in the areas of borrow, save, earn and spend have the opportunity to democratize access to financial services and improve financial health – the ability for people to manage their income, get a loan when they need it, and plan for their financial future.
“We see that financial health innovation is happening in these four axes. Everyday we find more startups focused on bringing solutions to any of these: with alternatives for loans, access to capital for SMBs, startups that are innovating on proptech; those that help workers to increase their incomes, and even those who help people make payments and send money. Today these four branches of fintech are complimenting and even exceeding the offer of the traditional fintech sector,” concludes Daniel Cossío.