Global Growth, Local Impact – Fintech and Financial Inclusion
In this episode of The Finance Frontier, host Eric Hathaway speaks with Maelis Carraro, Deputy Director of Inclusive Fintech at BFA, and of its global accelerator program Catalyst Fund. Their lively discussion focuses on how fintech companies are addressing the financial needs of billions of unbanked and underbanked consumers. From advancing payment technology to creating platforms that let lenders and farmers calculate the value of rural agriculture, fintech innovation is helping to meet the needs of the world’s poorest and most financially excluded.
Maelis Carraro is the Deputy Director of Inclusive Fintech at BFA, a global consulting firm specialized in creating financial solutions to impact low-income populations. She is also Deputy Director of Catalyst Fund, BFA’s global accelerator program for early-stage inclusive fintech startups in emerging markets. She previously co-founded RemitMas, the first digital remittance service focused on savings for Latino families in the US, and consulted for the IFC. Maelis has an MBA from Columbia Business School and is passionate about inclusive fintech.
Eric: 00:23 She previously co-founded RemitMas, the first digital remittance service focused on savings for Latino families in the US, and has consulted for the IFC. Maelis has an MBA from Columbia, and is passionate about inclusive fintech.
Eric: 00:37 So, Maelis, you’re involved in obviously the business of financial inclusion, your entire life it looks like, or at least not life, but your working life has been, has evolved around that. And, would love you to tell us how you got interested in financial inclusion and why you got involved with The Catalyst Fund, and what drives you to keep going down that path.
Maelis: 01:13 You’re right to say that almost my entire life and career since university has been in this world, quite unexpectedly. But I really started learning about microfinance in college, so at university. I studied economic development and was looking at all the ways in which people around the world in emerging markets could access the financial services they needed to improve their quality of life.
Maelis: 01:44 And, from there, I really got into this space and I saw a bit potential and opportunity to use microfinance and other also market-based solutions to solve big issues in the world like poverty, or climate change, or other. And so, joined the World Bank and the IFC, The International Finance Corporation, that is a private sector investment arm of the World Bank. And started working actually with much bigger institutions that were offering financial services to low income consumers around the world.
Maelis: 02:22 And, I was there for about five years, and at that point I became very interested in new ways to actually deliver finance, using innovative technologies. So, at that time, the main technology that was used was the mobile phone, but the very simple feature phones. So, I got interested in delivery of finance over mobile phones, and then went on to actually build my own company called RemitMas, which was a remittances service for immigrants in the US, as I was also going through another program through business school.
Maelis: 03:03 And, I met my partners there and decided that I really wanted to actually build something myself with the knowledge that I gained in past experience. But, having had the microfinance experience, financials institutions and delivery of finance experience, the tech startup experience, I then saw The Catalyst Fund was being set up and was basically asked to join and help launch it.
Maelis: 03:30 And, I can tell you all about The Catalyst Fund, but it’s essentially an accelerator program for fintech startups. So, I thought it was very serendipitous coming with this background to help other startups and basically tell them, “Well, don’t do the mistakes I made as a startup founder in the fintech world.”
Eric: 03:52 Yeah, it sounds like your background and what Catalyst is doing mixes and matches perfectly, which is great. So, The Catalyst Fund was launched in 2015, and the ideas was to sort of accelerate promising startups, spur innovation and really looking at financial inclusion obviously. I was looking through a lot of the investments that you guys have made, lots of them extremely interesting.
Eric: 04:14 Can you give us an idea of the kinds of markets that you guys cover and what type of investments the fund covers?
Maelis: 04:22 Yes. We cover all of the emerging markets, so we cover Africa, Asia, and Latin America broadly. We don’t have a focus on specific countries, but to give you a sense right now, we’ve supported companies in Kenya, in Rwanda, in Tanzania, in India, Sri Lanka even, Brazil, Mexico, Chile. So, it’s really a wide range of countries. But always companies in emerging markets, serving the low income customer.
Maelis: 04:55 And, the companies that we support receive grant funding, so it’s not an investment per se, it’s all philanthropic capital that they receive.
Eric: 05:06 So, that’s interesting, and that differs from a lot of other funds that are out there. And so, having it be grant based, when you’re looking for donors, are these governments that are part of this, or is it all individual? Where is the money coming from?
Maelis: 05:25 Sure. So, Catalyst Fund was launched three years ago with the support of two main funders, The Gates Foundation and JPMorgan Chase. And, the reason why it was created was to really address a major problem that we see in the emerging markets and across in the early stage innovation space, which is that there is a lot of talented teams out there, and very innovative ideas that struggle to get past the idea stage, because they lack adequate capital and talent to quickly launch and test and [inaudible 00:06:00] on their products.
Maelis: 06:01 And so, a group of investors that come together and said, “Look, there’s so many startups that could solve the problems that still remain in the financial inclusion space,” and they come through our desk but we have to say no, because they’re just too early for us to make an investment, and we don’t feel the risk or term profile matches ours or what we’re looking for, and they don’t have enough traction.
Maelis: 06:26 And so, there’s a big gap that companies find themselves in, in the very early stage that we called the valley of death, where you have something that could make a tremendous impact, but you don’t have the inputs and especially the capital to really take it to a point where you have product market fit.
Maelis: 06:45 And so, this is the stage where philanthropic capital can make a big difference. And, could scale this early stage innovations, with the right advice, with the critical connections that you need, with mentorship, and access to capital, so that the innovators can then be ready for the investors and be de-risked for them, to consider making an institutional investment.
Eric: 07:20 Your work life has been dedicated to financial inclusion. Can you give us an idea from your perspective? You spent time around the globe, what is financial inclusion? Why is financial inclusion important? Why does the world and every country in the world need to really address financial inclusion, both short-term and long-term?
Maelis: 07:42 By financial inclusion we mean the access and use of financial services that are meeting the needs of an individual, right? And so, we believe that financial inclusion is very important because financial services and the access and use of financial services can actually drive improvements overall in well being, and can also drive development at a country level.
Maelis: 08:12 So, if you think about how on a daily basis you for example make investments in your health, in education, in your business, in making payments and going about your life, you realize how important the financial service aspect and the financial aspect of all of these investments and transaction is. And, it’s crazy to think that still 1.7 billion people around the world remain completely unbanked, have no access to any financial service, and cannot deal with the most basic things they need for their life, and not even for example, protect themselves from financial emergencies, and that can really put their families or push their families into destitution.
Maelis: 09:00 I have to say that there has been a lot of progress over the past five years. Before the numbers were a lot higher. And over the past five years alone, 500 million or so adults have opened an account through a financial institution or a mobile money provider. And that progress has largely been driven by access to technology, as one of the fundamental drivers behind this progress. But obviously there’s still a lot to go, we can go a lot further, given nearly two billion adults still remain unbanked.
Maelis: 09:32 And, interestingly, two third of these adults actually have a mobile phone, though which they could access financial services. So, there’s clearly also unrealized potential of leveraging technology to extend the depth and breadth of financial inclusion.
Eric: 09:50 Yeah. I think sometimes being in developed countries, we forget about the numbers. I mean 1.7 billion people globally and, you know, in the US I think it’s somewhere around, there’s tens of millions rather than billions.
Eric: 10:16 Can you give me an idea of the types of companies? I mean obviously when I looked at some of the companies that you’ve invested in, there was some platform plays, there was some data plays, there were payment companies, what’s happened with those companies? Have any of them gotten to the point where they have been invested in and it’s not taken off?
Maelis: 10:36 Sure. So we now have in our portfolio 20 companies that work across a wide range of sectors, from credit to savings, in ShurTech, SAS models, really spans a wide gamut. And so, it’s hard for me, I really love all the models, it’s hard for me to pick the most favorite, but I can give you a few examples and tell you a few stories.
Maelis: 11:02 So, for instance, out of first cohort of five companies, we have one company called WorldCover, that offers insurance to small holder farmers in Ghana. And, they actually had gone through in the US another accelerator program, very famous, called Y Combinator, and then raised capital that needed support on the ground, in the emerging market, to understand how they could build trust with the customers, and improve that trust, how they could deliver the product most efficiently in communities that are often illiterate and often not having of access to the feature phone. So, how could they actually distribute the product to the deepest rural communities.
Maelis: 11:49 And, that company today has reached 20000 farmers, has received a lot more investment from external investors, and is really growing wide and steady and testing with also other types of technologies out there to further reduce cost of delivery, the accuracy of their model, it’s an insurance based on weather data, so it’s a satellite based, index based insurance product. So, they can use for example machine learning to crunch the data and better assess when to give payouts to certain farming communities.
Maelis: 12:26 Then we also have companies that are way earlier stage, but extremely promising. A company in our portfolio called Toga and Tito for example, in Brazil. They also offer insurance, but they have a system based on a chatbot. So they also use artificial intelligence if you want, but see they have a chatbot system that enables them to do the acquisition via Facebook Messenger or online via a website, and distributing insurance that way. So then policy is entirely digital, obviously that reduces cost by a lot. And, they’ve also now partnered with any insurance company in Brazil that is providing sort of access to their white label product that they can distribute to their platform.
Maelis: 13:16 So, you can starting to see also companies forming partnerships with traditional financial service providers, which is definitely a trend that we’re seeing a lot in this market.
Eric: 13:35 As these businesses are developing and you’re spending time traveling the world, do you have information or have access to the people that are being actually affected and sort of personal stories? Do you guys get to that level?
Maelis: 13:47 Yeah. I mean we work very closely with all of the startups, beyond providing the grants to the startups. We actually provide really hands on venture building support services, delivered by fintech experts. So, you know, going back for example to World Cover, this is a transformative service, right? And 90% of the farmers they serve in Ghana have access to insurance for the first time. And for them, whether they lose crops due to bad weather, determines sometimes whether they can feed their families at the end of the month.
Maelis: 14:26 And, here satellite data, mobile phones, are enabling access to a product they wouldn’t not necessarily ever had access to, in terms of protection. Or, a company in Sri Lanka we work very closely with, they offer consumer loans for household goods to Sri Lankan no income individuals and no income families. And so, these could be things like a smart phone for somebody who wants to become an Uber driver, or a washing machine for a working mother that doesn’t have time to work and also do everything else in the household, but she just doesn’t have enough to access that tool that she needs to improve her life.
Maelis: 15:09 So, we are seeing the impact and that I think is the most exciting part of our work.
Eric: 15:24 Where do you see the need for other investment technology going forward with financial inclusion? And what needs to happen in a perfect world with your background, where do you see it going and what’s the next step?
Maelis: 15:39 So, I think the next step is really trying to understand how we can push the frontiers even more via advanced technology, but also just leveraging partnerships and what’s already out there. I mean financial institutions do exist in emerging markets and in our markets. We do have now distribution channels that we cannot even dream of before, of the likes of Facebook for example, like social media platforms that people use everyday. WhatsApp, right? WhatsApp now is widely, widely used in emerging markets as one of the main means of communication for people that do have a smartphone. And those numbers are growing by the day.
Maelis: 16:22 So, it’s figuring out how can we actually continuously lowering the costs, leveraging the right technology at the right time, so that people use the products, and also really develop financial services, value proposition that meet these new customers that are coming into the financial services world for the first time where they are. So, even if we use technology, we can’t just say, “Okay. We should tech for the same of tech.” But it needs too often, especially in emerging markets, be coupled with a human touch. So, it’s the combination of tech and touch, along the customer journey that can really make sure that people use the financial services to their advantage, and understand them. Because accessing, having a bank account in and of itself, is great, it’s a first step, it’s an enabler, but it’s not enough.
Maelis: 17:14 You need to actually use the account, you need to build reserves over time, so, you know, building savings so then you can use them for either investments or in the case of shocks and emergencies. You need to be able to have enough for example to find opportunities for yourself from a business perspective, make investments, pay for education for your kids. And so, you have … And, the financial account and access by itself is just an enabler.
Eric: 17:48 I wanted to ask one last question around regulation. Obviously in the US we’re probably one of the most heavily regulated financial markets. As we move into providing services for this group of under banked individuals around the world and emerging economies, that a lot of times don’t have regulatory frameworks. Do you see regulation playing a part in this fintech revolution as we address this population? Because sometimes those are overlooked and again, there are risks to not having regulations to either that data or that access to funds and money, which is an important part of everyone’s life.
Maelis: 18:29 I absolutely think regulation has to be play a part in making sure that there’s an enabling environment for the right kind of innovation, and also that that innovation actually again benefit the users and doesn’t increase the risks for them.
Maelis: 18:46 So, to give you an example on the enabling side of things, I think there’s a lot of regulators and the emerging markets are actually scared of what … Because they don’t understand the kind of innovations that are emerging. And so, provide either too much, put too much red tape around new services and especially tech enabled ones, so that in the end that stifles innovation and it’s not really useful. So, how can we come up with regulatory regimes or solutions, for example sand boxes where you can innovate, but in a really safe space, and test out solutions before they go to market for example.
Maelis: 19:28 And just generally try to educate regulators to what the solutions look like, what benefits are, what kind of technologies are used, what that means from a data standpoint, from a user perspective, so that the regulator can actually come up with the right type of policies, and also understand the implication for the users, so that we can protect the consumers more. So, I’m definitely a proponent of the right types of consumer protection policies, data privacy policies.
Maelis: 20:01 So, you need to use this technology with care, and provide the regulators with the understanding, that need to then come up with the right policies, that is not too stringent, enables innovation, at the same time protects the consumers. And, it’s not an easy thing to do.
Eric: 20:20 Yeah. It’s interesting to me that even in developed economies, we’re sort of at the exact same place as we are in emerging economies with, sort of this fintech regulation puzzle.
Eric: 20:33 Well, we’re glad to have the opportunity to speak with you and happy that you are involved in this industry. It sounds like you’re very passionate about it, and Catalyst Fund seems to be doing some very special things out there.
Maelis: 20:47 Sometimes the journey of an entrepreneur can be very lonely, having been there, you know, I really wanted this program to be the best accelerator partner for entrepreneurs. I look forward to growing even more and scale what we’re doing, and work with all the future inclusive fintech entrepreneurs in emerging markets.
Eric: 21:06 Thank you for your time today, and very much appreciate the information you’ve been able to give us.
Maelis: 21:12 Thank you. It was my pleasure.
Eric: 21:21 Thanks for listening to Finance Frontier. I’m your host, Eric Hathaway. And until next time, subscribe on your favorite podcast app.
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