Trust and technology boost Colombia's financial inclusion

Finance technology firms are spreading fast all over Latin America. We have already analysed the Fintech revolution in Brazil and this week we are going to take a closer look at Colombia, the fourth biggest economy in the continent, behind only Brazil, Mexico and Argentina.

This promises to be a good year generally for Colombia. In June, the country’s government and FARC guerrillas reached an accord on bilateral ceasefire. This is not a final and definitive peace pact but it’s still a historical achievement after more than 50 years of conflict and violence. In the tech scene, some government initiatives, like InnPulsa, aim to rebrand the country as a technology center and help develop innovation.

One of the fintech firms supported by InnPulsa is Aflore, an online lending platform with a twist.

“We created an innovative model to address the problem of financial exclusion,” says Manuel Jímenez, co-founder and chief operating officer of the startup.           “We understood that the main reason behind financial exclusion is lack of trust: people don’t trust banks, and banks don’t know who this population is. Therefore it is very difficult and costly to provide them with credit.”

Financial exclusion is a big issue not only in Colombia, but all over Latin America but as we have seen in Brazil, it is also a source of great opportunities. According to the Financial Inclusion Data, published by the World Bank in 2014, only 51% of adults in Latin America and the Caribbean had a bank account and only 14% had formal savings. In Colombia specifically, the numbers are below even the regional average. Fewer than half of the adult population had a bank account (39%) and only 12% formal savings. To attract the population that is out of the traditional banking system, Aflore relies heavily on what they call informal advisors, or IAs.

“By observing in depth how informal financial systems operate - basically loans between friends and family - we understood that there are some people with a specific role, that are already financially ‘advising' their peers. They are important because they are considered role models in their communities, so they have their trust. Additionally, they have very valuable information about the credit behaviour of their peers,” Jímenez explains.

Once identified, the IAs receive tutoring from Aflore.

“We train them in how to identify a good profile, how to collect credit information, how to advise their clients financially and how to react in case of a late payment. They also receive training in other topics, like English courses, basic personal finance or personal development.”

But it is not only a question of trust. The informal advisors are also equipped with a tablet or smartphone.

“Our clients are still not very tech savvy,” Jimenez says. “Although they are adopting technology fast, only 30% of them have a smartphone, for example. That is why we believe that giving them an app and expecting them to use it is just unrealistic. They need some support to go through this process - that is also why our IAs are the perfect channel to help them.”


Financial education as well

Another startup supported by one of the country’s government schemes is Club de Trading, an online platform for financial education.

“Everybody in a moment of their lives want to invest their money [but] according to some sad statistics, 90% of these people lose their money in financial markets because of a lack of knowledge,” writes Marcelo Granada, Club de Trading CEO in an email.

“With our platform, the users can learn how to invest in different markets with interactive material, live classes, real practice and personalized coaching - and all this at their own time and wherever they are. The platform has more than 50,000 users and is based on a subscription model of US$40 as a monthly fee.”

Club de Trading said it plans to change the name of the platform to Investopi, offering “a complete range of investment alternatives, from real estate to government bonds.”

Granada says one of the best things in creating a startup in Colombia is that the country is still “a virgin market”.

“The concept of startup is not really known by everybody and that means great opportunities,” he adds.

Aflore’s Jímenez also takes a positive view of Colombia, particularly with regard to fintech.

“Many opportunities will arise, specially focused on this underserved population. I am sure we will see many success stories in the coming years. These success stories will bring investors’ attention, making Colombia a very interesting market. Probably the country will become a regional hub, because it already has some other important aspects such as macroeconomic expected growth, relevant market size, legal clarity and political stability.”


Also read:

Brazil banks on more deals, less red tape

LatAm crowdfunding grows… with a twist     


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