Financial inclusion-focused nonprofit Accion will invest in several Latin American fintechs this year as a way to support micro entrepreneurs battling with the economic fallout of the COVID-19 pandemic.
Based in Cambridge, Massachusetts, Accion approved 10 fintech investments last year and it expects to approve between eight and 10 investments in 2021, Esteban Altschul (in photo), the organization’s chief operating officer, told BNamericas.
“The investment pipeline is very strong as the pandemic has accelerated the need for digital tools in the process to improve financial inclusion,” said Altschul, who is also chair of Bolivia’s largest micro credit provider, BancoSol.
Accion’s financial inclusion strategy is focused on making equity investments in fintechs and microfinance institutions (MFIs) to help these firms expand and incorporate more low-income individuals as customers.
As a strategic shareholder, Accion also transfers knowledge and international best practices to its local fintech and MFI partners in Latin America and other regions. Worldwide, it operates in 55 countries through more than 160 partner institutions.
In Latin America, Accion has invested in 24 financial inclusion-focused fintechs to date. These have been made through its seed-stage fintech investment initiative Accion Venture Lab, as well as investments made by funds for which Accion is sponsor and general partner: the Accion Frontier Inclusion Fund and Accion Quona Inclusion Fund, both third party funds managed by Quona Capital.
The fintechs that Accion have invested in have been less affected by the pandemic than the MFIs that it supports given their more flexible and agile nature, said Altschul.
Fintechs in Brazil, Chile, Colombia, Mexico, Peru and Uruguay stepped up their game in 2019 and last year after having lagged behind other emerging market regions in terms of coming up with creative solutions, he said. “We’re catching up quickly and the region’s fintech sector has become very attractive for investors, offering high returns.”
This year Accion is not planning any new equity investments in Latin American MFIs, opting instead to focus on helping these institutions with their digital transformation, said Altschul.
“Digital transformation and fintech is core and central to everything that Accion does today,” he added.
Latin America is among the regions in the world that have seen the biggest economic fallout of the health crisis.
Accion’s partner MFIs serving micro entrepreneurs have shown a resilience that is both surprising and impressive, according to Altschul.
Around 70-80% of these MFIs have responded “extremely well” and there have been no bankruptcies among the institutions that Accion supports in the region, he said.
However, the pandemic has had a “huge impact” on the region’s micro enterprise sector with an estimated 20% of the customers served by Accion’s partner MFIs having gone out of business, he said.
“Micro entrepreneurs have been the biggest victims of the economic fallout of the pandemic in Latin America,” said Altschul, who is a former principal investment officer at the IFC, the private sector arm of the World Bank.
The recovery of the region’s micro enterprise sector will take longer than initially expected and a strong focus of Accion in the next few years will be to help micro entrepreneurs find new business opportunities, leveraging digital financial products and services, he said.
Accion may postpone the planned exits from several of its investments in MFIs by two or three years as these entities continue to adjust to new ways of operating and support clients hit by the pandemic, Altschul added.
Given the large number of enterprises and individuals who are still excluded from the financial system in Latin America, Altschul said he believes there is more than enough room for MFIs and fintechs to co-exist and there are increasing opportunities for them to work together through partnerships.