This article originally appeared on Forbes.
As the world reacts to the novel coronavirus — now officially a pandemic according to the World Health Organization — many countries are beginning to suggest ways to help the citizens hurt by the virus. Quantitative easing to bolster the stock market, tax breaks and extensions for the sick, and stimulus for industries affected by the crisis are all on the table, from across the political spectrum. But coronavirus isn’t just an issue for people who are infected and those hurt by stock market declines. With many offices shut down, tourism grinding to a halt, and yes, even the NBA on indefinite suspension, we are beginning to see how spurts of economic inactivity are particularly difficult for the economically vulnerable and may have long-lasting effects.
Around the world, financially insecure people are fundamentally more susceptible to financial shocks like coronavirus, and the current crisis is bringing the challenges this population faces into stark relief. Lower-income and underserved individuals are less likely to have access to quality, affordable health insurance that would help them get better quickly. Their livelihoods are particularly vulnerable to business interruptions. Small businesses, with their thin capital bases and difficulty borrowing, are especially affected by shifts in supply and demand in the economy. Even here in the U.S., nearly half of people do not have $500 in savings. And a mind-boggling number of people do not have paid sick leave to enable their own recovery or care for loved ones. The financially excluded, many of whom live on the fine line between stability and poverty, are facing a terrifying next several months.
Innovative, inclusive fintech is crucial for weathering this pandemic
At times like this, it is good to know there are fintech startups around the world that are part of the solution. Companies like Digit and Even are helping Americans to save their money more effectively and deal with working capital imbalances. Companies like Bima globally and our portfolio company Toffee in India are helping people access critical insurance for the first time. Companies in our portfolio like Lidya in Nigeria and First Circle in the Philippines are ensuring small businesses have access to the short-term financing they need to weather tough times.
Many of these companies are themselves early in their journeys and are susceptible to the global shocks of this pandemic. At this point, we are counseling them to stay the course but to be extra cautious, and most importantly, remember the people they work with—their employees and their customers. Our portfolio companies’ customers are going to be facing severe challenges, and we are working with our companies to ensure they are able to serve as allies and sources of support during these unstable times. Tweaks to product design, like repayment schedules for loans, can truly help consumers during this period of volatility. Those changes can also be helpful in building long-term customer loyalty and driving lifetime value. From a team perspective, we are encouraging our companies to minimize or avoid travel, get set up for a long period of remote work, and keep a close pulse on team morale during this time of stress.
From a business perspective, disruption is inevitable. Early-stage fintech for inclusion startups in emerging markets that have less than 18 months of runway (and that is most of them) should start planning now for higher burn rates and longer fundraise cycles. Cash burn will go up as revenues come down and, in many cases, expenses go up. This may be particularly acute for lending startups that could face higher write-offs and higher costs of capital as institutional investors move out of emerging markets. Companies that are in the process of raising capital should push to close rounds as quickly as possible. Companies seeking to raise money in the next 12 months should start thinking about managing burn to extend runway.
We have a challenging several weeks, and likely months, ahead of us, but inclusive fintech startups are still doing the important work of making sure the most vulnerable among us continue to have the access to services they need through this crisis. Regulators and governments would be well-served to remember the importance of innovators in financial inclusion and other critical areas and ensure they are able to continue their work. For example, we would like to see more liquidity facilities set up by development banks to support early-stage startup innovators. These innovators are crucial for supporting the people and small businesses that are most vulnerable during this perilous time, and they deserve support in turn.