In our <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/growing-income-growing-inclusion">recent paper on income growth and financial services</a>, Elisabeth Rhyne and I argued that as people’s incomes rise, so does demand. Soon after we published the paper, <a href="http://www.bbc.co.uk/news/world-latin-america-23145803">protests began in Brazil</a>. Many are citing this social movement as the result of increased economic growth and prosperity. When we look closely at those protesting, we see that the majority of the protesters may not even be middle class. Instead many, if not most, are in the “vulnerable class,” with incomes between approximately $4 and $10 per day.

Last week, the Center for Global Development wrote a blog post that highlights the findings from their forthcoming paper on the growing vulnerable class in Brazil. Nancy Birdsall holds that this vulnerable class is demanding more and better public services such as infrastructure, education, and health, consistent with our own hypothesis linking income growth and demand.

<img class="alignright" src="http://www.cgdev.org/sites/default/files/brazil%20blog%201.jpg" alt="" width="225" height="336" />The Center for Development blog post begins:

“Sorry for the nuisance: we are changing Brazil,” reads the sign carried by a young woman marching down the streets of São Paolo on June 17.

So who is this “we” she refers to? Fellow protestors, certainly. But “we” might also refer to the large, frustrated group of “strugglers” in Brazil—those who are no longer poor—but have income still too low to be part of Brazil’s new middle class. In a revolution of rising expectations they are demanding a better government. Their demands put Brazil’s still-young democracy (the military withdrew less than 30 years ago) at a crossroads. If their evolving needs and demands are met, they will have acted as agents of inclusive growth and change in their society. If their problems are neglected and they lack sufficient schooling, skills, and opportunities, they could become a restive underclass, and likely supporters of populism and civil strife.

On paper, the past two decades have brought significant improvements for Brazilians: Supported by <a href="http://www.imf.org/external/np/sec/pn/2012/pn1284.htm">good macroeconomics</a>, median household income has more than doubled while <a href="http://www.cgdev.org/publication/declining-inequality-latin-america-some-economics-some-politics-working-paper-251">income inequality has decreased</a>. Brazilian President Dilma Rousseff <a href="http://pressroom.ipc-undp.org/brazilian-president-dilma-rousseff-emphasizes-poverty-reduction-in-her-opening-speech-at-the-un-general-assembly/">likes to point out</a> that the country has lifted millions of people out of poverty and into <a href="http://www.cgdev.org/publication/note-middle-class-latin-america-working-paper-303">the “middle class</a>.”



But now it seems this is not enough. For nearly three weeks, Brazil has experienced the <a href="http://www.bbc.co.uk/news/in-pictures-22951123">biggest nationwide street protests</a> since the early 1990s, when a frustrated society demanded the <a href="http://www.nytimes.com/1992/09/20/world/huge-rally-demands-brazil-chief-s-impeachment.html">impeachment of then-president Collor de Mello</a>. Back in 1992, the reason for the national public outrage was a large corruption scandal and chronically high inflation that eventually turned into hyperinflation. Two decades later, as<a href="http://www.economist.com/news/americas/21579857-bubbling-anger-about-high-prices-corruption-and-poor-public-services-boils-over?zid=305&amp;ah=417bd5664dc76da5d98af4f7a640fd8a">commentators</a> <a href="http://www.guardian.co.uk/commentisfree/2013/jun/22/brazilian-protesters">point</a> <a href="http://www.ft.com/intl/cms/s/0/5e79204e-da5a-11e2-a237-00144feab7de.html">out</a>, there is no shortage of reasons why some <a href="http://www.reuters.com/article/2013/06/21/us-brazil-protests-idUSBRE95J15020130621">1 million or so Brazilians</a> have taken to the streets: corruption, high rates of crime, rising consumer prices, resentment about big public spending on the upcoming soccer World Cup, and—perhaps most importantly—the low quality of public services in infrastructure, health and education.

Read more on the <a href="http://www.cgdev.org/blog/brazil-another-revolution-rising-expectations-0">Center for Global Development’s blog.</a>

Image credit: <a href="http://www.flickr.com/photos/beraldoleal/">Beraldo Leal</a>/CC

Have you read?

<a href="http://cfi-blog.org/2011/08/11/brazil%E2%80%99s-central-bank-calls-for-changes-to-boost-financial-inclusion/">Brazil's Central Bank Calls for Changes to Boost Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/06/18/growing-incomes-a-potential-catalyst-for-the-next-wave-of-financial-inclusion/">Growing Incomes -- A Potential Catalyst for the Next Wave of Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/06/11/global-movement-into-the-vulnerable-class-and-what-it-means-for-financial-inclusion/">Global Movement into the Vulnerable Class, and What it Means for Financial Inclusion</a>

Fighting for Inclusion in an Expectant Brazil

Brazil

Latin America and The Caribbean

Blog Post

&gt;Posted by Laura Galindo
One of the Smart Campaign’s major focuses is to provide institutions with a <a href="http://www.smartcampaign.org/component/taxonomy/term/list/37/12" target="_blank">set of tools</a> they can use to help them strengthen transparent, respectful and prudent financial services to all their clients. The Campaign currently offers tools <img class="alignright size-thumbnail wp-image-5103" title="Smart Campaign" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/01/smart-campaign2.jpg?w=150" alt="" width="150" height="88" />in English, French and Spanish--all available on the <a href="http://www.smartcampaign.org/tools-a-resources" target="_blank">Campaign website</a>. Today, we are we are excited to announce the release of the <a href="http://www.smartcampaign.org/tools-a-resources/41" target="_blank">first batch of tools in Portuguese</a>, made possible with support from the <a href="http://www.iadb.org/en/resources-for-businesses/multilateral-investment-fund,5763.html" target="_blank">Multilateral Investment Fund</a>. Brazil accounts for an important part of the 700 MFIs that exist in Latin America and the Caribbean which together serve approximately 12.5 million clients. According to the<a href="http://issuu.com/idb_publications/docs/global_microscope_2011?mode=window&amp;viewMode=singlePage" target="_blank"> Global Microscope on the Microfinance Business Environment 2011</a>, Brazil is “amongst the best countries in the region for its innovation in agent banking, and has also benefited from strong financial inclusion programmes and reforms in recent years.” With the development and translation of more and more tools into Portuguese, we look forward to focusing and strengthening Client Protection practices in this growing region.
Here is a quick synopsis of some of the newly translated tools and how to get started:
The <a href="http://smartcampaign.org/tools-a-resources/496" target="_blank">Collection Guidelines for Financial Service Provider</a>s tool addresses collections policies, practices, manuals, and training of field staff. For each of these topics, an institution can compare “good practice” with its own practice, and identify areas for improvement. With this information, institutions can also develop an action plan addressing weaknesses. The <a href="http://smartcampaign.org/tools-a-resources/507" target="_blank">Client Welcome Kit</a> is another tool which refers to the set of documents that help new clients understand their full financial obligations, what they can expect from the institution, and what to do if they experience problems along the way. Now, when MFIs need help with individual lending operations to integrate good client protection practices at the intersection points throughout the credit process, the <a href="http://smartcampaign.org/tools-a-resources/100" target="_blank">Smart Lending: Client Protection in the Individual Lending Process</a> tool can be used.
Are you ready to begin? The <a href="http://smartcampaign.org/tools-a-resources/41" target="_blank">Getting Started Questionnaire</a> helps microfinance institutions investigate client protection practices within their organization. Once an institution has received an introduction to the work of the Campaign and the Client Protection Principles through our <a href="www.smartcampaign.org" target="_blank">website</a>, answering this questionnaire is the next step. We encourage our Brazilian<a href="http://smartcampaign.org/about-the-campaign/campaign-endorsers" target="_blank"> endorsers </a>to take the lead on this important process. Bem-vindo!
Have you read?
<a href="http://cfi-blog.org/2012/05/14/the-new-client-education-resource-library-tools-for-the-microfinance-industry/" target="_blank">The New Client Education Resource Library: Tools for the Microfinance Industry</a>
<a href="http://cfi-blog.org/2012/04/23/the-smart-campaign-publishes-example-codes-of-ethics-from-mfis-around-the-world/" target="_blank">The Smart Campaign Publishes Example ‘Codes of Ethics’ from MFIs around the World</a>

Ferramentas Smart, agora em Português!

The Smart Campaign

Client Protection in Brazil

Consumer Protection

Report

Joel Wilson

Sr. Investment & Portfolio Analyst 

Federico  Gomez Romero

Matthieu Albrieux

Mexico

Chile

Colombia

Access Usage Gap

Alternative Data

Banks

Challenges and Crises

Credit/Debit Cards

Data Analytics

Delivery Channels

Digital Financial Services

Enabling Environment

Entrepreneurs of MSMEs

Financial Inclusion Strategy

Financial Service Providers

Financial Technology

Fintechs

Impact Investing

Payments

Responsible Investing

Smallholder Farmers

Underserved Groups

Valuation

Client Treatment

Consumer Credit

Credit

Credit Provision

Customer Centricity

Digital Credit

Equity Investing

Financial Health

Housing Finance

Interest Rates

Microfinance

MSME/SME Finance

Over-indebtedness

Partnerships

Policy, Regulation and Government Initiatives

Resilience

Responsible Digital Finance

Transparency

Agricultural and Rural Finance

Crop Insurance

Insurance

Insurtech

Trends

Neobanks

Article

Podcast

Press Release

Brazil has been hit especially hard by the COVID-19 pandemic, and the crisis is changing every aspect of society. Now that the most obvious and immediate effects have set in, we are beginning to see what the mid- and long-term consequences will be in the country.

I strongly believe that fintech will be one of the sectors that will emerge from this crisis both reinvigorated and transformed. As a fintech entrepreneur, you have the chance to rebuild a better Brazil.
<h2>Transforming uncertainty into new opportunity</h2>
It’s not a surprise that the macro landscape looks grim right now. The economy is <a href="https://blogs.imf.org/2020/06/26/outlook-for-latin-america-and-the-caribbean-an-intensifying-pandemic/" target="_blank" rel="noopener noreferrer">expected to contract around 9 percent</a> this year, and although analysts predict a positive rebound next year, the main players in the financial sector are still in shock. As a consequence of increased payment deferrals for loans, the current level of non-performing loans is unknown and financial institutions are navigating in the dark. The CEO of Itau referred to their strategy around managing these loans as <a href="https://www.fool.com/earnings/call-transcripts/2020/05/06/itau-unibanco-holding-sa-adr-itub-q1-2020-earnings.aspx" target="_blank" rel="noopener noreferrer">"more an art than science.”</a> I cannot find a better phrase to describe the current situation of the traditional financial sector. Amid all of this uncertainty, it is clear that fintech players will be better positioned to recover from the economic downturn if they can use alternative data sources to access updated financial information.

Those tech companies who already have access to real-time data will have an added advantage due to <a href="https://www.businessinsider.com/brazil-moves-forward-with-open-banking-2020-5#:~:text=The%20Central%20Bank%20of%20Brazil%20has%20released%20open%20banking%20regulation,the%20customer%20agrees%2C%20per%20Finextra." target="_blank" rel="noopener noreferrer">an open banking regulation released by The Central Bank of Brazil</a>, which will be fully implemented next year. In addition to the data they already have, fintechs will benefit from accessing additional information from their clients that allows them to provide a better, more personalized service. At the same time, the opportunities for fintechs to partner with banks will increase as banks seek to connect to third party providers and enrich their businesses.

But negatively hit sectors aren’t the only place where tech startups can find opportunities to offer financial services to the underserved. For example, agriculture is <a href="https://www.world-grain.com/articles/13958-record-soybean-shipments-forecast-for-brazil" target="_blank" rel="noopener noreferrer">posting record results</a>, and some industries within the gig economy, like last-mile delivery, are also growing more than ever before. There is a huge potential to layer digital financial services in these and other thriving sectors.
<h2>Data is king</h2>
Fintech companies are in an advantageous position when they have rich and timely data needed to make the right business decisions. And those data-driven companies that build strong relationships with customers by solving problems that aren’t financial — before embedding fintech solutions — are in an even better position. In the past, <a href="https://www.forbes.com/sites/vikasraj/2019/11/20/platform-fintechs-are-cominghow-should-startups-respond/#742436bb2b0f" target="_blank" rel="noopener noreferrer">we have explored how super-platform tech companies are doing this</a>, and now this approach is expanding across multiple sectors. For example:
<ul>
 	<li><a href="https://terramagna.com.br/" target="_blank" rel="noopener noreferrer">Terra Magna</a> has spent years building a huge database of farming regions and crop performance using high-tech satellite images. With a unique knowledge of the business, it is now starting to provide responsible financing to farmers.</li>
 	<li><a href="https://www.loopa.digital/" target="_blank" rel="noopener noreferrer">Loopa</a> is a startup that provides a free platform to MSMEs for credit card reconciliation, allowing them to have a better understanding of their business and solve cashflow inefficiencies. That type of relationship with customers is the one that provides infinite possibilities to add financial services.</li>
 	<li>Finally, <a href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a>, one of our portfolio companies, is building solutions for the future of work. They understand the needs of a workforce that is changing every day and have built targeted financial products for an evolving workplace. The company started by providing simplified accounting services and has grown to offer a full suite of products.</li>
</ul>
<h2>But who is investing right now?</h2>
At the onset of the pandemic, capital immediately dried up for entrepreneurs. Many investors had to concentrate their efforts on helping their portfolio companies stay afloat, and others were too wary of the situation to keep investing. As Nigel Morris, partner of QED Capital, recently said in an episode of <a href="https://www.accion.org/a-great-company-going-into-covid-is-invariably-a-great-company-coming-out" target="_blank" rel="noopener noreferrer">VentureKast</a>, “We are going to see fewer tourists involved in VC in the fintech space.” The ones that will keep betting on the sector — and that have already restarted actively investing — are the true fintech specialists.

So, the big question is: who should you pitch your startup to in Brazil? Many great investors come to mind. This complete <a href="https://www.contxto.com/en/brazil/venture-capital-brazil-2020/" target="_blank" rel="noopener noreferrer">cheat sheet recently published in Contxto</a> lists some of the most active equity investors divided by industry and stage.
<h2>Don’t miss the chance to grow your startup, with some caution</h2>
The pandemic, despite all its negative connotations, is creating a temporary blue ocean for many fintechs. Now may be an excellent moment to fundraise and accelerate growth, but you should consider a few things before doing so:
<ol>
 	<li>Don’t be afraid to be selective. Choose your customers wisely and make good use of your data collection and analysis capabilities.</li>
 	<li>Mind your unit economics. This is a moment to grow, but definitely not at all costs. Bear in mind that this is a time ruled by uncertainty. The less you burn, the more runway to have to survive through the storm. VCs are certainly looking at this before investing.</li>
 	<li>Valuations are coming down. Early-stage valuations in Brazil reached astronomical levels in recent years, and now it’s not uncommon to see up to 30 percent cuts. Believe it or not, this could be a good thing for your startup as you can align incentives with your investors and reduce the risk of a down round in later stages.</li>
 	<li>Banks will catch up. This blue ocean won’t last forever, and open banking will facilitate access to information for all players. Start preparing for what will come after COVID-19, whether or not you work directly with banks.</li>
</ol>
<h2>Accion Venture Lab is here to help the ecosystem grow</h2>
Accion Venture Lab’s mission is to support innovative companies that help the financially underserved. We are always working to grow the fintech ecosystem — even outside our portfolio. This the first in a series of blog posts and webinars we will be hosting in the coming months, made possible by support from FedEx, to help the Brazilian fintech ecosystem thrive through the COVID-19 crisis. We invite you to follow along and <a href="mailto:accionventurelab@accion.org">reach out</a> if there is any way we can support you.

Now is the time for fintechs to accelerate growth in Brazil

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

[embed]https://soundcloud.com/accioninternational/the-pandemic-is-a-moment-to-get-in-touch-creditas-ann-williams[/embed]

&nbsp;

"The pandemic has been a great learning experience for us and an opportunity to be even closer to our customers in a moment of crisis," says Ann Williams, COO of Creditas, a digital platform that offers financial products and consumer solutions in Brazil and Mexico. The company began by offering asset-backed loans to provide "lower interest rates, longer terms, and lower payments that can fit into the pocket of our customers". In the tenth and final episode of VentureKast: Rebuild, Ann explains how the fully digital company has reached out to their customers — especially small business owners who have been deeply affected by the COVID-19 crisis — to restructure loans and create new products that address their challenges.

"Brazil has one of the highest interest rates in the world for consumer loans and the banks are some of the most profitable in the world," says Ann, who elaborates that their high-cost structures and focus on shorter-term, "toxic" debt have created a need for better, cheaper loans. "There’s been a push among fintechs like Creditas, along with central bank and policymakers, looking to create opportunities for consumers to access more fair financial products," she says. By leveraging a digital platform, Creditas can give customers more information and more opportunities, even during this challenging time. Ann reminds us that "it’s always the moment to work to build something better for the underserved," and she asserts that Creditas’ resolve to enrich the relationships with their customers is as strong as ever.

For more conversations about how the pandemic is shaping our industry, listen to the rest of our <a href="https://www.accion.org/series/venturekast-rebuild">VentureKast: Rebuild season here</a>. Host and co-managing director of  <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab" target="_blank" rel="noopener noreferrer">Venture Lab</a>, <a href="https://www.accion.org/bio/vikas-raj" target="_blank" rel="noopener noreferrer">Vikas Raj</a> interviewed industry leaders every Thursday for the last 10 weeks about how COVID-19 has impacted their work.

"The pandemic is a moment to get in touch" — Creditas’ Ann Williams

Since the launch of <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a>, we always knew <a href="https://www.accion.org/regions/latin-america-caribbean">Latin America</a> was a critical region in our quest to find the most promising companies that can shape a new reality for the underserved. We were early investors in the leading small business lender <a href="https://www.accion.org/konfio-innovates-in-digital-lending-for-mexican-msmes">Konfio</a>, inventory financing provider<a href="https://www.accion.org/five-small-business-owners-in-mexico-city-share-their-stories"> Tienda Pago</a>, payment solutions provider <a href="https://www.accion.org/accion-venture-lab-marks-second-successful-exit-driving-social-and-financial-impact-from-investment-in-clip">Clip</a>, and alternative scoring platform <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health">Destacame</a>, and we continue to look for new and disruptive companies. Last year we raised Venture Lab’s first third-party fund, adding a total of $33M to our assets under management to follow our mandate of being the first institutional investor in groundbreaking early-stage fintech for inclusion companies.

The vast market opportunity and the exceptional entrepreneurs in the region have caught the eye of both local and global investors, pushing <a href="https://news.crunchbase.com/news/as-billions-flow-into-latin-america-its-startup-scene-scales/">venture capital activity to record levels</a> — especially in fintech. As one of the most active seed-stage funds in Latin America, we often partner with prominent local players to co-invest in high profile fintech startups.
<h3>Looking for opportunities with an entrepreneur’s eye</h3>
As the new Investment Officer for Latin America, I lead deal activity and support our portfolio companies in the region. Before joining the team, I was an investment banker at Lazard’s Buenos Aires office and later left to become an entrepreneur. For the past four years, I was the co-founder of a digital lender for micro, small, and medium enterprises (MSMEs) that used technology to improve underwriting and access to financing for underserved companies in Argentina. As a former entrepreneur, I try to put myself in the shoes of the founders when I am looking at a new investment opportunity or helping our investees with strategic decisions.
<h3>Top inclusive fintech trends in the region</h3>
Brazil and Mexico have consolidated as the leading entrepreneurial ecosystems in the region and will continue to attract the largest volume of venture capital in Latin America. These, together with the maturing fintech landscape in Colombia, are the markets where we will push harder to grow our portfolio. Although we might also invest in other countries, one thing is clear: we will only engage with companies that are offering truly responsible financial products.

A new generation of startups is rising to join the fintechs already disrupting traditional finance — and they’re all about meeting customer needs more completely. Today, it is not enough to provide services faster than the incumbents, have a better user experience, or acquire clients at a lower cost. We are continuously looking for companies that align with our mission of helping the underserved — those that build great products that don’t sacrifice quality and pricing for speed. As global investors, we follow these criteria in our work around the world, but there are some particular trends we are interested in for Latin America.
<ol>
 	<li>Holistic approach to MSMEs. Serving companies has always presented a more significant challenge than working with consumers. The existence of more than one owner, opaque financial statements, relationships with clients and suppliers, and an overall greater number of variables to analyze, create higher entry barriers and makes it more difficult to work with small businesses effectively. The first generation of fintechs brought some of these barriers down by solving a specific need with technology. Today, with growing competition both from fintechs and traditional players, being a single-product company is not enough. Startups need to offer a complete suite of financial services to be efficient and competitive. We want to help companies that deeply understand the needs of Latin American MSMEs and are building the banks of the future for them — like <a href="https://konfio.mx/">Konfio</a>, which started with unsecured loans and now also offers a credit card, financial education, and insurance products, or <a href="https://www.cora.com.br/">Cora</a>, which is launching a neobank for small and medium businesses in Brazil.</li>
 	<li>Fairly priced consumer lending. The days of high-yield, direct “free credit” are coming to an end as low-entry barriers are increasing competition and pushing default rates and acquisition costs to unsustainable levels. Therefore, business models where the interest rate is the only variable used to control profitability are no longer sustainable. They put too much pressure on their customers and are already <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans">in the public eye for causing more damage than helping them</a>. We are excited about new, more sophisticated schemes that can offer better pricing for low-income populations by providing a broad product offering that subsidizes loans, or by using new assets as collateral to improve underwriting and lower default rates. Companies like <a href="https://www.grupor5.com/">R5 </a>and <a href="https://www.facio.com.br/">Facio</a> are now providing affordable loans to consumers against their assets or future earnings.</li>
 	<li>Platform fintechs. Big tech companies such as Google or Facebook, and newer, more local platforms like Colombia’s Rappi are playing an increasingly central role in the financial lives of consumers. With millions of users, these <a href="https://www.forbes.com/sites/vikasraj/2019/11/20/platform-fintechs-are-cominghow-should-startups-respond/#15e092af2b0f">companies initially added fintech services</a> to satisfy user needs, but now they’re expanding outside the frontiers of their core business. We want to support companies like <a href="https://zolvers.com/">Zolvers</a> that start as a platform with a clear path to adding financial services or fintechs like <a href="https://www.accion.org/why-we-invested-in-smartmei-in-brazil">SmartMei</a> that leverage the data and users of larger platforms to better distribute their products.</li>
 	<li>Sophisticated and consumer-centric insurance products. There is still a lot of room to grow in insurtech in Latin America. In a market with no clear winners yet, we are glad to see startups working closely with large insurance companies to develop and distribute unique products. Whether specializing in insurance for cell phones, cars, or health care, we are looking for companies, like <a href="https://www.pier.digital/">Pier </a>in Brazil, that don’t just act as a broker or a comparison site but are changing the way insurance products are built, priced, and sold.</li>
 	<li>Agri-Fintech solutions. In a region where agriculture is a significant economic force, <a href="http://www.fao.org/3/CA4076EN/CA4076EN_Chapter2_Latin_American_Agriculture.pdf">driving almost 5 percent of the GDP across these countries</a>, we’re excited to see fintech startups like <a href="https://www.siembro.com/">Siembro</a>, which uses sector-specific data to improve underwriting models and partners with players across the supply chain to provide financial services to the small farmers. We have success stories in our portfolio with companies in other parts of the world, like <a href="https://www.accion.org/for-rose-in-kenya-crop-insurance-is-a-game-changer">Pula</a> and <a href="https://www.accion.org/seeds-fertilizer-mobile-money-kenyan-farmers-get-the-supplies-they-need">Apollo Agriculture</a>, and we are eager to replicate their success with new companies in Latin America.</li>
</ol>
<h3>The impact investment scene keeps growing</h3>
Financial inclusion is rooted deeply in many Latin American fintech startups who, from the beginning, design their products to address a large underserved or underbanked population. However, there is a growing number of companies that go the extra mile and commit to having a positive impact in society, not only by bringing an excluded population into the financial sector but by doing so in a responsible way.

By offering better pricing, lowering default rates, or by becoming more efficient as they broaden their product offering, companies are favoring their customers and creating a more sustainable business for themselves. It is not a coincidence that that innovation-focused events are taking place in this vibrant regions for venture capital: <a href="https://www.finnovista.com/finnosummit/">Finnosummit</a> consistently brings together top fintech and insurtech entrepreneurs to meet with financial entities and international investors, and <a href="https://www.inversiondeimpacto.org/">FLII</a>, which also covers other impact areas such as energy and education, is celebrating its tenth annual edition this year. As I step into my new role at Venture Lab, I’m excited to help drive transformation in this dynamic market and accompany startups as they grow to become a new and more responsible generation of leading fintechs.

2020 and beyond: What’s next for fintech innovation in Latin America

Can running a small business be as simple as running a Facebook profile? <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="noopener noreferrer">Accion Venture Lab</a>’s newest portfolio company, <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a>, says yes. SmartMEI launched in January in Sao Paulo, the heart of the Brazilian economy and home to 40% of the country’s registered individual microentrepreneurs. The platform provides Brazil’s small business owners with an intuitive, simple, and easy-to-use mobile app that hosts a large range of banking, management, and financial services.
Brazil’s Microentrepreneurs Don’t Have the Financial Tools They Need
Brazil is now home to more than 7.5 million micro and small businesses, which employ over 16 million people. Within the growing micro-business sector, three out of five businesses are individual microentrepreneurs, such as owners of mom &amp; pop shops, small manufacturing businesses, or are sole proprietors like electricians, delivery drivers, or street vendors.
Unfortunately, these microentrepreneurs are largely unserved by established financial institutions, even though they account for a fifth of the country’s GDP and <a class="markup--anchor markup--p-anchor" href="http://www.as-coa.org/blogs/s%C3%A3o-paulo-2014-blog-six-facts-about-smes-brazil" target="_blank" rel="noopener noreferrer">over half of all private employment</a>. This isn’t a problem that’s unique to Brazil — we keep seeing these problems pop up across markets. Three common barriers to financial services for small businesses are:

<ul class="postList">
 	<li class="graf graf--li">Informality of the businesses: Owners often don’t declare their entrepreneurial activity separately from their personal activity. Despite recently adopted laws that promote formalization through favorable tax and benefit schemes for entrepreneurs, the formalization process is tedious and time-consuming. Many people feel it’s not worth the effort to take that plunge.</li>
 	<li class="graf graf--li">Lack of consistent and quality information: Microentrepreneurs usually lack access to traditional resource planning and accounting solutions, which are expensive and not suited to their simplified needs. This makes it very hard to accurately and reliably report on their business, which is required to work with traditional banks.</li>
 	<li class="graf graf--li">Cost to serve: Traditional banks don’t have the ability or the interest to service such small accounts. They’re time-consuming and not profitable for the big established players.</li>
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SmartMEI Offers Small Business Owners a Solution
<img class="graf-image alignnone" src="https://cdn-images-1.medium.com/max/1440/1*Xxfnn7hYhUTejD1uB0k7tg.gif" alt="SmartMEI mobile platform" width="500" height="356" />
<a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a> sees this gap in services designed for the microentrepreneur segment as an opportunity. Even though Brazil’s microentrepreneurs typically lack formal management training, most are comfortable using mobile platforms. With their experience in the digital world, co-founders <a class="markup--anchor markup--p-anchor" href="https://www.linkedin.com/in/carlosdejavite/" target="_blank" rel="noopener noreferrer">Carlos Dejavite</a> and <a class="markup--anchor markup--p-anchor" href="https://www.linkedin.com/in/marcellopicchi/" target="_blank" rel="noopener noreferrer">Marcello Picchi</a> decided to develop new technology to make running a small business as accessible as using a mobile app.
Carlos and Marcello started working on the platform while studying at the Stanford Graduate School of Business. They eventually developed a neobank mobile platform that provides banking services specifically designed for microentrepreneurs and their business needs. SmartMEI provides accounting and tax management tools, a formalization channel, a mobile payment system, a bank account, and a debit card. The platform is accessible for free, with a paid version that gives access to the more extensive range of products.
Venture Lab is very excited to be partnering with this great team. We invested in the company — our second in Brazil — for a number of reasons:
Impact potential, a gateway to banking services: Through the app, small business owners can easily initiate and maintain processes to formalize their business. Executing the formalization process allows them to get the tax benefits from declaring revenues as a business rather than as personal income. SmartMEI also provides entrepreneurs with various management tools that allow them to digitally gather and organize their business and financial data. This provides access — often for the first time — to a complete view of their business activities. Using this data, SmartMEI provides a whole suite of financial products that would have otherwise been unavailable.
Innovative approach to a neobank: Digital banking models that offer a credit card and an enhanced mobile interface for consumers have been operating for some time in developed markets. More recently these neobanks have sprung up in developing markets, including NuBank in Brazil. However, just like traditional financial institutions, neobanks have often struggled to make economics work when targeting underserved segments who spend less and have lower account balances. We have been exploring alternative fintech models, including our recent <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/invested-in-now-money/" target="_blank" rel="noopener noreferrer">investment in NOW Money</a>, and we believe that by targeting small entrepreneurs and developing a platform to attend their specific business-related problems, SmartMEI can offer a strong initial value proposition, and allow for diversified use cases and revenue streams that will drive profitable unit economics.
Scalable operating model: SmartMEI’s focus is on the user experience and interface. It operates by integrating with a set of large partners that provide the backend infrastructure required for the platform to run smoothly. This strategy, common for neobanks, allows SmartMEI to avoid the large initial investment required to build similar infrastructure and navigate complex regulations and allows them instead to focus on building value for the user.
<a class="markup--anchor markup--p-anchor" href="http://www.accion.org/smartmei-secures-funding-from-accion-venture-lab-to-reach-underserved-micro-entrepreneurs-in-brazil/" target="_blank" rel="noopener noreferrer">Venture Lab is proud to support SmartMEI</a> on their journey to expand access to relevant, high quality, and affordable financial products for the microentrepreneurs that are the lifeblood of Brazil’s economy.

Why we invested in SmartMEI in Brazil

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São Paulo, Brazil, November 6, 2017 – Brazil-based fintech startup and mobile platform SmartMEI announced today that it has closed a seed funding round to support its financial service offerings for underserved micro-entrepreneurs in Brazil. Accion Venture Lab, the seed-stage investment initiative of financial inclusion leader Accion, and Canary Ventures participated in the round.

SmartMEI seamlessly integrates, in a single user-friendly mobile interface, a large range of financial services that meet micro-entrepreneur’s specific business management-related needs. Currently, the platform offers Brazilian micro-entrepreneurs a bank account, basic tax filing, payment solutions, invoice payments, cash advances, a mobile point-of-sale hardware, and other services.

“We are excited to welcome Accion Venture Lab as our newest investment partner. Their support and global expertise in fintech and financial inclusion will help us guarantee access to essential banking services to the 7.5 million Brazilian micro-entrepreneurs that formalized their business in the last few years but are still being completely ignored by traditional financial institutions,” said Marcello Picchi, co-Founder of SmartMEI.

SmartMEI started offering simplified financial services for micro-entrepreneurs in the beginning of 2016. The company has already added several features to its platform and now offers the main services provided by traditional business bank accounts. The new round of funding will allow SmartMEI to continue developing features to build a complete mobile banking platform, invest in the user experience to enhance adoption and engagement, and expand their marketing efforts.

“In Brazil, millions of micro-entrepreneurs lack access to the financial services they need to grow and sustain their businesses,” said Michael Schlein, CEO and President of Accion. “SmartMEI’s innovative business model and all-digital platform enable the company to profitably provide critical financial services to underserved businesses whose needs are not being met by current service offerings.”

“SmartMEI is a great example of the scalable, technology-based innovations that we look for at Accion Venture Lab to extend the reach of financial services. We believe that SmartMEI’s strong management team, compelling value proposition, and focus on user experience all position the company for success,” said Vikas Raj, Managing Director of Accion Venture Lab.
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About SmartMEI

SmartMEI provides banking and automated accounting for micro-entrepreneurs in Brazil. The company was started by two Brazilian graduates from the MBA Class of ‘15 at the Stanford Graduate School of Business who wanted to use cutting-edge technology to help entrepreneurs in their home country to thrive. SmartMEI is a business-in-a-box solution that takes care of the basic back-office needs of every micro-business owner: being in full compliance with the government, collecting from clients, making payments and managing cash. SmartMEI is currently being used by companies in more than 3.500 cities all over Brazil. For further information, visit <a href="http://www.smartmei.com.br">www.smartmei.com.br</a>.

About Accion Venture Lab

Accion Venture Lab is the world’s leading seed-stage investor in fintech for the underserved. Venture Lab invests capital in, and provides support to, innovative fintech startups that increase access to, improve the quality of, or reduce the cost of financial services for the underserved at scale. Since launching in 2012, Venture Lab has deployed over US$10 million across more than 30 startups that work in over 20 countries worldwide. Venture Lab is a part of Accion, a global nonprofit committed to creating a financially inclusive world, with a pioneering legacy in microfinance and fintech impact investing. Accion catalyzes financial service providers to deliver high-quality, affordable solutions at scale for the three billion people who are left out of – or poorly served by – the financial sector. For more than 50 years, Accion has helped tens of millions of people through its work with more than 90 partners in 40 countries. For further information, visit <a href="https://www.accion.org/venturelab">https://www.accion.org/venturelab</a>.

Media Contacts:

Marcello Picchi (SmartMEI)
<a href="mailto:contato@smartmei.com.br">contato@smartmei.com.br</a>
+ 55 .11.4171.0032

Katie Mounts (Accion)
<a href="mailto:kmounts@accion.org">kmounts@accion.org</a>
+1 202.280.5859

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SmartMEI Secures Funding from Accion Venture Lab to Reach Underserved Micro-entrepreneurs in Brazil