It is indeed an irony that people who actually need financial support and assistance in the world, have always been excluded from the list of potential customers as their individual insignificant and inconsistent income does not qualify them to become a borrower in the conventional lending market.

The Scope of Market Expansion for financial Lending

In emerging markets, nearly two billion people are financially excluded, i.e., they do not have access to formal financial services. They don’t have bank accounts, insurance, access to formal loans and debit cards, let alone credit cards, and other advanced financial services. A further two to three billion are under-banked, with insufficient access to these essential services. So, it wouldn’t be wrong to state that nearly half of our planet’s population is either unbanked or under-banked.

It is not that the banking industry is loath to extend services to these people, the fact is that it just can’t. The traditional banking model is ineffective in this context. Customers with tiny bank balances and highly infrequent use neither fit into the profile of a typical banking customer nor are apparently profitable to be served.

Moreover, decades, or probably, centuries of exclusion has kept them incognizant of financial disciplines, such as the habit of saving small amounts from their earnings, and hence, they are unlikely to qualify as worthy borrowers. 

Identifying Unserved Markets and expansion needs an exceptional entrepreneurial mindset, unconventional thinking, and an attitude to challenge the status quo

Two entrepreneurs, Ben Gleason and Thiago Alvarez, with unconventional mindset and vision, decided to challenge the status quo and address the critical need for financial inclusion in Brazil, which is idiosyncratic in some ways.

Brazil has some of the highest interest rates and balances in the world. The average bank lending rate in the Country is greater than 50 percent. Simultaneously, Brazilians have high levels of short-term credit card debt because of their unawareness related to discipline financial behavior and potential rewards associated with it.

Most of the customers in Brazil cannot understand their financial situation holistically as they were not exposed to the tools that empower them to take steps to improve it.

The playbook for Successful market expansion is not the same everywhere

In developed markets, there are platforms that provide personal financial management or PFM to address similar challenges. For example, in the United States, MINT created a digital personal finance manager, which, almost in no time, attracted more than 1.5 million users. Startups like Credit Karma helps customers improve their credit score and qualify for a plethora of financial services at attractive rates.

Brazil had no such abundance of options. To address this pressing issue, Ben and Thiago launched “Guiabolso” in 2012. In the beginning, Guiabolso appeared to be a budgeting tool, which allowed customers to record their spending habits and track their expenses and savings on, month-on-month basis.

But, soon, the founders encountered the GIGO challenge (garbage in and garbage out). The application’s insights were based on customers’ inputs, and unless customers reported information accurately and consistently, the application’s insights would be worthless.

Moreover, the social strata targeted by Guiabolso consists of people with no financial awareness and therefore, unlikely to be active and productive participants in the process of quality inputs.

Such platforms capture customers’ financial data straight from the customers’ bank account in developed markets, bypassing the customer input phase. They have established interfaces that connect personal financial management applications to banks.

Unfortunately, these platforms did not exist in Brazil back in 2012. So, Ben and Thiago had to embark on a herculean journey of convincing the Brazilian banks to share customer transaction data with them. It took more than a year to create a reliable platform that could access banking data.

New markets have unique challenges which make adoption & expansion onerous

However, the challenge of engaging economically underprivileged customers in the platform persisted. To provide access to low-cost credits, the application demanded customer involvement and their willingness to improve creditworthiness. Brazil did not have a FICO or CIBIL score.

For most Brazilians, the credit score was binary, either negative or positive. The binary credit score was a great deterrent in pursuant of financial inclusion and creating a profitable lending platform for people not served presently by the existing banking system.

The binary score system was neither motivating for the new customers nor helpful for banks to make credit decisions on customers who are not their clients.

Guiabolso: Breaking the conventional rules

Hence, Guiabolso had to build a proprietary financial health index, which not only provided customers with a view of their financial health but, also provided tools and ways to improve it. This led to an improved cognizance of financial health and ways to improve their creditworthiness.

The goal of bringing more and more unserved customers under the umbrella of organized financial lending was yet to be achieved. In United States, MINT and Credit Karma helped customers’ secure more affordable loans by matching them with providers across the Country.

So, Guiabolso also intended to emulate the same model in Brazil. But, their intended approach was again thwarted by extremely conservative nature of banking in Brazil, which discouraged banks to lend on this type of platform.

Therefore, Guiabolso had to build the infrastructure itself to demonstrate the power of this platform and its capacity to proliferate and serve a myriad number of customers, that too in a very profitable way. It launched a do Novo financial lender in Brazil that would lend through Guiabolso’s platform. It then opened the platform for banks that wanted to increase their earnings from loans by serving a new customer segment.

Today, Guiabolso has more than five million users on the PFM, most of them are customers for whom legitimate borrowing from the organized banking sector is altogether a new experience. It has disbursed more than $200 million in loans. However, the journey was not free from friction.

To achieve this feat, Guiabolso had to create four separate businesses. A frontend customer application to provide insights to the new-to-technology customers, an interconnection layer to connect with banks digitally, a financial health index and credit-scoring platform and a lending platform to provide an impetus to lending institutions.

The guiding principle for market expansion in deprived markets

Alexandre Lazarow, in his book “Out-Innovate”, mentions that building businesses in emerging markets, which suffer from a high degree of inefficiencies, are quite different from that of developed markets like silicon valley. The playbook is very different and so the parameters for success and failure. The innovators in emerging markets are more “Creators” than “disruptors”, as they altogether create an entire industry that was non-existent before.

Finally, the fact is, within a sample of leading emerging-market startups, 63 percent are found to be creating new industries and customers, thereby, playing a leading role in the expansion of markets.  


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Dr. Mrinmoy Bhattacharjee has nearly two decades of experience spanning across industry and academia. Currently, he is working as an Associate Professor in the area of Marketing with Alliance School of Business under Alliance University, Bangalore.

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