Analysis Featured

The Latin American Alternative Lending Landscape

Latin American alternative lending
Source: 2017 Americas Altenative Finance Industry Report

The alternative lending juggernaut shows no sign of slowing down and is enjoying remarkable growth all around the world. The Latin American & Caribbean (LAC) industry is also enjoying the wave; the 2017 Americas Alternative Finance Industry Report highlighted the region as a hot spot of lending growth with volumes jumping by over 200% in the completed year 2016. The industry grew from $110 million to an estimated $342 million with business lending accounting for 57% of the total pie.

Latin American alternative lending
Source: 2017 Americas Altenative Finance Industry Report

Brazil: A Gold Mine for Alternative Lenders

The so-called Big 5 economies of the region are Brazil, Mexico, Argentina, Chile, and Venezuela. In total, there are 25 countries across Central America, South America, and the Caribbean. The South American market (i.e. basically ex-Mexico) in general, and specifically Brazil, has always been hampered by a lack of banking services, which has opened the floodgate for fintech startups to tap this $6.5 trillion economy. Brazil is an extreme case in point on how lucrative the market can be. 160 million adults are using some kind of banking service, but only 55 million are borrowers, as per Brazil’s central bank. Add to that almost 20 million unbanked people, and you can see the size of the opportunity for a lending startup. Moreover, 85 percent of Brazilians now live in cities; but, 40 percent are excluded from the traditional banking system as per São Paulo-based Itaú Unibanco, the largest private bank in South America.

Yet, the Brazilian population is heavily smartphone-dependent, and fintech lenders have leveraged this to offer differentiated banking and credit services. This gap seems to have been identified by leading US VCs as well. Nubank, a digital finance company that launched a no-fees credit card in Brazil, became the first investment in South America for Sequoia, DST Global, Founders Fund, and QED. It has now raised a cumulative equity and debt funding of over $377 million.

Brazil alternative lending
Source: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2017-05-americas-alternative-finance-industry-report.pdf

An underlying reason behind the unprecedented adoption of alternative lending has been the severe banking crisis that hindered the region for more than a decade. With the economy gaining momentum, there is huge latent credit demand, both from individuals as well as SMEs. For instance, Brazilian consumers pay an average of 190 percent a year for unsecured overdraft, credit cards, and consumer loans from banks. The Brazilian government is firmly behind these fintech startups as they look to democratize lending, and more importantly, lower borrowing costs for their voters.

LAC alternative finance
http://www.fintech.finance/homebox/brazils-fintech-is-a-carnival-of-innovation-in-latin-america/

Leading Players in Brazil Fintech Lending

  • Creditas – Creditas was founded in 2012 by Sergio Furio and has a headquarters in São Paulo, Brazil. It has raised over $77 million in various rounds of funding. Formerly BankFacil, Creditas is a digital lending platform focused on secured lending. The firm funds its customer loans both through investors and financial institutions. Core products include a version of home equity and auto loans in which borrowers offer their residences or vehicles as collateral.
  • Geru – Launched in 2013, Geru is headquartered in São Paulo. A simple, fast, fair, and cost-effective online loan platform, Geru was inspired by the international model of marketplace lending and provides registration and credit rating services for people who wish to obtain a loan. It offers loans up to $10,000 with an interest rate ranging from 1.88%-5.02% per month, and terms ranging from 12 to 36 months.
  • GuiaBolso – Brazil’s leading personal finance platform, GuiaBolso has millions of users who have downloaded its finance app and consumer credit marketplace. It has raised over $60 million in funding.

Apart from the above, there are many Brazilian fintech lending startups like Simplic, Biva, and Noverde that are charting their own path in the Brazilian lending market.

Non-Brazilian Alternative Lenders

  • Credivalores-Crediservicios – Launched in 2003, Credivalores-Crediservicios is headquartered in Bogotá, Colombia. It has raised $34 million from various rounds of funding. It is a non-banking financial company that provides consumer loans for individuals and small companies. The firm also focuses on payroll-deduction loans and consumer lending collected through public utility bills as well as discounting checks and insurance policy financing to low and middle-income individuals.
  • Sempli – Sempli was started in 2016 by Esteban Velasco and Felipe Llano. Its headquarters is in Colombia. An online lending platform for small and medium enterprises in Colombia, the firm has raised $3.6 million from various rounds of funding. It offers loans ranging from $10k-$100k for working capital and/or business expansion.
  • Afluenta – Started in 2010 by Alejandro Cosentino, Afluenta is headquartered in Buenos Aires, Distrito Federal, Argentina. It has raised over $13 million in various rounds of funding. Afluenta is the first and only marketplace lending company for consumer and SME loans operating in more than one country in Latin America. Afluenta successfully launched its services in Argentina where their lender base achieved net USD yields of +20% in the last three years. It currently operates in Argentina, Mexico, and Peru with plans to expand to Colombia & Brazil. It has lent over $460 million and has granted 11,403 loans so far.

Future Outlook

Even though the region has been engulfed by a recession for the last decade, the World Bank still expected the Latin American economy to grow by 1.8 percent in 2017 and 2.1 percent in 2018. The UK and US have matured as markets with leaders in almost every emerging niche. South America provides an untouched hunting ground for fintech lending expansion. The light-touch regulatory rule and implicit government banking to expand credit services should see the region emerging as a hot bed for alternative lending innovation.

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Written by Heena Dhir

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