A Step Beyond Microfinance
The values and benefits of microfinance lending to the world’s poor are mixed; but they have overall proven to be a mechanism for lifting individuals out of poverty. The system of proving microloans is a well-oiled machine providing finance to individuals in low resource areas. One micro lender wants to go a step beyond microfinance and provide the poor with much needed savings and insurance products.To continue to help the poor life themselves up, Microlending pioneer Accion has called for more financial products typically common in the developed world.
These financial products such as insurance, saving accounts, and ways to move money are sophisticated tools many in the developed world don’t think twice about, but for the world’s poor these products are rarely available. Accion, based in Boston, announced they would begin investing in start-ups that are working to provide more variety of financial tools to people around the world. Unfortunately, business models and technology to deliver financial tools like savings accounts is much less tested in rural and poor areas. The lack of longevity in testing and practice causes many venture firms to be wary of investing in start-ups.
Accion’s Venture Lab will invest $10 million in ventures seeking to expand financial tools beyond microfinance. This is not to diminish the effects and needs of microfinance, but to continue to take the poor a step beyond microfinance. Accion’s first investments include Salud Facil, which helps low-income individuals in Mexico pay for health care, and Varthana, an Indian company financing low-cost private schools. In addition, the fund is investing in payment companies in Asia and Mexico as well as a start-up in Hong Kong attempting to use data to improve credit scores.
Other investors are also offering money for financial products in the developing world. LeapFrog Investments has dedicated $135 million to bring insurance to underserved markets. Those in poorer income brackets need financial services beyond credit. Constant innovation and testing must be continued to find self-sustaining and profitable financial products to developing markets. Accion Venture Lab will continue to invest in start-ups to help them do the testing they need and continue to innovate in providing insurance and savings products to low-income individuals. Accion’s model is to help the start-ups and if they fail, to take the lessons learned and start over. Ultimately, the goal is improving the credit and lives of the world’s poor.
– Amanda Kloeppel
Source: Bloomberg Businessweek