Investing in Early-Stage Fintechs through FINCA Forward
FINCA Forward facilitates collaboration between fintech start-ups and microfinance institutions (MFIs). It does so by providing a rapid iteration and testing environment for MFIs to pilot digital technology and for innovative fintech companies to evaluate customer satisfaction and product-market fit. Participating fintechs are eligible for business and operational wraparound support as well as investment from FINCA Ventures.
We’ve been fielding questions lately about a new initiative, called FINCA Forward, and how it fits in with what we’re doing at FINCA Ventures. Here’s what you need to know.
Supporting and Investing in Financial Technology
FINCA Ventures works alongside FINCA Impact Finance, a global network of 20 microfinance institutions and banks. When we launched FINCA Ventures, it signaled a transition from being an operator of a bank to a strategic investor in additional solutions that increase resiliency and productivity for poor and low-income families. In this new context, we realized our unique ability to evaluate and test digital financial service innovations given our relationship with one of the largest MFI networks of its kind. So, we began speaking with our financial services partner as to how FINCA Ventures may support start-ups in the financial inclusion sector.
This is important to us for several reasons:
1) Our financial services partner has wrestled with how to evaluate new fintech solutions and we have seen the same challenges across the sector.
2) At the same time, fintech will improve the efficacy of MFIs and banks, and expand the frontiers of financial inclusion.
3) Catalyzing financial inclusion is central to FINCA’s mission.
Assessing Progress in Financial Inclusion
We know that access to responsible finance facilitates day-to-day living and strengthens the economic security of businesses and low-income families. While the global community has made great strides in financial inclusion, a staggering 1.7 billion adults worldwide remain unbanked, more than half of whom are women. Around the world, MFIs serve nearly 140 million clients. While that number is substantial, it’s a far cry from the number of unbanked.
Where availability of financial services is low, mobile phone penetration is climbing higher. Combined with the rise in cloud computing, machine learning and artificial intelligence, a growing number of fintech start-ups have emerged to create pioneering and disruptive solutions along the financial services value chain.
Making Sense of MFI-Fintech Engagements
The rate of innovation and flow of new fintech entrants to the marketplace is overwhelming, even to the world’s leading financial institutions. While many fintechs are directly serving clients using mobile phone technology, there is a need for greater innovation in enterprise solutions to support MFIs and banks as they go through their own digital transformations. Against such a backdrop, two things stand out:
1) MFIs and banks need an efficient and focused way to evaluate and test new technologies and compare varied, new solutions that are transforming banking globally.
2) Fintech start-ups must refine and test their value propositions with prospective customers (MFIs/banks and end-users) and they need to attract investor capital for growth and scale.
Introducing FINCA Forward: An Innovation Platform for Fintech Start-Ups and MFIs
FINCA Forward was launched to tackle those two issues. Given FINCA Impact Finance’s role as operator of a global network of MFIs and banks, and the role of FINCA Ventures as a strategic investor in early-stage enterprises, we realized that we have a unique role to play in driving solutions. FINCA Forward seeks to go beyond mere investment in fintech because of the banking infrastructure and assets to which we are connected.
On a practical level, FINCA Forward provides fintech start-ups the opportunity to run proof-of-concepts (POCs) within the microfinance and banking network of FINCA Impact Finance. By rapidly testing and refining products with MFI customers, fintech companies can validate their offerings and demonstrate the MFI customer traction that is critical to engaging investors for enterprise growth and scale.
Fintech is different than innovation in basic services, like energy or sanitation, because it is strategically core to FINCA’s main business activities. When it comes to partnering with companies in the financial inclusion space, we want to support and invest in enterprises that offer deep, strategic and complementary alignment with FINCA Impact Finance, and even other MFI and banking networks.
Of course, early-stage fintechs generally lack dedicated resources for a deep pilot. FINCA Forward is our initiative to explore and demonstrate how financial service providers can systematically test and onboard innovation and how strategic venture funds can support early-stage innovation that move the needle on financial inclusion.
We don’t need to create new banks; we need to improve the efficiency and efficacy of existing ones, and we are keen to partner with innovators to make this happen.
FINCA Ventures Facilitates Access to Capital and Support
So, how does FINCA Ventures fit in? In working with start-ups, we have come to appreciate that they can often benefit from more holistic wraparound support. We aim to provide these early-stage fintechs with help refining their core strategy, introductions and assistance as they fundraise, advice on the right legal and governance structures, and networks to leverage as they expand their teams. It’s our hope that this hands-on assistance will not only ensure POCs are successful, but also will help start-ups find success more broadly, and scale from A to B quicker.
Further, start-ups with successful POCs and a strong business case will be eligible for investment from FINCA Ventures. Deal sizes would mirror the standard FINCA Ventures investment profile. We’ve met countless terrific fintech entrepreneurs over the last two years, and we can’t wait to expand the FINCA Ventures portfolio to include this rapidly growing sector in 2019.
We think that FINCA Forward POCs offer the best form of investment due diligence for fintech start-ups. It allows us to get to know you, and you to get to know us through a concrete business engagement.
Looking for Partners
If you represent an early-stage fintech with enterprise-level solutions, or are an investor interested in using technology to make financial inclusion more affordable and accessible, let’s talk. You can get in touch by filling out our contact form. You may also read the FINCA Forward Snapshot to learn more.
FINCA Forward is funded by a grant from USAID, through the PACE Initiative and Feed the Future.