Investors: Polymath Ventures, Fiinlab
Aflore is a startup that is leveraging a direct sales model to deliver financial products for the underbanked in Colombia. Aflore raised a Series A from Fiinlab, an innovation lab owned by Mexican financial inclusion group Gentera, and emerged out of Polymath Ventures, a Colombian company builder. In this interview with Aflore co-founder and CEO Ana Barrera, we learn:
- Aflore is the first company to apply the direct sales model to deliver financial products
- Since their Series A with Fiinlab, Aflore is growing its portfolio 20% per month
- The opportunity is huge. About 250 million Latin Americans are unbanked; in Colombia, only 12% of the population has access to formal lending channels
LAVCA: We tend to think of the direct sales model to sell cosmetics. Aflore is using that model to deliver financial products to the underbanked. Has this been done before?
Ana Barrera: As far as we know, it is the first time that a direct sales model is applied to distribute financial services in the world. Aflore’s key innovation relies in leveraging a distribution channel that the emerging middle class in Latin America feels very comfortable with (direct sales) and combining it with some of the key strengths of the microfinance lending methodology (understanding how to asses payment capacity from informal businesses and clients).
But more importantly, a direct sales model allows Aflore to leverage the networks of trust that already exist among this demographic. People are used to and feel comfortable with borrowing and lending from friends and family; we leverage those relationships to offer formal loans.
Aflore’s key innovation relies in leveraging a distribution channel that the emerging middle class in Latin America feels very comfortable with…
LAVCA: What inspired you to apply the direct sales model towards financial products to the underbanked?
Ana Barrera: We wanted to uncover the role of the “informal financial advisor” within their communities. We observed that in every community, the role of “informal financial advisor” naturally arises. It is that person who has done better than their peers in managing their personal finances: they have managed to save, build their assets, and enjoy helping others. Those financial advisors inspired us to create Aflore: formalize, recognize and celebrate the importance of the role that they currently have in their communities.
LAVCA: Any stats you can share about the opportunity in Colombia? Underbanked population, current access to financial products, etc.
Ana Barrera: The opportunity in Colombia, and overall in Latin America is huge: 250 million people are unbanked. However, and more importantly, the percentage of the population that today get access to credit through informal financial services (loans from friends and family, informal savings and lending clubs, loan sharks, etc.) is double the amount of the people that get access to credit through formal financial institutions. In Colombia, for instance, 25% of people have access to loans through informal financial services, while only 12% of the population does it through formal channels.
LAVCA: How do Colombian regulations affect Aflore’s ability to operate? How do you find and vet the Informal Advisors?
Ana Barrera: Financial regulation in Colombia is quite strict, which means that Aflore has had to be hyper-vigilant since day one. The main challenges are those related with raising funds and the cap on interest rates.
For recruiting Informal Advisors, we apply a similar methodology that direct sales companies do: We have what we call “leaders” in each neighborhood, who are responsible for attracting, selecting, and recruiting Informal Advisors. We screen them through a series of tests, interviews, and external verification sources.
LAVCA: Who is the actual demographic you are serving and what products they are buying?
Ana Barrera: We lend to the emerging middle class (estratos 2-3), for what we call “reaching the bigger goals in their lives”: Working capital for small businesses, home improvements, education, vehicles. Our loans range between US$300 and US$3,000. We lend to formal employees as well as people who have their own businesses.
LAVCA: Do you expect to raise debt financing at some point to scale your loan portfolio?
Ana Barrera: Yes, we are currently raising debt to fund our loan portfolio. We are raising debt not only to scale our portfolio today, but we are looking to develop funding partnerships that can support the substantial growth we are expecting to have over the coming years.
In fact, this is one of the key elements of our business model. We are creating a trusted channel to reach the under-served population. We believe that many institutions could join us on fighting financial exclusion while achieving an interesting return for their funds. We want funders to become true partners. We aim to develop with them a very transparent relationship where, through our tools, they can monitor how our portfolio grows and performs.
We believe that many institutions could join us on fighting financial exclusion while achieving an interesting return for their funds.
LAVCA: What are your goals (in terms of both revenue/growth and impact), how do you measure them, and what stats can you share about current progress?
Ana Barrera: In five years, we expect to have a network of around 40,000 Informal Advisors in Colombia and Mexico, which would have placed a US$150m portfolio. This means that we would have impacted 300,000 households that would have had access to our loans.
We have currently disbursed around US$2.2m worth of loans and built a network of around 4,500 Informal Advisors in and around Bogotá . We have scaled quite rapidly since we closed the Series A and are growing the portfolio at around 20% per month. With the operational capacity that we currently have, we should be able to build a portfolio close to US$10m in the next 12 months.
LAVCA: How did you connect with Polymath? When did they first invest, and did they participate in this new round with Fiinlab?
Ana Barrera: Polymath Ventures is a company builder. As such, they were the ones that initially came up with the business model, invested seed capital, and made an MVP. When they saw that the business model had the potential to scale, they looked for a group of founders, in this case Manuel Jímenez and myself. Manuel and I then became responsible for leading and operating the company, and for doing that we received a part of the company. In that sense, Polymath behaves more like another entrepreneur than like a pure VC.
LAVCA: How has Polymath helped you build the business so far?
Ana Barrera: They have been instrumental to building the businesses and their role has evolved with the business. When I started they were very involved in helping with company operations. A few people from their team were actually based at Aflore, helping me solve key problems in a very structured manner, designing operations, etc. As we grew, we started becoming more independent and their role shifted toward helping us with strategy, fundraising, and recruiting talent, amongst other things. Additionally, we have created a tight community with the other Polymath ventures, and we support each other.
LAVCA: How do you expect Fiinlab to contribute as a strategic partner?
Ana Barrera: We chose Fiinlab as a strategic partner because they provide not only the capital, but also key strategic advice. We connected very quickly with them around our purpose of eradicating financial exclusion, and we loved their story on how they have built their company from a small NGO in the south of Mexico, to a financial group with 3.5 million clients. We have access to that growth story; they still have an entrepreneurial spirit and know what it takes to get there, and because of that experience they are able to guide us on what to prepare for and how to scale.
LAVCA: Is your plan to focus on Colombia, or to expand to other markets?
Ana Barrera: We are planning to expand to Mexico in the near future, and then to other Latin American markets.