Financial technology or “fintech”, a general term for a new array of technology-enabled financial products and services, is challenging our traditional view of the financial system. As a result, fintech has become the epitome of democratizing capital markets for both entrepreneurs and investors.
From mobile payments to crowdfunding, the disruptive forces of fintech are well poised to enable previously overlooked groups to tap into non-traditional sources of funding that were otherwise unattainable in the past. With the level of digitization rapidly growing and with millennials at the heart of this revolution, there is tremendous potential to redefine the banking system. The pioneering forces of technology and finance combined with the fundamental goal of doing good (that is often characteristic of young entrepreneurs) allows for the previously distinct realms of capitalism and philanthropy to merge.
The inclusive appeal of fintech emerges from its inherent ability to target the unaddressed needs of today’s society. We are constantly seeing breakthrough solutions that bring banking services to marginalized communities, crowdfunding platforms that enable the general public to actively spur the growth of the start up community, and payment systems that circumvent undue remittance fees by making transfers far less burdensome. In effect, credit is becoming accessible and affordable as fintech serves to deconstruct the pillars of commercial finance and simultaneously target previously overlooked groups such as women, thereby manifesting as a purposeful vehicle for social change and inclusion.
Consider inspiring new business models such as Wobe, a fintech startup founded by millennial Adrianna Tan. The company aims to empower and provide entrepreneurship opportunities to marginalized women in Southeast Asia. With as little as a $5 deposit, access to a smartphone and mobile Internet, women initially excluded from financial systems are now able to start their own business selling prepaid phone airtime, transport tickets, and even utilities vouchers. On another dimension, technology is increasingly mitigating the challenge that a lack of credit history presents on borrowers’ access to finance. With alternative means of determining credit worthiness emerging such as the use of telecom or social media data, new businesses such as TrustingSocial or Aire are capitalizing on this capability and are able to allow a far broader population to access previously unavailable capital.
The Next Stage in Fintech Evolution: What’s Missing?
While there may be no silver bullet solution that brings about an all-encompassing approach to financial inclusion, it can be argued that a vehicle such as this is as close as we can get – for now. There exists a multitude of businesses creating positive impact while developing groundbreaking solutions that benefit their community. But these entrepreneurs and organizations continue to face challenging conditions when it comes to scaling their operations and ultimately, their impact. This is where the shortcomings of the capital markets are evident. By inhibiting the power of on-the-ground solutions to scale and impact far reaching communities, the injustice of the current system limits the ability to catalyze the space.
Realizing the very need for a well defined and targeted form of market disruption, IIX is developing a new initiative titled Impact Credit, an innovative peer-to-SME debt-lending platform that will enable SMEs to reach new sources of capital, which they would otherwise find difficult to obtain via conventional sources of finance. Two important criteria exist: first, these SMEs would have demonstrable social or environmental impact and second, they would focus on providing women with access to capital and sustainable livelihoods.
As a result, high-impact SMEs will be able to meet their working capital requirements to scale both the positive impact and operations of their business. Impact Credit therefore aims to truly democratize capital markets to the very essence of the word – by offering a platform that is fully capable of fostering revolutionary business models while ensuring that there is capital available to take these entities to the next level. In addition to its goal of providing access to finance for high-impact enterprises, Impact Credit would also have the potential to catalyze a shift in mindset such that investors actively channel capital to support entities generating a higher impact, and simultaneously catalyze a change in organizational behaviour itself, motivating organizations to intrinsically build impact creation within their core business models.
Huge opportunities are abound with millennials entering the fintech movement with views that businesses should be the force for social change, and that financial returns and social impact are mutually reinforcing rather than mutually exclusive. With millennials being the most cause-driven generation, the fintech industry is set to transform markets to serve the world’s most pressing development challenges.
Kalyani Basu, Business Development & Advisory
Lynn Wong, Summer Associate, Advocacy