Lessons from Aflore, a fintech company bringing formal financial services to vulnerable populations in Latin America2019-05-29 | Maria Paula Polchlopek
In Latin America, almost 40% of the population is considered vulnerable, meaning they are at risk of falling back into poverty, especially during financial shocks. This is a preoccupying situation in the region, as it reflects instability among a large portion of the population.
In addition to living under financial stress, this demographic lacks what economists call financial capabilities, the knowledge that drives decision-making related to personal finance management. Even though this demographic is able to access the basic needs of shelter, food, and clothing, they aren’t equipped with the skills to maintain and improve upon this lifestyle.
Aflore, a fintech company based in Bogota, is leveraging technology and an innovative business model to give the vulnerable and middle-class access to formal financial services. The business model is based on recruiting, training and managing a network of mobile-enabled financial advisors for the middle class. These advisors offer financial services to their trusted networks via Aflore’s app.
Today, the main product offered through the network is medium-sized loans ($630 average loan size) that are used for working capital, home improvements and home appliances. Aflore is also offering insurance and eventually plans to offer a full suite of financial products.
Through this innovative business model, Aflore is able to offer this demographic formal financial services in a profitable and scalable way. Over the past two years, Aflore has been able to slice its portfolio with an 8% profit margin (compared to the 2.8% margin for comparable institutions) while maintaining a reasonable default rate of 5.7%. The model also allows for extremely efficient operations, with Aflore sporting the highest credit officer productivity in the industry.
These results are proof that, with the right business model and technology, this demographic can be served in a profitable and scalable way. Furthermore, the business has a significant social impact. 76% of all advisors are female, and they play a key role in understanding the needs of women in their communities. These advisors become role models in their communities, empowering clients in their network and also receiving training and personal development opportunities in addition to compensation.
On the client side, 57% of Alfore’s clients are women, and half of them earn less than 500 dollars a month. Additionally, 4 in 5 of those women do not have education beyond elementary school but represent the main source of income in 75% of the cases.
By giving vulnerable demographics access to financial services and know-how, households can not only lift themselves out of a vulnerable situation but can also establish positive relationships with their finances and educate the entire community.
Firms in Latin America can offer stability to the region’s population by creating business models that can support the vulnerable class. This notably large demographic is the backbone of future growth in the region, one that combined with the middle class will represent the highest consumption and driver of GDP growth in the region.