Digital financial services are taking off in Mexico, with all sorts of financial technology startups cropping up to cater to a group of consumers and business owners who have long been ignored by the traditional banks.
Konfio, the Mexican lender to small and midsize companies, is among those startups that are garnering a lot of business and attention from investors.
The Mexican digital lender provides unsecured working capital loans to small and medium-sized businesses. It relies on advanced technology such as artificial intelligence and machine learning to analyze the credit behavior of businesses and can quickly determine if a business is eligible for a loan. Funding takes under 24 hours in most cases, which is much faster than how it’s traditionally done. According to one media report, getting approved for a business loan from a bank in Mexico can take as long as 30 days. What’s more, the company boasts interest rates on their loans that are much lower than what banks in Mexico charge.
While lending to small and medium-sized businesses can be risky, Konfio is able to keep default rates low thanks to its technology. According to Bloomberg News, the delinquency rate on its loans was 4.8% last year. That's lower than the 5.4% for the banking industry.
Since Konfio was launched in 2014, it has issued loans to 1 million customers. Its strong growth and the market opportunity in Mexico, has piqued the interest of a bunch of investors who have been pouring money into the business over the years. Some of those investors include Jaguar Ventures, Kaszek Ventures, QED Investors and Accion Frontier. Its most recent capital raise comes the way of Goldman Sachs, which earlier this month provided a $100 million secured credit facility to the company.
The deal is expected to enable Konfio to lend around $250 million over the next year, reported Bloomberg, citing David Arana, the chief executive of the financial technology startup. Konfio wants to do bigger loans by accepting collateral and guarantees. “Konfio brings a unique approach to credit underwriting for a segment of the market that’s poorly served in Mexico and more broadly across the region,” Ram Sundaram, who heads Goldman’s structured-finance, investment and lending business globally said in the report.