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While sustainable finance persists as a high-priority area for institutions across financial services attempting to bring about climate action, another strong social cause is also quickly gaining traction.
Last month J.P. Morgan and UK Aid announced they would pump $15 million into the Boston-based accelerator Catalyst Fund which backs fintechs supporting financial inclusion across Kenya, Nigeria, South Africa, India and Mexico. The accelerator fund is managed by BFA Global and Rockefeller Philanthropy (RPA), and works with startups offering services that target the underbanked portion of the population.
Financial inclusion, the World Bank says, “means that individuals and businesses have access to useful and affordable financial products and services that meet their needs delivered in a responsible and sustainable way.” Financial inclusion has witnessed this build of momentum as it remains a key factor in achieving 8 of the 17 UN Sustainable Development Goals.
Spurred on by advancements in technology and an interest servicing the huge population sector of unbanked and underbanked people (an estimated 1.7 billion adults don’t have a basic transaction account), fintechs targeting this demand are increasingly being identified and supported by banks and other financial institutions.
Maelis Carraro, director, Catalyst Fund told Finextra in an interview “We believe tech start-ups have a role to play in designing and delivering solutions that are meeting the needs of the underserved customer because they can be nimble, creative, and provide a local context.
“We tend to go beyond the traditional fintechs focusing on payments and credits by focusing on different kinds of products that drive financial health such as savings, investments or budgeting tools…we want to be very innovative and be a different tier for or sector.”
Between 2016 and 2019 the fund boosted 25 inclusive fintechs across 14 emerging markets, which among them went on to raise 10x the amount invested.
BFA has seen a number of successes, firstly, Carraro adds, “the venture building support which has a combination of capital input and technical support is extremely valuable.
“We’ve seen this lead to positive results for the companies. 80% of our portfolio is live and has raised follow-on capital. Overall the companies have raised $50 million in follow-on capital, which tells you how far the $100,000 investment can get you in the current climate.”
Importantly, the 25 fintechs have reached more than 2 million low-income customers globally.
On the wave of this success, this new investment round will see another 30 startups receive this funding and support which J.P. Morgan views as a long-term opportunity in emerging market fintech investment.
Stephanie Mestrallet, a vice president of global philanthropy, J.P. Morgan comments: “We know progress has been made to lift people out of poverty, but too many are still left behind in cities and countries which are experiencing growth. Supporting efforts to close the gap between those prospering and those that are not is the driving ambition of J.P. Morgan Philanthropy.”
Catalyst Fund is aware of the traps startups face in every market and have addressed the weak areas of the development journey to ensure those with promise have a chance to reach their potential. The issues faced by these entrepreneurs range from lack of access to capital, lack of access to high potential local talent and also partnerships which help to drive scale.
Catalyst Fund addresses these challenges by providing capital of up to $100,000, venture building support and networking. The venture building support, or technical assistance sees BFA integrate themselves into teams to provide support from product development to design and marketing.
Catalyst’s network of investors provides a valuable resource for fintechs who need to make connection with those who are willing and able to offer capital.
Carraro continues: “We do believe that the high technical support model that Catalyst provides differentiates it from other accelerators, it is able to driver better results for the companies especially when couple with ground support during the early stages.”
J.P. Morgan’s Mestrallet explains: “The philanthropic investment J.P. Morgan provides does not go directly to the startup fintech. It goes to the technical assistance support and cross learning because that’s where we see our added value given our expertise.”