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Emerging Market Fintech — A Growing Opportunity In an Unstable World

Gone are the days when banks were the only actors able to bring the unbanked — those who live without access to a financial account — into the financial system. Fintechs today are center-stage in increasing the adoption and usage of financial products and services for unbanked consumers and micro, small, and medium enterprises (MSMEs) across emerging markets. At Lendable, we believe fintechs can accelerate financial inclusion much faster than traditional banks and microfinance services could alone, by providing faster, cheaper, and more reliable financial products to a greater number of customers via digital channels. We see a unique market opportunity across five core sub-sectors, each solving a distinct user need and providing pathways to financial inclusion across Africa, Asia, and Latin America. A once nascent market, we have seen the fintech sector grow to reach a market size that warrants a greater focus from a larger number of international private and institutional investors.

The market opportunity

Over the last decade, the world has made significant progress on financial inclusion: over six years from 2011–2012, 1.2 billion people accessed financial services for the first time. Yet across emerging markets, a staggering 1.7 billion people — the equivalent of ⅓ of the global adult population — still live without access to basic financial services. According to the World Bank definition, financial inclusion is the status achieved when individuals and businesses have access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit, and insurance — delivered in a responsible and sustainable way. A basic proxy for measuring financial inclusion is an individual’s access to a transaction account or wallet — the gateway to a vast universe of specialised financial services. The ability to send or receive payments and store money is the first step to tapping into follow-on services that empower consumers and MSMEs to plan for the future, invest in education, grow their business, manage risk, and build resiliency through downturns. Lendable believes that a suite of five fintech sectors can uniquely capitalize on consumer and MSME’s specific needs and achieve widespread, durable financial inclusion.

Lendable’s core focus fintech sectors target the financial access gap with solutions tailored to specific consumer and MSME needs.

  • Our Asset Lenders tackle the low levels of asset ownership in emerging markets by helping micro-entrepreneurs tangibly own their source of livelihood. Our portfolio has financed 24,000 productive asset loans, helping some entrepreneurs, like “boda-boda” motorcycle taxi drivers, double their income.
  • Our MSME Lenders work to address the estimated $2.2 trillion credit gap for small businesses in emerging markets and have so far financed over 3,000 SME loans.
  • Our Digital Marketplaces connect supply and demand where structural inefficiencies leave room for disruption that enables the work of thousands of micro-entrepreneurs sourcing jobs via these platforms.
  • Our Consumer Lenders serve as neo-banks, providing digital transaction accounts to even the most marginalized subsets of unbanked populations. To date, our Consumer Lender clients have financed loans to over 135,000 female borrowers.
  • Our Payment Platforms empower the overwhelming majority of adults (+80%3) in emerging markets who own mobile phones to transact digitally. These FinTechs facilitate growing digital remittance volumes — as total remittances to low and middle-income countries reached over $550 billion in 2019.

Our bet is that fintech players will be able to most rapidly bridge this gap and seize the opportunity to provide financial services to an entirely new subset of customers. The COVID-19 pandemic has made the benefits of digital services abundantly clear, moving them from convenience to necessity. In the past, mobile transactions flourished in emerging markets because of the lack of physical infrastructure. Today, however, the financial infrastructure that fintechs provide via mobile phones can allow economic activity to continue without the need for in-person interaction. Lendable has to date extended over $60 million in debt to 14 fintech companies in Africa and Southeast Asia, financing over 275 loans to consumers and MSME. Our portfolio has demonstrated this heightened need for fintech serves throughout the pandemic — none of our clients have missed a single payment despite the economic downturn. Fintech is proving to be a resilient and vital sector with a vast potential market.

Capitalizing on this market opportunity as an investment opportunity

We believe that fintech can act as a truly disruptive force in providing financial products and services to specific unbanked segments. Digital solutions can capture upside in addressing these market failures, leading to opportunities for high financial and impact return. From our vantage point as a debt provider to emerging market fintechs, we have seen the investment opportunities evolve from small-ticket, peer-to-peer loans towards aggregated loan portfolios accommodating larger financing volumes, creating real opportunities for institutional investors for the first time. As a capital matchmaker, we believe the timing is right: our pipeline alone of over $450 million worth of debt transactions speaks to the plethora of high-quality fintechs looking for growth capital to scale their loan books or transaction volumes and reach more customers. At the same time, international investors continue to look for yield diversification in an increasingly volatile environment. We know that with fintech, financial inclusion for customers and MSMEs and commercial returns for investors can go hand in hand. We are paving the way for increased capital flows to emerging market fintechs, posing one final question to potential investors: what’s holding you back?




Debt Finance for Alternative Lenders

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Debt Finance for Alternative Lenders

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