Goldman Sachs returns to bet on a Latin American startup of financial technology, providing a secured loan of up to 100 million dollars to the Mexican Konfío.
The transaction will help Konfío, which provides uninsured working capital to small and medium-sized businesses, to lend approximately $ 250 million over the next 12 months, said David Arana, executive director and founder of financial technology.
The plan is to expand to the use of collateral, which would make it possible to make loans larger than the current average of 20,000 dollars from Konfío.
“We met Goldman at several financial technology events in Latin America and we started the talks”, said Arana. “I think they are the right partners to help us continue to create an impact”.
Konfío uses its technology to analyze credit behavior and collect other types of data, allowing you to respond to companies immediately and make disbursements in 24 hours, when traditional loans to small and medium businesses can take months before being approved and demand a guarantee
In addition, Konfío’s interest rates are half of those of the traditional banking industry, according to Arana.
Technology and startups
The technology also helps the startup keep poor performance loans under control. The delinquency rate in the company’s loan book was 4.8 percent in 2018, compared with 5.4 percent for the banking industry, according to Arana.
“Konfío brings a unique approach to the subscription of credits for a poorly attended market segment in Mexico and more widely throughout the region”, said Ram Sundaram, global head of Goldman’s structured finance, investment and credit unit by email.
The potential market is wide. Total credit for small and medium enterprises in Mexico is approximately 100 billion dollars, and banks have been moving away from business, according to Konfío’s chief executive.
The startup, which has served 1 million customers since its foundation, also provides help to companies to organize their data and better understand their business.
“I experienced the crisis of poor quality mortgages”, says Arana, who worked at Deutsche Bank AG in New York from 2006 to 2013 in credit structuring and trading with a focus on Latin America.
“In an era of abundant data, we were supposed to be able to make better decisions, but in reality I saw the opposite: access to financing was reduced, so I saw an opportunity”, he said.
Created in 2014, Konfío received its first round of investment in 2016 from funds such as Jaguar Ventures, Kaszek Ventures, QED Investors and Accion Frontier, a fund managed by Quona Capital.
In October 2017, he received a second round of investments from the International Finance Corporation (IFC) – the financial arm of the World Bank – and in July 2018 he received debt and capital investments from firms such as Emerging Finance , Victory Park Capital Advisors and IFC.
In total, Konfío raised $ 43 million in capital and $ 260 million in debt. You also have access to credit from the Bank of Nova Scotia.
US $ 43 million in capital and US $ 260 million in debt. You also have access to credit from the Bank of Nova Scotia.
Konfío and an achieved goal
The Konfío transaction marks the first occasion in which Goldman’s structured finance, investment and credit unit provides a line of credit to a Latin American financial technology company. However, Goldman had already invested through his group of special situations in the credit card company Nu Pagamentos, better known in Brazil as Nubank.
Goldman lent Nubank 200 million reais ($ 49 million) in 2016, and in August 2017 expanded the credit line to 455 million reais in an agreement with Fortress Investment Group. The loan has been paid in full.
Earlier this year, Goldman’s special situations group agreed to provide Credijusto with a $ 100 million line of credit to support loans to small and medium businesses.
The idea is that startups can use their digital platforms to operate more efficiently than local banks, offering low-cost products, such as loans, and potentially serving clients that were previously out of banks’ reach.
Also published on Medium.