INNOVATION IN FINANCE

When Lucy Njoki Njoroge opened a kiosk in an informal settlement on the outskirts of Nairobi, she lacked the credit to fully stock it. She often only had enough money to buy single packets of Omo laundry soap to sell to her customers. Stocking a 1-kilogram box of soap? Out of her reach.

Today, her shop is stocked to the brim with all the necessities that power the everyday lives of her neighbors. And her sales are up 20 percent, enabling this mother of three to dream bigger than a small box of detergent – of expanding her shop and ensuring she has enough money to pay her rent and her children’s schools fees, which gives them the opportunity, she says, to follow their own dreams. That’s because three years ago, she decided to participate in Jaza Duka, Swahili for “fill up your store.”

The program, developed in partnership with Mastercard, Unilever and KCB Bank Ltd, offers micro merchants like Lucy a digital ordering platform, creating a purchase history that the bank uses to assess credit worthiness and extend formal credit – which Lucy has used to grow her business. The program is focused on building merchants’ skills for effective business management and responsible use of credit. The Mastercard Center for Inclusive Growth partnered with international development nonprofit organization TechnoServe to strengthen approximately 4,500 merchants face-to-face, then partnered with the Nairobi-based tech company, Arifu, to transition to SMS-based training in order to scale. To date, approximately 16,000 merchants have access to sponsored support to build these critical skills.

In much of the developed world, financial technology has already transformed economies, making our lives simpler, businesses run faster and more efficiently, and transactions friction-free. But many areas of the world – both developed and developing – have yet to benefit from this technology. The lack of access hits disadvantaged and marginalized communities especially hard. For those, technology can be the difference between merely surviving and thriving. It’s a dividing line that has only grown deeper with the current COVID-19 crisis and the uneven economic fallout across the globe.

“In order for an economy to flourish, everyone must be included,” says Michael Froman, vice chairman and president, Strategic Growth at Mastercard. “By partnering with both public and private sector organizations, we can tackle the pressing issues of inequality together and build commercially sustainable programs for long term and scalable social impact.”

In April, the company doubled down on its commitment to financial inclusion, with a goal to bring one billion excluded people into the digital economy by 2025 through impactful partnerships like Jaza Duka. Mastercard’s goals also align with those of new innovators and FinTechs that address the needs of the underserved. Through Start Path, Mastercard’s award-winning engagement program for established startups, we are both supporting scaling FinTechs and co-innovating. Through our work with Start Path companies such as Goodworld, 4ToldFintech and CNote, we have collaborated to solve global challenges.

Exclusion isn’t merely a developing world challenge. The COVID-19 pandemic has laid bare the inequality and lack of resilience in communities across the world, including the United States. As the pandemic led to mass unemployment, Los Angeles officials sought to find ways to fundraise and deliver financial aid to residents who were unbanked or living below the poverty level. Most U.S. cities do not have infrastructure to collect and disburse money, so one had to be created in Los Angeles from scratch.

In just a few short days, the Angeleno Campaign was created. It used Mastercard donation solutions and disbursements technology, enabled and designed by Goodworld, to distribute more than $36 million in assistance via 37,000+ “Angeleno Cards” to more than 100,000 residents. That meant people did not have to make heartbreaking decisions such as paying for medication or buying food for their families.

In the first week of the Angeleno Campaign, hundreds of thousands of applications were received from 133 different cities across the country, even though the program was open to only Los Angeles residents. Now, the Angeleno Campaign model is expanding across the U.S., into eight metropolitan areas and two entire states. The expansion is funded by a $500,000 grant from Open Society Foundations and uses donation and disbursement technology from Mastercard’s City Possible Network.

For people who live near or in the margins, microloans can be a lifeline, but they can also carry huge financial risk. In the U.S. and Latin America, small, short-term loans – less than USD$20 for just a month – can carry finance charges that range from 70 percent to 700 percent of the annual percentage rate. By harnessing artificial intelligence to automate the approval process, 4ToldFintech, a Start Path alumnus, reduces administrative costs and default risks for community banks, cooperatives, microfinance institutions and others – reducing those finance charges by up to 10 times.

Based in Austin, Texas with offices in Colombia, Peru and Mexico, 4ToldFintech‘s disruptive platform for the unbanked and underserved can even reach borrowers in rural regions with irregular internet access or without computers through its digital mobile platform. Nearly 90% of the loan process by its institutional partners are originated digitally, most approved in less than three minutes.

CNote, another Start Path portfolio company, is an investment platform on a mission to close the wealth gap in America.

Founded by two women who are out to prove that financial innovation can generate both financial returns and positive social change, the Oakland, Calif.-based startup, helps investors of all sizes align their money with their values by investing locally. Each dollar deployed with CNote increases access to economic resources and opportunity, funding loans for female and minority entrepreneurs, affordable housing and bringing economic resilience to low-income areas.

“We believe by building strong global and local partnerships, we can make prosperity and opportunity open to all,” says Ken Moore, Executive Vice President and Head of Mastercard Labs, which includes Start Path. “Our collaborative approach to innovation with partners means investing in solutions that bring more people into the formal financial system, that instill trust at every transaction within the digital economy, that protect the identity of things and people, and safeguard the rights of our citizens and stakeholders.”

For insights and news on how technology is supporting financial inclusion, current global challenges and beyond, visit the Mastercard Content Exchange.