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Are growth markets poised to dominate the global economy?
Talent. Technology.
The world economy is undergoing a profound shift, with the potential to rebalance wealth and prosperity between advanced economies and growth markets.
This momentum is led demographically – an aspiring younger generation is emerging that will reap the rewards of the major technological advancements that have taken place over the last decade.
This population boom led us to 6.7 billion people, 84% of the world’s population, living in growth markets with a median age of 27 years old (exaggerated in Africa, with a median age of 19 across a population of 1.4 billion people) which is fuelling economic growth, as these young entrepreneurs come of age. As a result, it is estimated that growth markets are home to 350m small & medium businesses, roughly 5X vs advanced economies
The major platform shifts from the last decade include; cloud computing, mobile adoption and digital payment infrastructure enable this hotbed of young talent to easily form new businesses—whether a mom & pop shop selling retail goods to the local community—or the next international e-commerce giant shipping products around the world. And of course, the next platform shift is already here, with AI promising to level the playing field further.
Capital is the great unlock.
Talent and technology are critical, but access to high quality capital is vital to unlock this potential. Lending volume is 50% lower in growth markets, despite the number of entrepreneurs and consumers greatly exceeding the developed world!
And with 1.7 billion people unbanked globally, there is important work to do, to help these people build wealth and borrow money at affordable rates. Solving this will have a profound impact on standards of living, healthcare and education—propelling upcoming generations into a more prosperous future.
Much encouragement and important learnings can be drawn from the rapid rise of China and India—foreign investment and access to capital lit a fire under those economies in the 90’s and now FinTech innovation is supporting their continued expansion, and outpaced growth.
In China, the expansion of microfinance and other lending programs aimed at SMEs has been instrumental in their rise, creating a vibrant entrepreneurial ecosystem. According to the World Bank, SMEs in China account for over 60% of GDP and 80% of urban employment, underlining the crucial role of access to finance in economic development.
MyBank. a FinTech lender, fully owned by Ant Financial, has lent an estimated $500 billion to over 53 million small businesses, with only 1.5% loans non-performing. Their success can be attributed to their 3-1-0 model (3 minutes application, 1 second approval with 0 human intervention) driven by a proprietary machine learning algorithm.
MyBank extends AI to every aspect of the lending process. For example; for an e-commerce customer hosted on Alibaba, they collect over 1500 data points (e.g. seasonal cash flows, sales pipeline, supply chain inventory, customer ratings, complaints etc) to assess business performance in real-time. For the agricultural sector their Tomtit satellite remote sensing technology identifies crop types and estimates agricultural output to assess credit risk. This real-time approach is a far cry from the traditional western banking models that still rely on human review of paper bank statements, looking backwards at last year's financial accounts.
India’s fintech boom has similarly revolutionised access to credit for millions, driving entrepreneurial growth and boosting consumption. The digital lending market in India sits at $350 billion per annum, growing at 36% per year with established lenders such as; LendingKart, ZestMoney and Capital Float reaching millions of consumers and SMEs.
Ethical lending leads to prosperity.
Whilst China and India provide great examples of innovation at-scale, there is plenty happening elsewhere across the world—not only supporting economic expansion, but also providing capital to previously undesirable or difficult to reach segments
Greater access to credit, supports higher asset ownership rates, such as homes and vehicles. There is tremendous upside potential here, with car ownership rates in Africa are as low as 42 vehicles per 1,000 people, compared to over 600 per 1,000 in the United States.
OneCarNow is revolutionising auto-finance by bundling car finance, maintenance and insurance into an affordable monthly subscription for Mexican gig-workers. Automating a decision within 24 hours, and delivering your car within 3 business days. Their use of telematics and strong partnerships with local authorities eliminates the risk of vehicle theft and insurance fraud, to overcome the risks which historically disincentivised lenders from extending credit to this segment.
This innovation is also helping to champion more ethical lending practices, whether it’s a fairer approach to loan collections for the financially vulnerable, or funding green energy infrastructure to build a sustainable future economy
B-Free is using AI to help lenders in Nigeria, Kenya and Ghana improve targeting and efficiency of the loan recovery process, improving non-performing loans by 30% every quarter—but critically introducing a more customer-centric approach to helping consumers refinance their debt, improving affordability. A far cry from traditional debt collection practices from the 20th century!
Solara Energy is funding the energy transition for Mexican SMEs to move to solar power, working with local installers to fund and implement this new infrastructure, with their customers paying $0 upfront and enjoying up to 30% savings on their monthly energy bills. This comes at an important moment in time as the Mexican industrial economy is lifting off, to support the USA nearshoring strategy.
And in many ways, we are just at the beginning. AI is the superweapon for today’s GenZ FinTech Founder, enabling them to innovate faster than incumbents and up-end traditional lending models. The potential for greater accuracy around credit scoring, underwriting and fraud detection – and – greater levels of automation around payments, collections, recoveries and customer service is breathtaking. Evidenced broadly across our portfolio of companies with trailblazers such as; Amiloz, Plurall, Galgo, Jem and Autochek.
How can Tomorrow Capital help?
In order to support the FinTech lenders that are leading this major shift, we help every step of the way, with a unique combination of equity, debt and expertise, our ingredients for success:
- Equity; early stage and growth equity. Identifying teams early and providing them with initial equity to grow operations and prove initial lending products.
- Building; curated network of credit, technology, risk, growth and macro executives - sharing best practice across global markets. We support the building of best-in-class vertical lending businesses in our core geographies with 2 specific focuses: operating a balance sheet lender; and access to debt capital markets.
- Support across the capital stack; from accessing international debt capital markets to direct credit facilities, our portfolio has secured over $300m+ in capital access to date.
We seek out founders across emerging markets who share our purpose for helping underserved SMEs and consumers and improving financial inclusion, with an intent to focus on high quality lending standards and continuous improvement through technology innovation.
We seek out institutional partners who wish to allocate capital into these markets, but require specialist in-market expertise to pick the winners, nurture these fintech lenders and help them to build sustainable and reliable lending models.
If you’d like to learn more, feel free to get in touch:
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