Accion, a global nonprofit organization, announced Tuesday the launch of the Accion Digital Transformation Fund, a $152.5 million fund for major financial institutions, including microfinance that serve small businesses currently excluded from the global financial system.
The company said in a statement that it will provide growth capital and strategic support to these companies for “digital transformation.”
For more than six decades, the non-profit organization has been active in the field of financial services: first, developing and scaling solutions tailored to the orders of small businesses, small farmers and women. second, by providing investment and advisory services to traditional financial institutions and microfinance companies, which in turn create accessible products. Over the years, Accion has helped build 230 financial services providers serving low-income consumers and businesses in 75 countries.
In 2019, Accion took a bold step into early-stage fintech investment with the launch of Accion Venture Lab, a $23 million inclusive fintech seed fund. This venture arm has backed more than 65 production and Series A companies operating in more than 30 countries in Latin America, Southeast Asia and Africa. Notable investments include Konfio, Lulalend, Fairbanc and Khazna.
These startups, some of which have become fintech giants in their respective markets, are not only leveraging technology to increase the reach and affordability of their products to the underserved at scale, but are also using technology to advance customer engagement, an area in which Accion believes traditional financial institutions are playing catch-up.
“Over the years we’ve been working on financial inclusion, we’ve realized that in rural areas of the world and people who have been left behind by traditional financial institutions, they haven’t started to become more digitally inclusive,” he said. Abhishek Agrawalmanaging partner at Accion Digital Transformation Fund, on a call with TechCrunch.
“And the challenge was twofold. One is because rural customers or digitally backward customers do not have enough trust in digital technology. And then the second piece was the institutions (traditional banks and financial services institutions, that don’t have enough knowledge or don’t have enough support internally to invest in real digital customer engagement).
Agrawal said the pandemic highlighted the severity of the digital inclusion gap. Although Accion advised banks and microfinance institutions on ways to digitally engage customers, the nonprofit knew it had to put money where its mouth was, and that’s what it did by creating this fund. The Accion Digital Transformation Fund’s investments will focus on companies serving micro, small and medium-sized enterprises (SMEs) across South and Southeast Asia, Latin America and Africa.
Accion Impact Management manages the Accion Digital Transformation Fund and the Accion Venture Lab.
While the Venture Lab focuses on early-stage fintech companies and newer models, the Digital Transformation Fund targets larger financial services companies that have yet to pivot or invest significantly in digital customer engagement.
Its approach includes deploying equity investments ranging from $12 million to $15 million, along with contributions from its limited partners, to support these companies on their journey toward digital transformation and enhanced customer engagement. In this way, fintechs and traditional financial services companies in the portfolios of both nonprofits and funds can help digitally underserved customer segments.
“Our preference in this case would be traditional microfinance, housing finance companies and microfinance institutions that turn into banks. For us, it’s not about digitizing their processes or helping them implement core banking systems. We will not go in there,” Agrawal said.
“We want these banks or these traditional financial services institutions to think about how to interact with their customer more digitally so that the customer has more choices in the future. This strategy also helps traditional financial services firms to be ready from a future perspective of what is seen because, so far, they are lagging behind and presenting a competitive, as well as collaborative, bold face to the world of fintech.”
The Accion Digital Transformation Fund will not make follow-on fintech investments from the Venture Lab. Instead, the fund will focus exclusively on new investments in traditional financial companies. The firm expects to make between 10 and 12 investments with flexibility in allocating funds between areas of interest.
“There is no hard ceiling available in each region as it will depend on the specific needs and capabilities of each company in the different regions,” Agrawal said. However, the firm intends to make three to four investments in Asia, two to three investments in Africa and two to three in Latin America, creating a balanced portfolio across the board, the managing partner added.
With this in mind, the fund will also construct its portfolio considering diversified models. For example, in India, where he has already made two investments, there are Annapurna Financewhich provides small, unsecured loans to underserved women averaging about $400 without collateral, and IKF Financewhich operates primarily as an asset finance company and offers secured loans with higher ticket sizes ranging from $3,000 to $5,000.
What will digital transformation and engagement look like for a company that provides insecure, very small ticket sizes compared to another offering that offers secure, slightly larger ticket sizes in India? Accion hopes to answer these kinds of questions with its digital transformation fund, showing commercially viable examples of these models for other markets to follow, Agrawal said.
The fund’s limited partners include British International Investment (BII), the UK’s development finance institution and the impact investor. the Dutch business development bank FMO; IDB Invest; International Finance Corporation (IFC); MasterCard; OeEB the Austrian Development Bank; and Swedfund, Sweden’s development finance institution.
Accion’s other investment strategies over the years, in addition to the Digital Transformation Fund and Venture Lab, include Accion Emerge, which supports growth-stage companies innovating in embedded finance, agtech and the future of work, and its relationship with the spin-off Quona Capital, a venture capital firm focused on financial inclusion in emerging markets.
