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SME lending in Latin America enjoys a virtuous cycle of bringing growth for firms who tackle financial inclusion.

Think the pandemic left the Latin American lending industry down for the count?

Think again – lenders of different weight classes in the region today are fighting back and have the fallout from coronavirus up against the ropes.

Covid took the first swing, knocking the Latin American and Caribbean economy into a 7.0% contraction in 2020, as commerce came to a grinding halt, though the downturn wouldn’t last. Economic output then rebounded in 2021, expanding by 6.3%.

Headlines today point to fresh growth in the financial system, especially for fintechs and challengers:

  • As of July 2021, there were 2,301 fintechs in Latin America
  • That figure far surpasses the 1,166 fintech ventures tallied by the Inter-American Development Bank for 2018, a number that itself was up 66% from 2017

Money is pouring in as well.

  • In 2021, venture capital flowing into the region hit $15.7 billion, according to the Association for Private Capital Investment in Latin America, well above the $4.1 billion invested a year earlier
  • The fintech category held its place as the leading recipient of VC funding, with $6.1 billion invested across 258 transactions, a two-fold increase in terms of deals. (E-commerce came in second)

In the fintech space, the payments sector remains the supreme vertical. Interestingly, however, was the fact that the lending segment followed in a respectable second place: one out of five fintechs in the region were active in this arena.

Why this rush to lend? It’s part of a longer race to bank the unbanked.

For decades, over half of Latin Americans lived their lives out of the banking system. They were branded as too unprofitable by traditional players, who focused on wealthier individuals and families as well as other areas of banking such as corporate finance. Fintechs changed all that by providing a wider swathe of the population services such as payments, charge cards and increasingly, loans. The pandemic accelerated this trend, as stimulus payments in the form of bank cards essentially welcomed millions into the formal financial system, including 40 million in a five-month period ending in October 2020.

Today, lenders are moving full speed ahead through economic ups and downs. Take Te Creemos Holding for example. The lender, whose units include Mambu customers Te Creemos and CAME, had much experience in the Mexican lending segment, but migrated to Mambu’s digital platform to optimize its capacities. Mambu’s platform facilitated all aspects of Te Creemos’s banking operations, including plans to offer digital banking services to 10 million new and existing users in the next four years, including SMEs.

In Colombia, IRIS Bank was born with SME lending as part of its DNA, as businesses are its only clientele. It’s also a completely digital offering, and in just under two months, the firm went live on Mambu’s platform and became Colombia’s first purely digital e-bank to exclusively service SMEs.

Even global, non-profit microlenders see value in Latin American SME lending, like Grameen America, which has long provided credit for female entrepreneurs. Through open APIs, Mambu seamlessly integrates Grameen with other off-the-shelf software solutions, giving even greater benefits to its borrowers. For example, Grameen America implemented compliance-related software and disbursement cards for loans quickly and easily. After migrating from legacy systems to Mambu, Grameen’s loan transaction time dropped by 50%, and its caseload benchmark grew by 25%. Small businesses in Latin America have been on the lookout for such efficiencies from lenders.

According to a recent Mambu survey, more than 68% of small and medium-sized enterprises (SMEs) in Latin America have been unable to secure sufficient, if any, funding on at least one or more occasions.

Tapping acquaintances for money

In Latin America, the top three sources of funding for SMEs are friends and family (56%), traditional banks or building societies (35%) and personal funds (28%). Our research also found that Latin America was the only geography where more SMEs said accessing funding was more difficult than easy: 23% of SMEs said securing funding was easy, while 30% said it was difficult. The biggest barriers to funding are identified as not enough starting capital (44%), too much paperwork or admin (35%), and an arduous application process (22%).

Why not leapfrog over all these potholes and land smoothly on the cloud?

Upon signing on with Mambu, lenders can focus all development efforts creating value for new and existing customers via strengthening digital presences and taking more control of the user experience. Thus integrations involving origination, customer portals, know-your-customer, anti-money laundering and other facets to managing credit can run more seamlessly and with greater alignment than they ever did on bulky – and costly – legacy systems. The SME lending space may hold great opportunities in Latin America, though customer demands today won’t always be the demands of tomorrow. Customers change, demographics change, economies change, needs and nice-to-haves change and even markets change. Mambu’s offering has proven itself as the platform of choice for the region’s successful creditors, be they banks, lenders, fintechs and beyond.

From our platform, launch on your own journey to success today.

Find out more about SME lending in our research Small businesses, big growth.

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