Written by: Hannah M. Lewis -
Communications & Research Advisor, Global Success Fund
Edited by: Kim Kastorff -
CEO/Founder of Kimpacto & Global Success Fund
Meet Isabel. Isabel runs a small business selling artisanal goods in Cartagena, Colombia. Her enterprise has been doing very well for the past few years–Isabel does not seem to have enough colorful, handmade mochilas, jewelry, and weavings to keep up with customer demand. Lately, Isabel has been thinking about getting a loan to expand her small team, move to a new location, and increase her inventory.
There are many entrepreneurs like Isabel across Latin America. According to CAF, in 2016, small to medium-sized enterprises (SMEs) represented more than 90 percent of companies in Latin America. Yet, financial education in Latin America, particularly for low-income populations, remains low. OECD’s Program for International Student Assessment (PISA) looked at the financial literacy skills of 15 year-olds across multiple countries. The assessment found that financial literacy skills among all participating countries were lowest in Colombia in 2012 and–from highest to lowest–Chile, Peru, and Brazil in 2015.
Isabel has had no formal financial education, so she doesn't know where to look for financing. She has heard cautionary tales of business owners who received informal loans from money lenders charging high interest rates of more than 100 percent a year. Isabel understands interest rates and knows to avoid these "loan sharks”, but she’s in the minority in Latin America. According to OECD, surveys from seven countries in Latin America found that less than half the population understands the term “interest rate” and few are able to calculate simple and compound interest.
Financial education (as well as access to financial services) is critical to ensure that entrepreneurs like Isabel can avoid over-indebtedness or taking out a loan with exorbitant interest rates. This gap in financial literacy is something that organizations and institutions are working to fill for small to medium-sized business owners in Latin America. Here are a few examples:
(1) Pro Mujer is a nonprofit development organization that creates opportunities for women through micro-loans and other services in Argentina, Mexico, Nicaragua, Bolivia, and Peru. In 2015, Pro Mujer had a gross lean portfolio of $20MM, serving nearly 40,000 women. In addition to providing loans, the organization provides training for female borrowers on topics such as responsible borrowing, finance, and business skills.
(2) With over 700 FinTech startups in Latin America, some companies at the intersection of FinTech and EdTech and seeking to disrupt the financial education space. One example, ComparaOnline, has a website that offers consumers informational services for consumer loans, credit cards, and travel and car insurance. In addition to comparing different offerings of these financial products and services, users can see tips and advice for purchasing insurance or getting a loan. The company, which works in Chile, Colombia, and Brazil, recently raised $14 million from investors for its financial education tools.
So, where does Global Success Fund (“GSF”) fit in? GSF has created the first Pay-for-Success Impact approach, leveraging partnerships and technology to provide low-cost capital and support networks to help female entrepreneurs like Isabel build successful businesses. GSF believes in the importance of financial education to make sure that entrepreneurs and small businesses can access capital to help them to expand their businesses, make an impact, and ultimately achieve entrepreneurial success.
Want to learn more about how GSF partners with organizations working in financial education or how to support GSF’s work? Contact Kim Kastorff at firstname.lastname@example.org.
Kim Kastorff has 15+ years of international finance experience and two Masters degrees - MBA and a Masters of Research in Impact Investing. My goal is to promote impact investing and financial inclusion as we collectively strive for a more educated and financially sustainable global economy.