Problem: What problem is this project trying to address?
The microfinance industry in Mexico is one of the most active and developed in all of Latin America; however, it is one of the most expensive in the world. Microfinance in the country is based on a resource intensive operating model: the vast majority of actors rarely use technology for control and management of operations, resulting in high levels of default and irrecoverable loans, which is further exacerbated by actors seeking to maximize profits for their businesses. The current design of such microfinance models is based on similar foreign analogs, but simplifies the operation in a way that pushes the client to take the credit, in many cases resulting in further debt. This situation has generated many inefficient organizations that charge high interest rates and have an oligopolistic attitude, which they use to justify high costs as a product of market inefficiency. These foreign based models create products that are not suitable for the Mexican market. On average,microfinanciers grant loans of $600 USD with rigid terms of payment; however, most clients need loans on average of $2,500 USD. Having small loans in proportion to costs results in low operational efficiency and increases the economic cost for the end-user.
Another important problem in the sector is the lack ofavailable information and technology to develop the best practices of credit analysis that allow the most appropriate selection of clients and design of products to fit their needs. The lack of institutional transparency and the fact that clients do not know how to access the information that would be helpful to them combine to generate unfavorable conditions for the user. Even in a world where technology can be used to help clients, they often receive very little useful information about how to get a loan and its impact, or how to save and improve returns.
These components result in unjust operations for the client; on one hand, people who want to access credit pay interest rates north of 90%, transferring a majority of their productivity to the financial intermediary. On the other hand, savers who invest their money into financial institutions receive low rates of return for their deposits and do not know where their money is being invested. Thistranslates into fewer possibilities forself-advancement on both sides, and in a distrustful and uneducated society and a greedy and non-transparent ecosystem that cares only about economic gain.
Solution: What is the proposed solution? Please be specific!
Vicente Fenoll used his more than 20 years as a leader in the financial sector to design and implement a novel model to change the way banks work in Mexico, addressing the issue of high interest rates and a lack of transparency and financial education. Kubo makes financial services an important tool for social and economic development in the country. The Kubo model takes advantage of technology to eliminate the need for an intermediary, thus diminishing operation costs and interest rates, and increasing transparency and user trust. Additionally, Kubo utilizes information from users and the bureau of credit to design products that directly respond to the needs of clients and rigorously selects its portfolio, diminishing default rates and non-payments, and increasing return for savers.
Vicente´s model emphasizes the importance of financial education as a key to social development, and addresses this need through an educational component, using social media to reach thousands of persons in the country. Kubo integrates this social mission and educational content in all its process, from board to clients. Kubo´s process helps rejected users and clients understand what their faults have been in their credit history and provides tips on how they can solve them.
With Kubo, Vicente seeks to create economic citizens with the belief the people should have access to goods and services that allow them to increase their economic and social development efficiently and freely. The financial system is a critical element for this development; however, its scope is not enough, and the current prices actually impoverish clients. Kubo proposes a new model that allows the efficient dissemination of services. The Kubo model does not end in its operation. Through macro-influence, continual participation in policymaking, and other strategies to impact the sector, the organization seeks to create a “banking ethic” where the end-user actively participates.