Colombian loan sharks beware! R5 connects cars to credit for informal workers

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Contxto – Whipping a dead horse, some might call it; I call it hopeful perseverance. So here I go again, this time in Accion Venture Lab’s—a seed-stage investment initiative—words:

• Related article: Fintech sees consumers as stupid—it needs to give them some credit

Fortunately, these investors have put their money where their mouth is and partnered up and invested in Bogotá-based fintech, R5. The amount is yet to be disclosed.

This Colombian startup’s strength lies in offering products and services that rapidly evolve with the needs of each customer. The idea is to “support the financial health and resilience” of their clients.

But what exactly does this mean?

Financial education on wheels?

Colombia is a comparatively promising country when it comes to encouraging financial inclusion. And yet, there are still massive areas for development. Just take the more than half of Colombian adults who do not have an account at a financial institution.

Of course, getting folks to join is easier said than done. Often, the barriers of entry are the main reason stopping people from accessing these sorts of services. We all know the classic conundrum: You can’t get credit unless you’ve got… credit.

So, R5 has opted to break the vicious cycle and offer financial services to underserved consumers in order to increase their income and assets, as well as reduce their expenses and liabilities.

R5 does this by leveraging vehicles as collateral to extend loans at lower rates and longer tenors to customers who might otherwise look to higher cost credit cards or informal lenders.

But, doesn’t this just open another impossible conundrum? What if you need access to financial services to buy a vehicle in the first place? The stats of motor vehicle ownership are indeed awfully similar to those showing access to financial institutions.

As of 2019, there was one private motor vehicle—that’s motorcycles and cars—for every 2.5 adults in Colombia.

But fear not, R5’s success has proved that there is enough overlap between those who do own a car or motorbike and who cannot get access to a loan. 

Furthermore, the startup looks to give a hand to their customers, not just by giving them the cash they need but also by giving them access to financial education. These come in the form of personal finance calculators, refinancing tools, and even—surprise!—, options for cheap car insurance. 

The way they manage to personalize their services is through a mix of AI-powered risk-pricing modeling and close to full-automation of their processes.

Coronavirus works for the loan-sharks

R5’s Accion Venture Lab-fueled growth has come at the knick of time. Lending by banks is already down by 72 percent since the Covid-crisis started, which will tend to force people to seek high-interest credit from loan sharks.

“R5 leverages technology and data science to offer cheaper insurance and loan products for low-income segments,” said Fernando Sucre, Founder and CEO of R5. “45 percent of adults in Colombia work in the informal economy and are particularly vulnerable to the effects of Covid-19 and the lockdowns.”

Related articles: Tech and startups from Colombia!

-AG