Accion's new $152.5M fund will back financial institutions serving small businesses globally

Accion, a global nonprofit, announced on Tuesday the launch of the Accion Digital Transformation Fund, a $152.5 million fund for large financial institutions, including microfinance serving small businesses currently excluded from the world’s financial system.

The firm said in a statement that it will provide growth capital and strategic support to these companies for “digital transformation.”

For over six decades, the nonprofit has been active in the financial services sector: first, by developing and scaling solutions tailored to small business orders, smallholder farmers, and women; second, by providing investments 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 service providers serving low-income consumers and businesses in 75 countries.

In 2019, Accion took a bold step into early-stage fintech investments with the launch of the Accion Venture Lab, a $23 million inclusive fintech startup fund. This venture arm has backed over 65 seed and Series A companies operating in more than 30 countries across Latin America, Southeast Asia, and Africa. Notable investments include Konfio, Lulalend, Fairbanc and Khazna.

https://techcrunch.com/2019/12/03/softbank-pours-100-million-into-mexicos-konfio

These startups, some of which have become large fintechs in their respective markets, not only leverage technology to increase the reach and affordability of their products for the underserved at scale but also use technology to drive customer engagement, an area in which Accion thinks traditional financial institutions are playing catch-up.

“Over the years working on financial inclusion, we realized that in rural parts of the world and people who have been left behind by traditional financial institutions, they were not getting more digitally inclusive,” said Abhishek Agrawal, managing partner at Accion Digital Transformation Fund, on a call with TechCrunch.

“And the challenge was twofold. One is because rural customers or digitally late customers don’t have enough trust in digital technology. And then the second piece of it was the institutions (traditional banks and financial services institutions, not having enough knowledge about or having enough support internally to invest in real digital customer engagement.”

Agrawal said the pandemic highlighted the severity of the digital inclusion gap. Though Accion was advising banks and microfinance institutions on ways to engage customers digitally, the nonprofit knew it had to put money where its mouth was, and that’s what it did by launching this fund. Accion Digital Transformation Fund investments will focus on companies serving micro, small, and medium enterprises (MSMEs) across South and Southeast Asia, Latin America and Africa.

Accion Impact Management manages the Accion Digital Transformation Fund and the Accion Venture Lab.

https://techcrunch.com/2019/09/03/accion-venture-lab-launches-23m-inclusive-fintech-startup-fund

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 significantly invest in digital customer engagement.

Its approach involves deploying equity investments ranging from $12 million to $15 million, along with contributions from its limited partners, to support these companies in their journey toward digital transformation and enhanced customer engagement. This way, fintechs and traditional financial services companies in the nonprofit’s portfolios across both funds can help underserved customer segments digitally.

“Our preference in this case would be traditional microfinance, affordable housing companies, and microfinance institutions converting to banks. For us, it’s not about digitizing their processes or helping them implement core banking systems. That’s not where we will come in,” Agrawal said.

“We want these banks or these traditional financial services institutions to think about how to engage with their customer more digitally, so the customer has more choices in the future. This strategy also helps the traditional financial services companies to be ready from a future perspective of what is seen because, so far, they have been lagging and putting up a competitive as well as collaborative, boldface in the fintech world.”

Accion Digital Transformation Fund will not make follow-on investments in fintechs from the Venture Lab. Instead, the fund will focus solely on new investments in traditional financial companies. The firm expects to make between 10 and 12 investments with flexibility in allocating capital between regions of interest.

“There’s no hard cap allocated to each region, as it will depend on the specific needs and potential 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 investments in Latin America, building a balanced portfolio across the board, the managing partner added.

With that in mind, the fund will also construct its portfolio considering differentiated models. For instance, in India, where it has already made two investments, there’s Annapurna Finance, which provides small, unsecured loans to underserved women averaging around $400 without collateral, and IKF Finance, which primarily operates as an asset financing company and offers secured loans with higher ticket sizes ranging from $3,000 to $5,000.

What will digital transformation and engagement look like in a company providing unsecured, very small ticket sizes compared to another offering secured, slightly bigger ticket sizes in India? Accion hopes to answer these sorts of questions with the digital transformation fund, demonstrating examples with commercial returns on these models for the rest of the markets to follow, Agrawal said.

Limited partners in the fund include British International Investment (BII), the U.K.’s development finance institution and impact investor; the Dutch entrepreneurial development bank FMO; IDB Invest; International Finance Corporation (IFC); Mastercard; OeEB the Development Bank of Austria; 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 backs growth-stage companies innovating in embedded finance, agtech, and the future of work, and its relationship with spin-off Quona Capital, a venture firm focused on financial inclusion in emerging markets.

https://techcrunch.com/2022/11/08/quona-capital-332m-financial-inclusion