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Konfío supports neglected SMEs

Konfío is a Mexican technology-based company that seeks to fuel the growth of underserved micro, small and medium-sized enterprises (MSMEs) through a variety of offerings, including financial services, payment solutions and business tools.

The company is a success story that was described as follows in a World Bank report.

Through its digital lending platform, Konfío provides these MSMEs with working capital funds that they cannot borrow from banks, often because they lack the collateral and credit history that banks require.

Konfío, which began operations in 2014, uses the data generated by MSMEs to comply with the electronic invoicing requirements established by the government in its subscription.

Konfío developed an algorithm that complements the traditional financial history with electronic invoicing data, as well as data on a company’s network and information acquired digitally from payroll and annual statements.

The company employs technology and machine learning to integrate these alternative forms of data into its underwriting and automate much of the traditional manual credit scoring and underwriting process for MSMEs.

After the first measures to contain the spread of the Covid-19 virus in Mexico were enacted in March 2020, MSMEs’ access to financing deteriorated significantly.

Faced with increased portfolio risk and great uncertainty, lenders tightened credit requirements and reduced lending to MSMEs.

Konfío

A national survey of businesses in Mexico found that, as of February 2021, a large portion of MSMEs that previously served banks were facing challenges in accessing finance.

Konfío also reduced loans in the first months of the crisis in response to tightening credit standards and a drop in loan applications.

It adapted its credit algorithm to integrate data on the impacts of Covid-19 containment measures across all industry sub-sectors. The result was a new index to inform portfolio collection strategies and loan renewals.

Konfío’s leadership believes that this approach allowed them to limit portfolio delinquencies and recalibrate credit underwriting to identify lower-risk MSMEs.

As demand for credit increased among MSMEs, Konfío was able to resume lending to existing and new clients.

In August 2020, Konfío began to rapidly increase its new loan reserves. In fact, it reached records both in number and volume of monthly loans disbursed as of February 2021.

As economic conditions and prospects evolve, Konfío continues to track business performance by industry and economic activity to continually recalibrate how it ranks performing versus underperforming industries.

By dynamically adapting its credit policies, Konfío has been able to gradually expand its coverage. The company states that as of July 2021 it served more than 90% of the industries and regions in Mexico.

 

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