Much of the developing world’s economy isn’t quantified on ledger sheets or held in banks. Instead, it operates informally. This means that it’s a black hole of financial information. And when someone wants to lend entrepreneurs money, that can be a problem. Most smart investors aren’t going to put their money into a company without any insight into the financials.
To merge this hidden multibillion-dollar cash-only economy with the data-obsessed culture of first-world financial institutions, InVenture, a microlending organization, has developed an SMS-based money management tool, which captures transaction data for investors and educates micro-entrepreneurs about their expenses.
Equipped with this new data, micro-entrepreneurs “become part of the formal financial system because not only can they track their own expenses, but we can start tracking what kinds of products one could offer them,” says Aleem Walji, practice manager of the World Bank Institute’s Innovation Team. “By helping entrepreneurs manage cash flows (payments, receivables, etc.) it also creates a digital trail of transactions which are critical for entry into the formal financial ecosystem.”
The Quicken-like application, called InSight, stores financial data and broadcasts meaningful reports to entrepreneurs. “End users send a SMS to txtWeb’s number reporting a financial or social metric (revenue, expenses, etc.). InSight, interprets and stores the information in a cloud database, and replies with a simplified profit loss statement in the user’s native language,” explains InVenture CEO and founder, Shivani Shiroya.
InSight is part of InVenture’s broader mission of creating more successful micro-entrepreneurs. Unlike traditional microlending, in which individuals borrow into debt, InVenture loans are largely equity stakes in the entrepreneur’s companies. This attempts to solve a major problem of traditional microlending: it can leave many borrowers in greater debt.
In InVenture’s model, lenders take a bigger risk, only requiring that borrowers repay the original (principal) debt. The potentially bigger payoff paves the way for microlending to expand into the small-to-medium-sized business sector (a sector also much less populated by women, says Shiroya).
Her still-nascent startup has yet to be evaluated under randomized conditions, but a pilot study in India found a 34% increase in revenue for the sample of 48 businesses, according to statistics given to Co.Exist in an email.
Additionally, the pilot indirectly created a number of other jobs in the surrounding area, since the InVenture model reinvests loans from successful companies in the local community. “I really like how it focuses on not just the businesses growth, but on the growth of those around them,” says Jessica Jackley, co-founder of Kiva and an InVenture advisor. “What happens when just one person does better? That’s not enough,” she concludes.