Accion Venture Lab

Solving the Poverty Puzzle: From Microfinance to Impact Investing | Paul Breloff

Paul Breloff, Founding Managing Director, Accion Venture Lab

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” Microfinance institutions are not the only players in the game anymore. You are seeing more internet usage, social media usage, cloud computing… All of these factors are presenting opportunities to deliver transformatively different and better financial services to more people..”

In this interview Paul Breloff talks about his experiments with micro-finance, innovations, impact investing and takes us through a wide spectrum work done across many continents. He also talks about key markers to identify enterprises worthy of support. Finally, Paul mentions how potential to scale is integral to supporting Enterprises but not at the cost of small operations which reach millions can play a very transformative role.

Paul Breloff is the Founding Managing Director of the Accion Venture Lab, which invests in the world’s most innovative financial inclusion startups. He has advised CGAP (a financial inclusion research center housed at the World Bank) on policy and technical issues related to branchless banking and has been engaged by Root Capital, Shell Foundation, BRAC, and others on access-to-finance issues globally.

Previously, Paul worked with SKS Microfinance, India’s largest microfinance institution, leading business development and strategic initiatives and assisting on capital raising. While at SKS, he led new product launches and managed strategic partnerships across mobile/mobile banking, energy, education, water, and rural distribution. He has also practiced corporate law with Mayer Brown, worked as a consultant for McKinsey & Co., and worked as an advertising account executive for Leo Burnett. Paul graduated from Amherst College and the Yale Law School.

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Teresa: Thanks Paul for joining the Khemka Forum on Social Entrepreneurship, it’s really nice to have you here.

Paul Breloff: Thank you, it’s great to be here.

Teresa: Without taking too much of your time we will launch into the first set of questions. The first one being, you come from a world where microfinance still holds centre space, are there any gaps from the demand side that you notice, and what has been your experience this far?

Paul Breloff: Ya, I think that’s a great question. I obviously come from a microfinance background. In fact, after starting a bank in the US, one of my earlier jobs in this space was actually working at SKS Microfinance based in Hyderabad for a couple of years and saw the rise of microfinance . I have also worked with Organizations like BRAC in Bangladesh and CGAP and some others, and certainly still believe that microfinance can be a huge piece of a puzzle in terms of how we deliver financial services to the base of the pyramid and microenterprise if you need longer term or bigger ticket size loans or agricultural finance or receivable finance, these are all things that are very hard to deal with within the microfinance model. So I think that we are increasingly recognizing that there has to be other players involved. I think we are also very eager to start exploring some of these other institutional models that we can help build that can deliver this broader set of services that customers really need and are asking for.

Teresa: Moving forward, Accion has had a major global impact and its offices can be found across many continents. Are there any key differences to access to finance say in Latin America, from Asia and Africa?

Paul Breloff: There are absolutely differencesit’s hard to boil them down to a few dimensions. I think in microfinance has grown up in India around a particular kind of Grameen model where customers are typically lent to in groups, and joint liability groups and that model has proven very effective including smaller sized loans so if it’s a loan, a one year kind of loan under fifty thousand rupees, microfinance has proven to be a very good model and that seems to be what the market has been demanding. I think in other areas it maybe hasn’t been centred on group to group model as much of Accion’s heritage and experience has been in Latin America where it has been primarily to small businesses that are individual and that are more focussed on urban areas than in rural areas. I also think you have different regulatory regimes that commit different actors. In Africa and then again in Latin America we’re able to offer savings from our institutions. And in fact the deposits from customers are often a bigger part of the business then lending. I think this has a lot of advantages. I think savings accounts are highly beneficial to customers to protect them from weather shocks, medical needs or for school in a much safer way and often times they can earn interest. There are good reasons for this, but the Indian regulators have so far not created a channel whereby MFIs can pick savings or even really be involved much in the process of deposit saving. I think it has evolved in different ways although I will be surprised at the degrees of similarities, that the fact that at the end of the day, the needs of customers for access to finance, or access to loans is very similar to the types of uses, the types of small businesses, and I think that’s been something that we have tried to bring into each new area we go into, a basic understanding of how lower income customers and small enterprises are accessing financial services, what they need, and the general value proposition that I think is often times consistent across regions.

Teresa: Going forward one would like to really know a little more about the Accion Venture lab which looks to support financial inclusion start-ups? What are the key markers you look for in enterprises you support?

Paul Breloff: Absolutely, so I actually manage the Venture Lab within Accion, and as I was mentioning before we are realizing that microfinance institutions are not the only players in the game anymore. You are seeing more internet usage, social media usage, cloud computing, and the fact that you can access information in the cloud in a much richer way. All of these factors are presenting opportunities to deliver a transformatively different and better financial services to more people. We really see start-ups at the cutting edge of all of this. I think start-ups are more nimble, they are disinvested in the status quo, they have all of the incentives to go out and try things in a new way, and look at things fresh, in a way that sometimes the bigger incumbents don’t have that ability or luxury. Venture lab exists to support and enable these innovators, to go out and try new things. And we provide small amounts of equity, typically around a crore or two, and layer on a variety of different kinds of support. In terms of what we look for, it’s a lot of the things that you would expect any investor to look for. Certainly want to see enterprises that are viable and that can scale so it’s a lot of traditional financial and business analysis for market size, the market context, regulatory risk, things like that. Beyond those factors, not surprisingly everything we do is filtered through an impact lens, and first and foremost above all else what we are interested in is investing in companies that we think change the financial inclusion landscape for the better.

Teresa: Since you have seen a lot of innovations Paul, what at the venture lab helps you label a project as innovative?

Paul Breloff: That’s a great question. As I mentioned we’re really interested in the way that different macro trends are re shaping the financial inclusion landscape. So we like to invest in things that really are unique, and maybe never before been seen or tried, or are at least are part of a whole new set of actors trying something new. So in Mexico we have invested in a company that enables cross border remittances by purchasing gift cards that makes transfer of money across the border free for customers. So a lot of the investing that we do is working at ways that the internet can be used as a channel to reach underserved customers. Recognizing that today this might still have limited applicability among our core customer base in emerging markets, but that by the time we figure out this model, and figure out how to best use this technology in two or three years, the markets will be ready for us.

Teresa: Great Paul, can you share with us some of Accion’s achievements in India and also elaborate on any key learnings and findings that the India experience has given you.

Paul Breloff: Sure. So Accion is still a relatively new player in India. We’ve obviously been working a number of years and it’s been on multiple fronts. We’ve heavily promoted smart campaign in India and that has picked up a lot of attraction. The smart campaign are a set of consumer protection principle’s that microfinance institutions and other financial inclusion actors can essentially sign on to and commit to as a way to ensure that it’s not just about putting out as much credit as possible but that the products that are offered are done so responsibly, transparently, thoughtfully for the customers. We’ve made investments and been working with MFIs Saija in Bihar and Swadhaar in Mumbai, Maharashtra, and continuing to do work there, we have got some interesting plans with both of those. I should mention briefly venture lab, which is the group I lead invests in start-ups that are doing innovative things beyond microfinance.

Teresa: Do you think the buzz around the microfinance sector which was at a crescendo in the last decade is moving towards social enterprises or livelihoods in this decade?

Paul Breloff: Well it’s interesting I think it’s still not sure where this whole sector is moving. I think microfinance has done and continues to do amazing work in providing much needed services to the poor. One of the things that microfinance has really done is provide an example of how markets and market based solutions can be developed to reach the poor and treat them not as objects of charity but rather engaged actors in a market, customers who have options, who can choose which products they want and which they don’t. But I think overall what it has done is inspired a new generation of social entrepreneurs, of impact investors, to look for ways that we can better reach customers, and reach them with better services, better products, at a much bigger scale, not by relying to traditional charity models, development aid and government, but rather looking to build scalable enterprises that can grow based on the much bigger reserves with the capital markets of entrepreneurial energy, aligning incentives towards growth. This overall space of market based solutions to poverty I think are just beginning and I think we have a lot more interesting work to do.

Teresa: That is really encouraging to hear. There has been a tremendous rise with regard to impact investing wherein a lot of people in the sector feel that meaningful small projects which are relevant but without large scale and overarching impact. Can they really be serviced when the goal and the umbrella orientation is impact?

Paul Breloff: Ya, that is a very interesting question, and one that is very close to our hearts at venture lab. Obviously the way we change people’s lives is by reaching a lot of them and reaching a lot of people more deeply. Specifically I think as we see more and more impact investment funds rise, the ways funds work and the economics of funds dictate that funds should be bigger. The bigger the fund, the bigger your management fee. It’s frankly very difficult to do small deals around a crore or two crores because a lot of the cost you incur around due diligence, legal accounting etc. are the same, whether you are putting in one crore or fifty crores. And so a lot of fund managers smartly say ‘hey let’s focus on fifty crore deals so that we can advertise those fixed costs across a bigger investment.’ So we pride ourselves on trying to fill in as early as possible, obviously we are still very picky investors, we look at a fifty or hundred opportunities for every one investment that we make because we do want to support companies that we think will eventually get much bigger, but we are willing to come in early and experiment. And our point of view is that really these early stage innovators, even when they don’t, independently on their own reach scale and reach millions can play a very transformative role in building this industry and having indirect impacts. Maybe they can inspire copy cats, even inspire certain kinds of productive competitive responses as we look to have markets built. So for us we think small is beautiful.

Teresa: That’s really encouraging to hear Paul, especially for all our listeners and thanks so much for your time.

Paul Breloff: My pleasure. Thanks so much for the time.


Views expressed here are solely that of the person interviewed and may not represent the views of The Nand & Jeet Khemka Foundation.