For people in Colombia who are living paycheck-to-paycheck, and particularly the 45 percent of Colombian adults working in the informal economy, financial security can feel unattainable. Helping these groups to strengthen their financial health has always been challenging, but it’s even more difficult as the devastations of the coronavirus pandemic continue to unfold.

Colombia’s fintech sector has the potential to bring much-needed financial security and resilience to vulnerable populations. With its growing number of entrepreneurs, successful startups, and increasing interest from venture capitalists, Colombia has the third-largest fintech sector in Latin America, and it’s one of the markets we’re watching at Accion Venture Lab. R5 caught our attention because of their unique model as an asset-backed lender for the underserved. Customers can use their cars and motorcycles as collateral to receive long-term, low-priced loans. The company started by selling online vehicle insurance, which complements their loan product and improves underwriting.

R5 keeps their mission of improving people’s financial health through innovative products at the core of everything they do. The company provides products that meet people’s needs, including longer terms, larger loan sizes, and affordable, convenient insurance, while using data to ensure a responsible use of funds and avoid over-indebtedness. This focus on affordability, accessibility, and sustainability is essential for Colombians who struggle to make ends meet or to find stability in turbulent times.

Just over a year after launching, R5 has built a strong team culture, driven exponential growth, laid out an ambitious product roadmap, and maintained healthy financials. We are excited to add R5 to our portfolio because they are:

Helping customers use funds responsibly

When we look for consumer lenders, we try to find those who go the extra mile and commit to making a positive impact on their clients’ financial health, not only by providing them with a fast and fairly priced product, but also by considering their long-term value to consumers. R5 is highly intentional about lending responsibly and avoiding client over-indebtedness. Although the use of assets as a guarantee improves the financial offer, the company takes all the necessary measures to avoid repossession. During the underwriting process, they carefully track the use of funds and estimate the impact of a new loan on the client to ensure that the loan will be beneficial in the long run instead of burdensome.

Leveraging new assets for more responsible and affordable financial services

Formal access to credit in Colombia, as in most of the emerging markets where we work, is strikingly low. R5’s target population finds it extremely hard to access long-term, affordable funding. Short-term loans from credit cards for the employed and payday loans for informal workers can help people manage their monthly cashflow imbalances, but the high costs can trap people in debt. R5 is improving their clients’ financial options by using their vehicles to offer larger loans at lower rates and longer tenors, helping them consolidate more expensive debts, face unexpected life events, and secure working capital for their new and existing businesses.

Designing a holistic set of financial products for the underserved

In its mission to increase financial inclusion in Colombia, R5 is providing a suite of financial products to underserved people. Beyond loans, the company offers vehicle insurance policies through a seamless digital process. Their unique machine learning risk model allows them to price their policies significantly below the competition. Their success with this insurance product is leading the company to develop other innovative policies for an unserved population that has otherwise limited options in the market. By lowering prices and improving products, R5 provides its clients with better coverage and improves the low-income population’s access to insurance.

Doubling efforts during the COVID-19 crisis

Colombians without financial safety nets, like many workers in the informal economy, are particularly vulnerable to the economic impact of Colombia’s lockdown measures to contain the outbreak. Those without formal employment don’t have the luxury of remote work or job protections that others enjoy. As soon as the coronavirus crisis started, R5’s team stepped up to help this population by:

• Accelerating development of a lending product for motorcycle delivery drivers
• Working to expand its insurance offerings through a fully digital, low-cost medical assistance service
• Developing tools and resources to support the financial health of Colombians

During extreme situations like this pandemic, companies can show their true commitment to their mission, and we are thrilled to see that R5 continues innovating to support those in need.

Through its innovative and affordable products, R5 is opening new opportunities for many lower-income Colombians. We’re extremely excited to be partnering with R5 and look forward to supporting the team not only in Colombia but also as they expand through Latin America with their unique value proposition.