A Brazilian fintech startup popular with Chinese millennial investors has joined with the African nation of Togo to backstop a planned €100 million ($113 million) impact fund being raised by a Switzerland-based private-equity firm. It’s all based on blockchain, of course.
The transnational effort reflects the intent of the newly announced BLOC Fund to facilitate cross-border investments in tech-driven businesses in energy, education, consumer goods, financial inclusion and healthcare.
Backers of the fund are betting that blockchain’s promise of efficiency and traceability will assuage investors’ reticence about committing capital in emerging markets. Moeda, the Brazilian blockchain startup, and the government of Togo committed €10 million in first-loss capital to jumpstart the fund, announced by Bamboo Capital Partners at the African CEO Forum in Kigali, Rwanda.
Moeda, which raised $20 million through an initial coin offering in 2017, has been facilitating cross-border loans for small businesses in Brazil. The company says it has put $4.7 million in the hands of 7,500 beneficiaries with a model that mixes microfinance, crowdfunding and blockchain. Most of the investors using Moeda’s platform are millennials from China.
The new fund will invest in companies that use blockchain and other technologies to benefit the low- and middle-income populations in emerging markets, the partners said in a statement. Cina Lawson, Togo’s minister of posts, digital economy and tech innovation, said Togo invested “to foster the development of tech companies which are focused on achieving the Sustainable Development Goals” and “to support local tech entrepreneurs to grow their businesses by providing them capital and tech expertise.”
“BLOC’s blended finance approach will catalyze further investment and generate lasting impact in some of the poorest regions in the world,” said Florian Kemmerich of Bamboo, which has about $290 million under management and investments in more than 30 companies.
Cryptocurrency will be part of the blend: investors in the fund will have the option of making commitments in dollars or euros, or cryptocurrencies. The fund says it will use a “know your customer” platform to convert cryptocurrencies into euros and dollars.
Randall Kempner, executive director of the Aspen Network of Development Entrepreneurs says he’s optimistic about blockchain’s potential to increase access to capital for smallholder businesses and farmers. He says, blockchain-based platforms like Moeda, which primarily serves agribusinesses, “offer an innovative approach that addresses some of the fundamental challenges faced in ag finance – mainly the heretofore high costs associated with transparency and financial transfers.”
Blockchain lowers the cost for someone from overseas to invest directly in another market, like Brazil, Moeda’s Taynaah Reis told ImpactAlpha in an interview before the announcement of the new fund. “To do that the normal way would take a lot of money and a lot of intermediaries. Also, for a transaction to happen across borders takes a long time.” Reis says the immutability of blockchain data is key in a market like Brazil, which has a reputation for corruption and identity fraud.
Reis grew up witnessing how impactful a small business loans can be to people traditionally ignored by mainstream banks. Roughly 70% of micro and small business owners in Reis’ native Brazil are shut out of mainstream bank lending. Instead, they resort to taking personal loans, which can carry interest rates as high as 200%.
Reis was inspired by her father’s career in launching Brazilian credit cooperatives. (He also initiated a large government lending program to small businesses.) Her vision for Moeda is to build upon that work through modern technology, which can cut through the red tape of both government and traditional finance to facilitate loans to companies, organizations and cooperatives delivering energy access, sustainable agriculture and food security.
It does this through partnerships with local cooperatives and banks that help the company source fundable projects and serve as financial partners. And through a blockchain-based crowd-lending platform and its own cryptocurrency, with which anyone anywhere in the world can invest in the projects it sponsors.
Lending timelines for Moeda’s borrowers, most of whom work in the agriculture sector, range from four months to 12 months. The cost of loans to borrowers is around 18%, and investors can expect to be repaid at anywhere between 2% and 10% interest.
“At the bank, the interest rate is 32% annually for a cooperative, and it can take nine months to get approved. Moeda gets [them] approved faster and much lower interest rate,” says Moeda co-founder Isa Yu.
Moeda’s front end for investors looks like any other crowdfunding website. Investors can scroll through fundable projects—training and market access for women coffee growers, or technical assistance and equipment upgrades for family-owned dairy farms—online or through Moeda’s app, and invest as little as $8 in projects targeting $20,000 in funding on average.
What investors through the platform are actually buying is Moeda’s own digital currency, which gets disbursed to borrowers in Brazil through Moeda’s network of cooperative and banking partners. Borrowers convert the digital tokens through a partner bank. “When they pay it back, they deposit cash at the local bank,” Yu explains. The bank alerts Moeda, which converts the cash to tokens that go back to investors.
“It’s early days for blockchain-based solutions,” ANDE’s Kempner warns. “As with most new technologies, the challenge will not be in the technology solution itself, but in market adoption and scale.”