Goldman Sachs Lends $100 Million to Mexican Fintech Konfio

(Bloomberg) — Goldman Sachs Group Inc. is making another bet on a Latin American financial-technology startup, providing a secured credit facility of as much as $100 million to Mexico’s Konfio Ltd.

The transaction will help Konfio, which provides unsecured working capital to small and midsize companies, lend about $250 million in the next 12 months, according to David Arana, the fintech’s chief executive officer and founder.  The plan is to expand into using guarantees or collateral, making it possible to do bigger loans than Konfio’s current average of $20,000. 

“We came across Goldman at several Latin America fintech events, and we started conversations,” Arana, 35, said in an interview. “ I think they’re the right partners to help us continue to make an impact.” 

Konfio uses its technology to analyze credit behavior and collect other types of data, enabling it to respond to companies immediately and make disbursements in as little as 24 hours.  Traditional loans to small and midsize companies sometimes take months before they’re approved, and require collateral or guarantees.  Konfio’s interest rates are half those charged by the traditional banking industry, according to Arana. 

Technology also helps Konfio keep non-performing loans under control.  The delinquency rate on the firm’s loan book was 4.8% in 2018, compared with 5.4% for the banking industry, he said. 

“Konfio brings a unique approach to credit underwriting for a segment of the market that’s poorly served in Mexico and more broadly across the region,” Ram Sundaram, who heads Goldman’s structured-finance, investment and lending business globally, said in an email. 

The potential market is large.  Total credit to small and midsize companies in Mexico is about $100 billion, and banks have been pulling away from the business, said Arana, who was born in Mexico. 

Konfio, which has served 1 million clients since its founding, also provides companies technology that helps them organize data and better understand their businesses, Arana said. 

“I lived through the subprime crisis,” said Arana, who worked at Deutsche Bank AG in New York from 2006 to 2013 doing credit structuring and trading with a focus on Latin America. “ In an era of abundant data, we were supposed to be able to make better decisions, but I was actually seeing the opposite — access to finance was shrinking.  So I saw an opportunity.” 

Created in 2014, Konfio received its first round of investments in April 2016 from funds including Jaguar Ventures, Kaszek Ventures, QED Investors and Accion Frontier, a fund managed by Quona Capital.  In October 2017, it received a second round of investments from the International Finance Corp., the financial arm of the World Bank, and in July 2018 it took in debt and equity investments from investors including Vostok Emerging Finance, Victory Park Capital Advisors and the IFC. 

In all, Konfio raised $43 million in equity and $260 million in debt.  It also has access to credit from Bank of Nova Scotia, Arana said. 

Goldman, Nubank

The Konfio transaction was the first time Goldman’s structured finance, investment and lending business has provided a credit facility to a Latin American fintech.  But it previously made investments through its special-situations group in credit-card lender Nu Pagamentos SA, widely known in Brazil as Nubank. 

Goldman loaned Nubank 200 million reais ($49 million) in 2016, and in August 2017 expanded the credit line to 455 million reais in a deal with Fortress Investment Group.  The entire loan has been repaid. 

Earlier this year, the special-situations group agreed to provide Mexico’s Credijusto Inc. with a $100 million facility to support lending to small and midsize enterprises. 

The idea is that startups can use their digital platforms to operate more efficiently than local banks, offering low-cost products including loans, and potentially serving consumers previously out of reach.