The Responsible DeFi Lending Protocol: Why we invested in Goldfinch
Mercy Corps Ventures is excited to announce a new investment in Goldfinch, a DeFi lending protocol that offers credit to emerging market businesses to drive access to financial services for people who need it the most.
Goldfinch is bringing crypto liquidity to the real world by building a missing piece in DeFi — access to loans without overcollateralization. This meets a massive unmet need in emerging markets (EM) where people and businesses struggle to access financing to be more productive and improve their lives. Relatively small loans can make a big difference to help people be able to invest in their own productivity. For example, shop owners can purchase more inventory to sell more goods; carpenters can invest in better tools; farmers in better equipment, seeds and fertilizer; and with smartphones young people find better opportunities to make a living. When credit is responsibly provided for productive, income-generating uses, it can empower people to lift themselves out of poverty.
Unfortunately, the companies that lend for these productive assets also have trouble accessing enough capital to meet the need and growing demand. Capital markets in Africa, Latin America, and other EM are relatively weak and fragmented. Traditional banks have conservative lending criteria and limited reach. When businesses are able to access financing, the process is slow, the interest are rates high, and the terms are rigid — all add extra costs to businesses that constrain their growth. For businesses able to tap into global financial flows, foreign exchange risk can be substantial and come with additional costs.
This is where Goldfinch comes in. Lending businesses in EM can become “Borrowers” on Goldfinch by proposing loans for specific uses. Then, “Backers” assess the Borrowers, the loan proposal, settle on terms, and provide the first-loss capital. “Liquidity Providers” then supply the senior capital while incentivizing the Backers with carry. Finally, Auditors provide a thorough review to move to final approval. You can read more about the specifics in the Goldfinch White Paper.
Credit in EM can be impactful to underserved people and empower them to generate more income when it is provided for productive assets and uses — that’s when we think it’s done right. However, it can also be detrimental if it is provided irresponsibly. A range of unsustainable debt practices in these same markets, including unsecured consumer lending at very high interest rates for unproductive uses, exists and in some countries are rampant.
“We founded Goldfinch because we believe web3 has incredible potential to expand access to capital and financial inclusion around the world, and we wanted to make that happen. We believe now is the time for the web3 industry to start expanding it’s real-world, positive impact beyond the crypto space, and that’s our mission with Goldfinch.”
Mike Sall — Co-Founder & CEO
We are pleased to join @a16z and a fantastic group of new co-investors to support Goldfinch including A Capital, SV Angel, Access Ventures, Divergence Ventures, Defi Alliance, Draft Ventures, Balaji Srinivasan, Wale Ayeni, Ryan Selkis, Jason Choi, and others. We’ve been impressed with co-founders Mike Sall and Blake West, their commitment to impact and inclusion, and the quick progress they are making. Since launching in January 2021, Goldfinch is already serving tens of thousands of end borrowers in India, Indonesia, Mexico, Nigeria, Singapore, Thailand, and Vietnam. Taking full advantage of Web3 architecture, the company has built an impressive distributed community of lenders, underwriters and borrowers that enable it to achieve massive scale. Goldfinch has a sightline to extend upwards of $700M in financing in the coming year, which would be a gamechanger for debt financing in emerging markets.
Customer Spotlight
The Goldfinch protocol has provided Tugende, an East-African asset-financing fintech company, with a $5M borrower pool to fund the growth of its operations in Kenya. Starting with motorcycle taxis in Uganda and Kenya, Tugende has served over 52,000 clients on their path to ownership and increased earnings while maintaining industry-leading portfolio quality with loan loss rates under 1%. Today, Tugende’s primary customers are motorcycle taxi (boda-boda) operators. In a market where the norm is for operators to rent motorcycles at exorbitant costs, the company provides affordable asset financing that allows these operators to own their motorcycles — doubling their profits from $5/day to $10/day. Their asset finance packages also include life and medical insurance, high-quality safety gear, training, and business permits.
Images courtesy of Tugende.
As an EM venture investor, we know how challenging it can be for growing companies in Africa, Latin America, and Asia to access credit. In our portfolio, it is the number one constraint to growth and the positive impact they can have on underbanked users. That is why we invested in Goldfinch, a decentralized credit protocol with the potential to fill this capital gap. Goldfinch unlocks global liquidity to provide financing to lending businesses without the need for crypto collateral. We’re excited to bring our EM experience to the table and support smart, responsible lending for productive uses among the Goldfinch community.
We envision a world where people and businesses, big and small, can access credit on-chain with reasonable terms, tailored to their needs. Together, we can rebuild the global financial system by making it more open and decentralized with the underserved at the center of its design.
