The IFC is using its new financial innovation division to invest in trade finance “disrupters” as a means of bridging the gap between the technology and banking sectors.
In an interview with GTR, Giri Jadeja, who will become global head of financial innovation at the World Bank’s commercial arm on March 1, said that its investment activity will bring more customers into traditional banking channels, at a time when banks are looking for ways to compete with new players.
The IFC has invested both debt and equity in a number of high-profile, non-traditional financial players in recent years. The financial innovation unit, based in Bangkok, has invested US$100mn in 13 technology companies over the past 12 months, with an aim of increasing this to around US$500mn.
Since 2014, the IFC has issued a number of high-profile loans to the Chinese company Ant Financial, a member of the AliBaba Group, for lending to Chinese businesses. Among these was a US$160mn facility and a US$80mn facility, with the specific objective of supporting female entrepreneurs in China.
Jadeja hopes that its relationship with Ant Financial will allow it to work with the traditional banking sector to transform SME lending through the use of Big Data.
“Rather than using the traditional bank channels to provide funding to SMEs, here’s another way to meet SME needs. Ant Financial buys data from AliBaba, one of the largest buyer-seller portals that exists. It uses the flow of goods and money between these SMEs to make sound credit decisions.
“They’ve been able to manage their credit losses to a degree that’s very difficult for traditional banks to do, because of the access to information. They can see people’s spending habits and the amount of money flowing through a vendor’s bank account.
“They analyse this data and rate these people and determine a level of credit they’re willing to provide to SMEs, who find it a very good source of funding. They can get a decision much faster than with a traditional bank. As they grow, the credit line continues to grow. That’s an example of how the old and the new can work together.”
“Look at Airbnb, Uber. They own the customer but don’t provide the service. The provider of the service as a seller is becoming more of a white label good, rather than a brand,” Giri Jadeja, IFC
In another example of its efforts to get involved in the perceived disrupters influencing trade, the IFC took a stake in Bangladeshi mobile financial services provider bKash in 2013, through its relationship with the private bank BRAC. bKash is the second-largest mobile money company in the world and has brought thousands of Bangladeshi consumers and businesses into the financial sector.
Jadeja says the IFC can assist in rolling out such offerings by using its global network of banks and customers.
“It’s a way of getting a seat at the table and being at the forefront of the decisions made. We can then use some of our traditional products, whether it’s debt or our ‘AAA’ rating to provide other channels of financing to these companies in the future,” Jadeja says.
He adds: “We’re not solely a private equity group, or we’re not a bank that only provides loans, we have the ability to do both. It wouldn’t be optimal for an organisation like ours not to use all the tools at our disposal to make our investments successful, make our partners more profitable and have a much wider reach.”
However, he has ruled out any involvement in bitcoin, blockchain or any other cryptocurrency or platform, saying that it is not within the IFC’s expertise.
“It’s not something we’re looking at; we believe it’s too premature. The IFC is very good at working with established ideas. We’re not very good at angel investing: that’s not our forte or our goal. We get into some venture capital, but round three or four of investing is what we prefer to look at.”
As for the role of the traditional banking sector, Jadeja says that those that fail to evolve will be the equivalent of “white label goods”: delivering services without having any brand.
“Whoever owns the customer is not necessarily providing the service. Look at Airbnb, Uber. They own the customer but don’t provide the service. The provider of the service as a seller is becoming more of a white label good, rather than a brand.
“Some banks have moved to that, others have become more white label, balance sheet service providers. Some of these disrupters will use the balance sheets of these disruptive institutions to provide the services while owning the customer,” he says.