Vicente Fenoll is creating an ecosystem for ethical banking in Mexico using innovative technology that allows both savers and receivers of microloans to transparently interact and drives costs down, and provides all users with financial education that will help them to make better financial decisions, leading to social and economic development.
The New Idea
Vicente Fenoll used his more than 20 years as a leader in the financial sector to design and implement a novel model to change the way banks work in Mexico, addressing the issue of high interest rates and a lack of transparency and financial education. Kubo makes financial services an important tool for social and economic development in the country. The Kubo model takes advantage of technology to eliminate the need for an intermediary, thus diminishing operation costs and interest rates, and increasing transparency and user trust. Additionally, Kubo utilizes information from users and the bureau of credit to design products that directly respond to the needs of clients and rigorously selects its portfolio, diminishing default rates and non-payments, and increasing return for savers.
Vicente´s model emphasizes the importance of financial education as a key to social development, and addresses this need through an educational component, using social media to reach thousands of persons in the country. Kubo integrates this social mission and educational content in all its process, from board to clients. Kubo´s process helps rejected users and clients understand what their faults have been in their credit history and provides tips on how they can solve them.
With Kubo, Vicente seeks to create economic citizens with the belief the people should have access to goods and services that allow them to increase their economic and social development efficiently and freely. The financial system is a critical element for this development; however, its scope is not enough, and the current prices actually impoverish clients. Kubo proposes a new model that allows the efficient dissemination of services. The Kubo model does not end in its operation. Through macro-influence, continual participation in policymaking, and other strategies to impact the sector, the organization seeks to create a “banking ethic” where the end-user actively participates.
The microfinance industry in Mexico is one of the most active and developed in all of Latin America; however, it is one of the most expensive in the world. Microfinance in the country is based on a resource intensive operating model: the vast majority of actors rarely use technology for control and management of operations, resulting in high levels of default and irrecoverable loans, which is further exacerbated by actors seeking to maximize profits for their businesses. The current design of such microfinance models is based on similar foreign analogs, but simplifies the operation in a way that pushes the client to take the credit, in many cases resulting in further debt. This situation has generated many inefficient organizations that charge high interest rates and have an oligopolistic attitude, which they use to justify high costs as a product of market inefficiency. These foreign based models create products that are not suitable for the Mexican market. On average,microfinanciers grant loans of $600 USD with rigid terms of payment; however, most clients need loans on average of $2,500 USD. Having small loans in proportion to costs results in low operational efficiency and increases the economic cost for the end-user.
Another important problem in the sector is the lack ofavailable information and technology to develop the best practices of credit analysis that allow the most appropriate selection of clients and design of products to fit their needs. The lack of institutional transparency and the fact that clients do not know how to access the information that would be helpful to them combine to generate unfavorable conditions for the user. Even in a world where technology can be used to help clients, they often receive very little useful information about how to get a loan and its impact, or how to save and improve returns.
These components result in unjust operations for the client; on one hand, people who want to access credit pay interest rates north of 90%, transferring a majority of their productivity to the financial intermediary. On the other hand, savers who invest their money into financial institutions receive low rates of return for their deposits and do not know where their money is being invested. Thistranslates into fewer possibilities forself-advancement on both sides, and in a distrustful and uneducated society and a greedy and non-transparent ecosystem that cares only about economic gain.
Vicente´s goal is to change the way microfinance in Mexico works, and he aims to achieve this using the enterprise Kubo Financiero as his main tool. Kubo is an online platform that facilitates financial communities and connectspeople in need of loans with savers seeking to invest their money in a transparent and profitable manner.
Kubo bases its strategy on four precepts that respond in a timely manner to the problems of the sector: first, securing low operational costs through a platform based model, to pass savings on to the clients and drive interest rates down; second, using technology and available information intensively to understand clients’ needs and design financial products accordingly, and also to better select clients and reduce the risk of default. The third pillar is maintaining a very intense focus on financial education and building a transparent and trustworthy operation, and fourth, working with strategic partners and a macro influence strategy to promote a banking ethic and improve the conditions of the sector.
Under these precepts, the Kubo system follows certain steps. The team receives applications from people interested in obtaining a microloan and each application is processed to learn their credit history and risk, using available information from the Mexican Credit Bureau. If they are accepted, the client creates a profile on the Kubo platform where they describe their story and needs. At the same time, savers analyze these profiles and with the help of the Kubo team, they assess the diversity and risk of their portfolio, and decide whom to invest in. This exchange does not only improve the economic security of clients and investors, but also spurs a relationship between people, bringing down stereotypes and strengthening social fiber.
In order to build trust from their clients, and to build an informed citizenry, Kubo works on several aspects: for every user, whether he is accepted or rejected, Kubo develops an easy to understand tool that explains the credit history of the person, its most important aspects – such as which loans are generating higher interest rates – and tips on how to resolve debts and improve their credit history. With this tool, Kubo seeks to ensure that the client has a better perception of risk, understands the implications of failing to pay or defaulting, and has a clear understanding of the options to improve his or her financial situation. Also, Kubo is striving to gain the trust from their clients. To that end, Vicente focused on obtaining a financial intermediary license from CNBV (Mexican Banking Commission), the first platform to achieve it, and is working with www.smartcampaign.org (a global initiative to improve microfinance practices) to secure certification as an ethical and responsible credit institution.
Kubo also uses social media as a tool for financial education. In Mexico, the use of internet and social media is widespread with almost 54 million Facebook users, and Kubo is seizing this potential as a way of reaching people and building an informed society. The organization´s Facebook page has become the most used financial magazine in the country with almost 70,000 users and an average growth of 1000 users weekly. Through this page, any person can access simple and friendly financial information, saving and administration tips, simulators, and relevant news and articles.
Vicente´s ultimate goal is to develop an ecosystem for ethical banking in Mexico, and for this he is advancing diverse pattern changing strategies. He is using Kubo as an example for others to follow, creating competition and bringing costs down, disrupting the sector. He is also working with universities to compile the data he gets through Kubo and turn it into case studies, so that students can understand the needs of the clients and the real problems that high interest rates cause. He aims to place these case studies in leading business universities to target future sector leaders and start advancing a new way of banking. Vicente is also leading the creation of a Mexican crowdfunding association that can be held accountable to a common code of ethics.
With these strategies, Vicente hopes to get Kubo to breakeven in the next 18 months and increase the number of credits by 3,000, with a total of $60 million MXN ($4M USD) invested, and offering loans that average $20,000 to $50,000 MXN ($1,500 – $4,000 USD). Currently, Kubo has a presence in Mexico City and the metropolitan area; In three years, they seek to be in 5 to 6 cities and offer loans up to $150,000 MXN ($12,000 USD). Vicente expects expansion of the model to happen not only by the growth of Kubo, but also by being a facilitator of technology so that other regions and countries can use a similar model without having Kubo directly operating the model.
In the time it has been operation, Kubo has been able to reduce interest rates by an average of 60 percentage points. To date, the organization has carried out 942 payments to 674 clients for a total value of $20,529,725 MXN ($1.6M USD). The typical Kubo client saves approximately $6,000 MXN ($500 USD) in interest annually. In 2013, 59% of the loans given were granted to women and 78% of the clients came back to get a second loan after successful repayment.
Kubo currently has a team of 32 people and started out financially with Vicente´s personal investment and the income that the repayment of loans has produced. Kubo is set up as a banking institution and Vicente holds the majority of the shares. His budget for 2014 is around $700,000 USD.
Vicente grew up in a Catholic family that had social responsibility as a core value. His father was a Jesuit who left the order and started a family, but always maintained and instilled the values of the order in his children. Vicente studied Public Accounting at the Mexican Autonomous Institute of Technology and since, his career took a principal interest in the power of financial services. He began his first social endeavor when he was only 20, working with a group called Misiones de Guerrero. In 1991, when he began his MBA studies, he created the Juan Diego Foundation, together with a group of young people and entrepreneurs. From this experience, he founded FinComún (one of the first microfinance firms in the country). This enterprise became one of the leading businesses in Mexico; having started by himself in his parents’ house, the enterprise grew to 1,200 employees, 96 offices, and more than 140,000 clients when Vicente left the operation.
After 20 years Vicente decided to leave FinComúndue to a loss of the original concept and an understanding of the difficulties of changing the operations of such a large business. The board members of FinComún started focusing only on profits and lost sight of the true mission of the organization. After this difficult experience Vicente learned several lessons. First, he saw that as a founder you need to make changes to your idea and you need to evolve. Second, there will always be a risk that the people you work with can drift away from the original vision. Finally, the experience showed Vicente that he wanted to be a founder again. With this in mind, Vicente dedicated himself to learning about and understanding new initiatives in education, technology, and social entrepreneurship.This time, he realized that the solution could be different,so he created Kubo Financiero. Vicente has taken Kubo forward thanks to the investment of his own assets and the confidence of a group of investors and of 31 people who are today part of his team.
The objective, challenge, and passion of Vicente is centered on changing the way people are able to access financial services by changing how they manage their personal finances and using technology to increase the social and economic impact for clients. Vicente has been an entrepreneur of Endeavor since 2004, was selected as the Entrepreneur of the Year by Expansión in 2005, and Kubo was selected as one of the 10 best global financial innovations by AshokaChangemakers and American Express in 2013.