Microlending in South America.

Part
01
of two
Part
01

Micro-Lending And Crowd Sourcing - Major Players: South and Central America

The major players in South and Central America for micro-lending and crowdfunding based on companies that are utilized the most are MO Tecnologias, RedCapital, CROWDIUM, IOUU, and Kria.

MO TECNOLOGIAS

  • Name: MO Tecnologias
  • Website: https://motecnologias.com/en/
  • Reason: This company is ranked number one on CrunchBase in South and Central America for microfinancing and crowdfunding based on the amount of funding raised- $5 million.
  • The company is being used by many consumers.
  • Additionally, Mo Tecnologias is ranked 18,475 out of 100,000 most active companies.
  • Description of services: Mo Tecnologias is a Fin-tech firm whose objective is to revolutionize the credit industry by providing access to nano and microloans independent from credit history.

RED CAPITAL

CROWDIUM

IOUU

KRIA

  • Name: Kria
  • Website: https://www.kria.vc/
  • Reason: Kria is ranked number five on CrunchBase in South and Central America for Microfinancing and Crowdfunding based on the amount of funding raised- $200,000.
  • The company is used by many consumers.
  • Kria is ranked 38,915 out of 100,000 most active companies.
  • Description of services: Kria is a crowdfunding platform that allows investors to build an investment portfolio by investing in various businesses curated by the company.
  • The company also offers management and support to businesses who wish to acquire funding through the platform.

RESEARCH STRATEGY

In our search for the major players of micro-lending and crowdsourcing companies in South and Central America, we first established a metric by looking for websites which ranked as the top institutions in South and Central America. We got some information from Forbes and India Microfinance, but the information was outdated (2007 and 2001). Hence, we decided to change our strategy.

We used Crunchbase to check companies from South America and Central American that delved into the industry of both micro-financing and crowdfunding. Crunchbase organized and ranked these results based on how much funding each company had raised and how active their companies were. We assumed that the most active companies are the kind of companies that users engage with the most because Crunchbase defined this ranking by checking the number of connections that the company has and how engaged the company is with the community. This assumption fits the client's second criteria for user engagement, so we used the given information by Crunchbase as the basis for our research.
Part
02
of two
Part
02

Micro-Lending And Crowd Sourcing - Regulations: Ecuador And South and Central America

Crowdfunding in Ecuador is in its early stage and there are no current laws or regulations about it. There is a proposed Entrepreneurship bill in the country which aims to promote crowdfunding as a source of financing for the entrepreneurs.

Crowdfunding Laws and regulations in Ecuador

  • Crowdfunding and Peer to Peer Lending in Ecuador exists but still in its infancy stage (s4) and Fintech is not yet widely used in the country.
  • In a study entitled "Development of a Business Model of Loans Between Particulars (Peer to Peer Lending) in Ecuador", there are no laws nor drafts to regulate crowdfunding in Ecuador as of 2018. The probability of being observed and monitored by a governing body is minimal and companies using crowdfunding are free to operate as long as they observe the objectives and principles of the financial laws in Ecuador.
  • The study concluded that Peer to Peer Lending and Fintech Platforms should operate under the existing financial laws and should adopt the objectives of the law that involves protecting the interest of users, promoting movement of capital in the economy, and social inclusion.
  • Jorge Galarza, director of the Ecuadorian crowdfunding platform Catapultados.com, says that "It is something that is newly growing, and that does not have a regularization as in other countries, so we deal with what the current law tells us".
  • A 2018 Crowdfunding Review of the Literature recommends that the government of Ecuador should establish laws and regulations to govern legal security, international trade, and intellectual property rights within crowdfunding.
  • A recent news article dated February 2019 shows the draft Entrepreneurship Law in Ecuador. Andrés Zurita, executive director of the Alliance for Entrepreneurship and Innovation (AEI), noted that crowdfunding as a source of financing for the entrepreneurs in the country is one of the most valuable points of the proposed bill.

Examples of crowdfunding in Ecuador

Crowdfunding regulations in south and central America

Argentina

  • In Argentina, the regulation of crowdfunding is very similar to that of the United States, and it is framed under the Law of Support for Entrepreneurial Capital No. 27,349. The law aims to promote different financial channels to entrepreneurs.
  • Companies can raise funding by selling equity or offer convertible notes via crowdfunding platforms. The Entrepreneurs’ Law helps entrepreneurs all over the country to receive investments with ease and it enables crowdfunding platforms to legally register their service.

Brazil

  • The Commissão de Valores Mobiláros (CVM) in Brazil has published a regulatory regime last 2017 to legalize investment crowdfunding. Issuers may raise a maximum of $1.5 million under the exemption within a 180-day period.
  • Only small businesses can utilize the said exemption and lead investors may invest up to 10% of their net worth or of their annual income.

Mexico

  • The Mexican Fintech Law regulates Fintech companies involved in crowdfunding and electronic payments.
  • The Law states that crowdfunding companies will be liable to any damages if their clients fail to comply with their obligations, and companies already offering crowdfunding services should request authorization from the Commission within 12 months.

Research Strategy:

Most of the sources used are research papers and studies from Universidad Internacional Del Ecuador (UIDE), Universidad Central Del Ecuador, and Economics and Business Sciences of the Espíritu Santo University, Ecuador. We also consulted reputable news and media companies in South America. Most of the articles are in Spanish so we used Google translate for the source quotes. Ecuador doesn't have any laws about crowdfunding but we included insights regarding companies who wish to operate in the country. We also included examples of successful crowdfunding campaigns in Ecuador.
Sources
Sources

From Part 02
Quotes
  • "The model of loans between individuals (Peer to Peer Lending) is a model of collaborative financing that as a concept has always existed, however, the advances in the use of information technologies has made it easier to manage this to have greater coverage in the population. But before entering to understand in depth the Peer to Peer Lending model, it is important to know the concepts that originate it what is the Crowdfunding."
  • "Because in Ecuador the FinTech movement is still very weak, the laws do not they determine nothing explicit about the functioning of the business models that pose the FinTech. To date, there are no draft laws or proposals for regulate the sector. This does not mean that the FinTech move outside the law, you are rather they adapt to what is stipulated at the moment, while, if they comply with the objectives and principles of the law, the probability of being observed by a governing body is minimal."
  • "As for regulations, the tendency that is taking place is that the Peer to Peer Lending or other FinTech platforms operate by adapting to the laws exist, since in no country has there been an explicit rule that regulates the innovative business models in finance. Often, after the observance of the control bodies, drafts of laws are allow the operation of this type of companies, establishing conditions that guarantee the foundations of the law."
  • "On the financial laws in Ecuador, we can highlight the approach towards human welfare, which participates in the economy and needs the mechanisms monetary and financial to maintain economic welfare. In this sense the laws are designed to promote all those measures that promote the movement of capital in the economy, social inclusion and, at the same time protect the interests of system users."
Quotes
  • "In the case of music specifically, one of the recently registered cases of crowdfunding has been the from the Ecuadorian band Swing Original Monks, who through this campaign achieved finance one of your records. The ultimate goal of crowdfunding is not just to put together amount of money determined, but develop the feeling of the contributors as part of a project, its contribution being very valuable for the development of the independent music."
  • "As mentioned above, one of the examples of crowdfunding that existed in the country it was the case of the band Swing Original Monks. The band had released this campaign with the desire to finish the record they had managed to record with "Visitante", a producer recognized in Latin America for being part of the grouping Calle 13. The objective of the band was to reach $ 10,000 (ten thousand dollars) and In return the band would send those who supported in this management the finished disc and a Couple of surprises more."
  • ""
Quotes
  • "In Argentina, the regulation of crowdfunding is framed under the design of the Law of Support for Entrepreneurial Capital No. 27,349, which aims to promote financing channels for the implementation of projects of a character entrepreneur. The legislation is very similar to the United States."
Quotes
  • "In Ecuador, this online financing network "is in its infancy," said Jorge Galarza, director of the Ecuadorian crowdfunding platform , Catapultados.com ."
  • "The national platform Catapultados.com started in 2014 and has raised around $ 100,000 through 25 projects. One of them was to obtain financing to finish the Ecuadorian film Alba . Thanks to this initiative, $ 10,750 was raised."
  • "Besides Catapultados.com , there are 4 other crowdfunding platforms in the country . "It is something that is newly growing, and that does not have a regularization as in other countries, so we deal with what the current law tells us," said Galarza. "
Quotes
  • "What are the most valuable points that the proposed bill has? There is the issue of how crowdfunding works as a source of financing for the entrepreneur. There is the creation of companies more quickly. There are issues that need technical advice as in definitions of capital. The document will have input from assembly members and businessmen; You have to make the effort to have the best entrepreneurial law that you can have. "
  • "Andrés Zurita, executive director of the Alliance for Entrepreneurship and Innovation (AEI) highlights the draft entrepreneurship law presented. He says that one of the key points will be to generate incentives and believes that the greatest effect will be the generation of employment."
Quotes
  • "Crowdfunding is a financing tool that provides financial support to people who want to turn a project into reality. This financing instrument seeks to be a means for the creation of new businesses and for their development. Despite the benefits granted by this tool, this term is little known in Ecuador."
  • "Entrepreneurs must take into consideration the safety of investors and entrepreneurs. In the governmental part, it is necessary that the government establish laws to govern legal security, international trade and intellectual property rights within crowdfunding. The three axes must work jointly to be able to promote this new method of financing in the country."
Quotes
  • "The Commissão de Valores Mobiláros (CVM) in Brazil has published their regulatory regime to legalize investment crowdfunding. The document outlining the rules is embedded below (in Portuguese)."
  • "In brief, issuers may raise up to BRL 5 million (about USD $1.5 million) under the exemption within a 180 day period. A new offer under the exemption may only take place 120 days after close of the first."
  • "There is a cooling down period of 7 days when an investor may request a refund Only small businesses may utilize the exemption Retail investors are limited to BRL 10,000 per year in investment"
  • "Accredited or lead investors may invest up to 10% of their annual income or net worth (the lesser of the two Issuers must have a minimum paid in capital of BRL 100,000 and gross revenue of less than BRL 10 Million during the fiscal year prior to the offer"
Quotes
  • "Finally, companies that wish to raise funding by selling equity, or offering convertible notes online via crowdfunding platforms, can now do so. The Entrepreneurs’ Law enables crowdfunding platforms to register their services and help entrepreneurs across the country receive investments for their projects with ease"
  • "An interesting component to point out is that the law also grants a secondary crowdfunding market to be implemented, allowing investors to sell their equity and convertible notes, and, therefore, injecting liquidity into the market."
Quotes
  • "First, it regulates two types of FinTech companies: crowdfunding (debt, equity, co-ownership or royalties) and electronic payment (including e-wallets). Both types are subject to consumer protection, anti-money laundering and prudential rules, which are to be defined in secondary regulations."
  • "Third, it states that crowdfunding companies will be liable for damages should their clients fail to comply with their obligations (e.g., client profiling and issuing investment and debtor selection criteria, among other characteristics). "
  • "Fifth, it states that entities that are currently offering services that fall within the scope of crowdfunding or electronic payment companies may continue to operate on the understanding that they must request authorisation within 12 months of the issuance of secondary regulations by the Commission."