After helping to lend $1bn to small businesses all over the world, Matt Flannery is bringing digital banking to Africa with Branch.
As I begin writing up this interview with social entrepreneur Matt Flannery, it is coincidental that I find myself reading about Esther Afua Ocloo, a Ghanian entrepreneur and pioneer of microlending and one of the founders of Women’s World Banking.
Ocloo was the subject of a Google Doodle on 18 April to mark her 98th birthday and the impact she had on the economic empowerment of women.
‘We have amassed 200,000 borrowers in two years’
– MATT FLANNERY
In some respects, it appears that Flannery is carrying on the baton with his social entrepreneurship venture Branch. The legacy of Ocloo harks back to his comments during our interview about empowering people and respecting their social fabric.
Flannery will be a speaker at the upcoming Inspirefest 2017, which takes place between 6 and 8 July at the Bord Gáis Energy Theatre in Dublin.
Making a world of difference
Flannery is a Skoll awardee and Ashoka fellow, and was included in Fortune magazine’s 40 Under 40 List in 2009. He was selected for The Economist’s No Boundaries Innovation award in 2011.
Tracing his ancestry back to Loughrea in Co Galway, Flannery grew up in America’s Pacific North-west and studied computer science and philosophy at Stanford University.
In 2004, while working as a programmer at internet TV company TiVo in San Francisco, Flannery and his ex-wife Jessica Jackley co-founded Kiva, a non-profit that allows people to lend money via the internet to low-income entrepreneurs.
In the next 10 years, about $1bn would be lent to small businesses in more than 80 countries.
“I started Kiva after I was volunteering in Uganda. The idea was to fund small businesses through raising money on the internet and doing so in the form of loans, not donations.
“I went over to Uganda with some friends, and I had the idea for Kiva before I even went over, and the idea was to create a mobile website where small businesses could be invested in very simply.
“After three months of volunteering, I decided to validate the idea and we began by enabling people to loan money to small businesses in remote parts of Uganda.
“We tested it out on a number of small villages and it went from there.
“What you’ll find is that people’s businesses are growing and their income is increasing and financial stability is also getting more stable. I would say that the larger economic framework doesn’t support economic growth in these regions. These are stories of slow growth, slow expansion and steady improvement; they are not rags-to-riches stories in a Silicon Valley or Celtic Tiger kind of way.”
Flannery left Kiva in 2014 to build Branch, a branchless Android-based smartphone bank that is starting out by offering small loans to people in Tanzania, Kenya and Nigeria. It has plans to support savings and eventually peer-to-peer payments.
For Flannery, it is about all economic empowerment: “The main driver for me is that I think it is just cool and interesting to help people I liked. I loved the idea of someone following their dream, having a strategy, setting their mind to it and being part of their story.
“I have been lucky in my career in the last 10 or 12 years, just helping people follow their dreams and being part of thousands of these small stories.”
Banking the unbanked
Flannery’s ambitions for Branch are far from modest. “We’re in three countries right now and the plan is to create a pan-African branchless bank.”
He explained that there are three stages to the plan: “The first stage is to go to as many countries as possible and offer one product: credit. It’s pretty lightweight, from a regulatory standpoint, to issue small loans to millions of people and you don’t have to become a fully-fledged bank.
“So we are starting off as a non-bank financial institution and hopefully [will] make our way across all of sub-Saharan Africa in the next two to three years.
“After that, we want to try to become a fully-fledged, regulated bank and take people’s savings.
“The third step will be to allow people to send money to each other and help businesses get into payments.”
Compared with Europe and North America, the lending amounts at Branch will be quite different. “We give people $5 and $10 loans to start off with that are for 30 days and with a 12pc fee. If people continue to pay back their loans, the interest rate comes down and the amount they can borrow goes up.
“While these kind of APRs might sound horrible to people in Dublin, they are incredibly profitable loans for people in Tanzania, for example, a society where the liquidity is so low. You are not reaching subprime borrowers, but middle or upper class borrowers. Most of these people don’t borrow from banks or have credit cards. If you give a loan with a 10pc or 12pc fee, they can use that loan and make a 100pc return in a few days based on a business transaction they are trying to make, so it can be an incredibly good economic deal for them,” explained Flannery.
“This is very different to the high-liquidity economies of the western world, where everyone has credit cards and are typically using high-interest Wonga loans to bale themselves out of debt.
“We have amassed 200,000 borrowers in two years.”
AI and the future of banking
This is not without its hazards, however, and the key is to manage and avoid fraud. For this, the use of AI and machine learning is crucial.
“The trick is figuring out who to give the loans to and how to avoid fraud. A lot of computer science goes into this, where we use pattern detection and machine learning. We watch for patterns and learn from those patterns.
“Countries where they don’t have credit cards are ideal for a proposition like Branch. As well as Tanzania, Kenya and Nigeria, we see ourselves arriving in Ghana, Côte d’Ivoire and Uganda too.
“The most important technologies we have right now are all to do with machine learning and artificial intelligence.
“Fraud is such a concern [and] humans can’t spot it all, so we have to rely on machines to learn these patterns and block where appropriate.
“I don’t think blockchain is all that relevant in Africa yet because the markets aren’t there yet. With bitcoin, you would need to be able to convert that into Tanzanian shillings, and right now there is almost no way to do that formally.”
Supporting the social fabric
The key thing to understand about Branch is that it is not your typical fintech player or neo-bank. It is invested deeply in the social structure of sub-Saharan Africa.
“It is hard to generalise about a continent, but one of the things I do believe from my time there over the last 10 years is that, first of all, the social fabric of sub-Saharan Africa is very strong. Cultural identity is very strong, ethnic identity is very strong and that makes it a very happy, friendly, wonderful place that, as a foreigner, you realise what you lack in your own country where the culture and ties to your own heritage have been lost. There’s a lot of trust among clans and related people, and your character and reputation is very important. People take the social bonds very seriously and there is deep respect for elders.
“Then you have modernity and post-colonialism layered on top of that, broken institutional models and governments that are the enemy in many cases. Big companies suck for these people, customer service practices are terrible and there’s a ton of corruption at institutional level. Over the years, having interfaced with institutions and governments, I realised I could do this better by taking technology, American ideas around customer service and innovation, and provide great service as an institution to normal people.
“I went from trying to convince institutions to do that [to deciding] I’ll do it myself and instead, I will build an institution that gives customer service, treats people with respect and goes where the competition is, in terms of speed and ease of use.
“We are two years into that experiment.”
Being headquartered in San Francisco and in the middle of the frenetic Silicon Valley tech scene also has its advantages when it comes to accessing finance and great engineers.
“I can leverage my location in Silicon Valley by hiring engineers from the best companies using the latest methods and AI, and so that’s why I’m based here. There’s VC money – that huge financial engine called Silicon Valley funding. I have those unique connections.
“But in Africa, we hire local talent. We have offices in Lagos and Nairobi, and we have leaders out there who are better at management and operations than myself, and I empower them to be entrepreneurial and to run the business without waiting for orders from HQ.”
Looking forward to his appearance on stage at Inspirefest in July, Flannery said: “I like being part of inspiring people, especially entrepreneurial communities around the world, especially Ireland – I have a huge love for Ireland. I like to try to help people start their businesses. I usually end up meeting a lot of people at events, help them get started and to raise money.”
In conclusion, Flannery imparted a few words of wisdom for social entrepreneurs trying to be a force for change in the world.
“If you are a social entrepreneur or an entrepreneur trying to start a business, I think it is really important to do three things.
First, get started: get traction as fast as you can with as little money as possible.
Second, make sure you are doing what you love and you genuinely like the practice of what you are doing – not the end result, but the daily process of it all.
“And finally, be close to the customer – whoever and wherever that is. If you are CEO, whatever the end customer is doing, try be with them in their daily life.”