This is part of an ongoing Q&A series with our originator partners.
Today I’m joined by Tarek El Sherif, the founder & CEO of Zinobe, one of our data-driven international originators focused on consumer loans. Tarek graduated from Northeastern University in Boston, before getting his MBA at Columbia University in New York City.
BG: For those who haven’t heard of Zinobe, can you briefly explain what Zinobe does?
Tarek: Zinobe is a data-driven fintech based in Bogota, Colombia. Our products target underserved segments within the consumer and, more recently, the small business markets. Our consumer brand, Lineru, was the first digital credit product in the country and has expanded to offer payment and transfer services for our clients.
Aliatu, our new small business line, primarily provides working capital and term loans to companies that are part of a large corporate supply chain network. In both areas, our focus is to target data-rich environments and provide a high service level through the application of technological solutions.
BG: You have a very interesting background. I’d love to know how you ended up starting a business in Bogota, Colombia.
The short answer is that my wife is from Colombia, which is quite a common response for expats living in Colombia.
For the detail behind my decision, it rests more with the timing of my career move. I had been in banking for close to eight years and was looking for a change in lifestyle and to do something entrepreneurial. My wife and I agreed that we should pick a place that we wanted to live and take our time to look for an opportunity. Our initial choice was Brazil, because we had friends there and we liked the culture.
Things changed when we found out that we were expecting our daughter, and I made the suggestion of going to Colombia so that her family could help us with the transition. Colombia was supposed to be a temporary stop, but when I started the business and it started taking off, our plans changed.
BG: One of the really fascinating things you’ve been able to do is build a company that’s incredibly focused on technology. Can you explain why that’s been such a focus at Zinobe, and what this may mean for investors?
Technology and data are at the center of all our efforts in the company. From a customer standpoint, technology is used to provide faster service, a better user experience, and increased customization.
From an investor’s perspective, technology increases automation, which reduces operational expenses and provides greater transparency, which mitigates risks. Technology also allows us to apply our data-driven approach, enabling us to be more inclusive than traditional players and to make intelligent decisions.
BG: How has Zinobe navigated through the Covid pandemic?
Covid has caused a lot of hardship in Colombia from both an economic and a human perspective. Zinobe has been very fortunate in that none of our employees have been symptomatic to this point and we were able to allow the entire workforce to work remotely almost immediately. Looking at the business, our technology platform enabled us to control risk in a rapid manner through our real-time reporting and automated decision-making.
The short duration products were also an advantage in that updated credit policies would be material almost immediately. Our track record of attending underserved markets and being 100% digital attracted the attention of the government and we became the first company to partner with a government to launch a credit product for independent workers as part of their Covid response. On the whole, I think that we were able to manage a difficult situation relatively well through a combination of good fortune and opportunism.
BG: What is a misconception investors may have about your industry?
I think that short-term consumer lending can be controversial since you are dealing with a client base that is typically less sophisticated and with few options, but this should not lead to blanket judgments as there is a genuine need that should be addressed.
In order to build a long term value proposition, a company has to satisfy all of its stakeholders, and reputation is essential in financial services. I would say that one misconception is that all players in this space are predatory, and there is not a way to address this market in a responsible manner.
You have to focus on isolating what is considered bad behavior in this asset class and distinguish yourself, which includes:
- Eliminating rollovers, which mask NPL’s and put borrowers in a debt spiral
- Capping charges and having flexible payment plans
- Giving full transparency on all charges and penalties
These are some of the practices that we have always had in place at Zinobe along with a key focus on retention and customer satisfaction.
BG: What is something most people don’t know about your industry?
One of the lesser understood elements for international investors is the difference between emerging and developed markets and where fintechs fit within those markets.
In developed markets, fintechs have traditionally focused on technology and user experience improvements, whereas in emerging markets there is a much stronger inclusion element. Fintechs are also able to attack sectors that are often completely unattended. Credit card penetration in Colombia, for example, is under 20%.
BG: What do you think sets Zinobe apart from its competitors?
Our focus on owning and developing our technology is one differentiating factor. Typically, fintechs outsource development which gives them less ability for customization and limits product development.
We understood that technology would be one of the pillars of the business and decided to take ownership of it. This has resulted in us having the ability to expand into small business lending and payments where most of our competitors are siloed in one product. We also have more of a focus on client retention which we enforce through a company emphasis on NPS, loans per customer, and rewards. We have separated ourselves from our competitors in all of these metrics.
Lastly, I would highlight our data-driven approach and our proprietary scoring algorithms. To my knowledge, we are the only company in Colombia utilizing machine learning derived scoring and a big data architecture in the credit space.
BG: What makes this space unique from an investor’s point of view (or what makes this something that would be appealing to invest in)?
Investing in data-driven originators is appealing in that investors get greater transparency on risk levels and general operations. Smaller credits provide diversification in portfolio risks and shorter durations give liquidity, all while not sacrificing yield due to the product structure.
Zinobe has the benefit of having an extensive track record, both in terms of operational experience – 7.5 years and in volume – +1mm credits processed; so investors can gain comfort in a proven operations and risk management model.
BG: You recently launched a product in the Small and Medium Enterprise (SME) market. What’s your strategy in that space?
Our SME product launched last year after two governmental entities approached us to create a product for small businesses. The entities were Bancoldex, referred to as a 2nd floor bank, which offered to provide us subsidized funding; and Fondo Nacional de Garantias, which offered to provide principal protection at varying levels.
For us, it was a natural progression from our consumer business as we could utilize a lot of operational learnings from our 8-year history in the consumer space. For small businesses, there is a high correlation between the consumer risk of the owner and the small business risk. Additionally, a significant portion of our consumer client base were micro-entrepreneurs who used the credit for their working capital needs. We applied two important strategies which have enabled us to scale successfully; firstly, we looked for real-time data that could help fill the formality void and provide better trend information than financial statements; and second, we looked to partner with large corporates to get access to networks of small businesses which enabled us to leverage long-standing relationships and get access to private data sets.
BG: What’s the most interesting and/or rewarding part of your job?
As a founder, one of the most rewarding aspects is building up your team and seeing individuals growing and getting promoted. We have maintained a turnover rate below 5% historically and an employee NPS of 73. From a customer perspective, Lineru has several metrics which demonstrate our impact and level of service: NPS of 78, 2.5 year average customer life, NPL’s more than 2% below industry average.
Our inclusive aspect is highlighted by the fact that 68% of our portfolio consists of people with little to no access to credit. Aliatu has also been quick to make an impact, with average purchases by our clients increasing >100% in 3-4 month time period.
BG: As one of the first international originators on the Cadence platform, what attracted you to Cadence?
Cadence was a good fit for us due to their efficient, business-friendly approach and our shared data-driven mindset. Cadence allows originators to shape their funding according to their business needs, which separates them from traditional players. We feel that Cadence is a valuable partner that will help us achieve our growth plans.
BG: We’re glad to have you as a partner. Thanks for your time Tarek!