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Fintech has the power to build a more inclusive world. Fintech for the People is about the innovators who are developing fintech solutions that reach the people who’ve been left behind. In each episode, we’ll hear from innovators who are creating financial solutions that bring every person the financial tools they need to grow their business, support their family, and build their community. Together, we’ll learn how fintech looks different in spaces and places where basic financial services are a luxury — and how solutions to address these challenges require a different level of creativity, empathy, and execution.
Fintech for the People is an Accion podcast hosted by Amee Parbhoo, Managing Partner of Accion Venture Lab – an early-stage investor in inclusive fintech startups. Learn more about Accion Venture Lab here. Episodes will be released in seasons, on a weekly schedule.
Amee Parbhoo (00:12):
Welcome everyone to the second episode of Fintech for the People Season Five. I'm Amee Parbhoo, your host and managing partner of Accion Venture Lab. Accion Venture Lab is a leading early stage fund that is invested in more than 60 companies expanding access to financial services for underserved populations across the world.
(00:32):
This season, we're talking to five industry experts who are bringing their perspectives into a fairly new but extremely important topic, climate fintech. Last week in our first episode, we spoke to Howard Miller, Director on Climate at the Center for Financial Inclusion. We deep dived into understanding the various impact pathways through which financial services can help climate vulnerable populations, as well as discussed the current state of financial system and challenges to meet those needs.
(01:01):
Now I'd like to introduce this week's guest, Maelis Carraro, managing partner of the Catalyst Fund, a pre-seed fund and accelerator that's backing high impact tech startups, improving the resilience of underserved climate-vulnerable populations in emerging markets. Maelis, thanks for being with us today.
Maelis Carraro (01:20):
Thank you. It's a pleasure to be with you.
Amee Parbhoo (01:22):
Before we get into it, tell me more about yourself. I'd love to hear more about what brought you into the world of inclusive fintech and impact investing and to the Catalyst Fund.
Maelis Carraro (01:31):
Sure. Well, I'm the managing partner of the Catalyst Fund today, but I started my career actually in climate adaptation research and understanding how microfinance could play a role in financing adaptation solutions in South Asia. And from there went on to become a fintech investor, primarily at the IFC where I spent five years based out of Istanbul, but investing across emerging markets and had the opportunity to work with a lot of teams, building some of the first digital financial services products, be it from banks or insurance companies or actual digital money startups at the time, and worked for a few other also impact funds in this space, always with a lens on FinTech and financial inclusion, and then got the entrepreneurship bug.
(02:25):
So I actually started my own startup also in the FinTech space that was supporting migrants in the US remitting back to their home countries in Latin America. And that was an incredible learning experience. And when unfortunately that company didn't work out, that's when I started a catalyst fund as a way to support entrepreneurs on with those lessons that I'm getting myself in, accelerating their path towards success and raising more funding. So for me, it's interesting that today with our newest fund, we're exploring now the intersection between climate resilience and FinTech because it's coming full circle. Full circle from where I started and what I've then become as a FinTech investor.
Amee Parbhoo (03:10):
That's really cool seeing everything come together, culminating here. So tell us more about what Catalyst Fund has been up to to date first and then yeah. But I'd love to kind of hear about this future strategy as well.
Maelis Carraro (03:21):
Absolutely. Catalyst Fund is a pre-seed fund and accelerator focused on inclusive tech solutions in emerging markets. And as you know, it was started also with a consortium of investors, including Accion Venture Lab, Kona, Flourish, and many others that play a critical role at the beginning as a platform that would be able to invest very early stage in entrepreneurs and de-risk them for future investors by investing capital as well as very hands-on venture building support because we all recognized capital was only one side of the equation, and we really need to build these ventures and give them the capabilities to really succeed and get to product market fit. So for the past seven years, we've invested in 71 companies actually today, this blended approach. And primarily we've invested in inclusive FinTech solutions that were driving affordable access to one appropriate products for low income and underserved communities.
(04:24):
That said, over this time we've actually taken more of an embedded FinTech lens to our investing. Something I know Accion Venture Lab also shares with us. So we have looked at other sectors including aquaculture, access to energy and others, even education and healthcare. But across the board they always had a FinTech product as a driver of value by driver of value in terms of affordability and accessibility for the customer, and also value for the business in terms of what drives revenue and profit. So now for us in this juncture, it was obvious that if we were to focus on building the resilience of underserved communities that are also climate vulnerable, we needed to embed a climate lens to our investing, but look at how climate solutions could really be organically affordable and accessible. And that's where we see the FinTech enablers play a big role.
Amee Parbhoo (05:25):
And it's really exciting. And maybe you could tell us more about from a customer lens and from customer needs, what are the links that you're seeing between climate vulnerable populations and financial inclusion? Just in general, what's that overlap look like?
Maelis Carraro (05:42):
The overlap is enormous. I mean, climate change has already had a negative impact on the lives and the livelihoods of billions of vulnerable, low income and marginalized communities in this market. And the numbers are also very similar. Now globally we say there's 3.3 climate vulnerable people and coinciding very much with those that are underserved and those that are already lacking the safety nets, lacking the tools to protect themselves from adverse impacts. They're usually also underserved from financial services. Are those most at risk and most exposed to climate impacts? And if you think for example, about populations that rely on natural resources for their livelihood or that live in rural areas that are prone to droughts or live in coastal areas that are prone to inundation, you can see how climate impacts are an exacerbator of an existing vulnerability.
(06:42):
And that's where we seeing a connection and a major overlap in terms of the risks that need to be addressed and the opportunity to create solutions for those risks for that same population. Those communities that are vulnerable to climate change tend to also be the ones that don't have safety nets and are excluded from financial services in particular products that help build that resilience from assurance, the savings to credit. And so we see actually a role in digital financial services to build that resilience in two ways. The first is actually applying financial services to climate vulnerabilities themselves. So one of our first thesis is for example, exploring the role of insurance, InsureTech for disasters, InsureTech for crops and crop failures, but also for example, remittances in the case of a major climate events and that disrupts the livelihood of communities. How do you facilitate the fluff funds for that relief or carbon finance as an opportunity area?
(07:45):
Because that is now becoming extremely interesting and prominent across the continent. And then the other lens is digital financial services as an enabler of affordability and accessibility for products. So we are seeing a lot of solutions that have FinTech embedded in the offering. For example, an AgTech platform that has a credit and insurance offering or an aquaculture solution that also has a [inaudible 00:08:15] leader product or a smart irrigation system that enable incurring a [inaudible 00:08:21] financing scheme. So those two lengths are where we see the extreme overlap and opportunity apps at the intersection of financial inclusion and climate.
Amee Parbhoo (08:32):
And maybe just a pause on definitions. I mean, we hear a lot about climate mitigation and climate adaptation, climate resilience. Maybe you could help define some of these terms and where Catalyst Fund is focused, what you think the solutions are we all should be focusing on.
Maelis Carraro (08:49):
It's true. There's a lot of terms and confusion. So climate resilience is typically defined as the ability to anticipate risks, prepare for them, respond right to as artists climate events, but also grasp opportunities that are creating by changing climates. Whereas for example, adaptation is really more focused on the immediate adaptation to physical impact of climate change. And mitigation obviously is the mitigation of the adverse effects of the CO2 emissions. So when we think about resilience, we think more broadly about how we can build more resilient societies, think about resilience, CF across a number of sectors of the economy, and ultimately help vulnerable populations protect [inaudible 00:09:44] and anticipate them, adapt livelihoods, but also build long-term opportunities in the new climate environment. And a lot of the actors in the space are now aligning on these definitions, even if there might seem a bit confusing at first, but I think we're all getting there.
Amee Parbhoo (10:04):
And there's so many overlaps between how you talk about resilience and the climate space with how you are now talking more about financial resilience in the FinTech space. So that's good to see that change in the broader ecosystem. So you mentioned a few of the themes that you were excited about and that Catalyst Fund is seeing in this kind of space, but I'd love to hear more about examples of companies you've supported and just more broadly where you see those big opportunities.
Maelis Carraro (10:30):
Yes. We just made our first 10 investments about our new climate resilience fund, which is very exciting. And I'll give you a couple of examples in each of our pillars of the thesis. So the first example in climate smart financial services is a company called Assuraf in Senegal, Assuraf is a digital platform for insurance that is able to offer a number of insurance products to low income and vulnerable communities starting from health and auto insurance, but also now including crop insurance and disaster insurance. And in Senegal alone, the number of negatives as artists events because of climate change from inundations to droughts have really dramatically increased over the past few years and Assuraf for it to be at the forefront of thinking how they might position in digital insurance offering to cope with those impacts.
(11:27):
So we're really excited about them not only because of their business model and technology innovation and offering insurance in an end-to-end way in digital means and therefore reducing costs and so on. But also in the way they're thinking about the offering, integrating a climate lens. And there's a couple of others actually that we've invested in. The other pillar on climate smart livelihoods, we've made a number of investments over the years. In this last cohort in particular, we just invested in a company called Farm to Feed, which is based in Kenya, and it's led by incredible women co-founders and it's a digitally enabled platform focused on reducing food loss and waste and therefore reducing also greenhouse gas emissions. Because as we know, food waste is a major generator of CO2 every year. And they do this by essentially aggregating grade COD, so imperfect produce and rescuing from a network of smallholder farmers in Kenya and then distributing it to customers such as retail markets, food processors, but also feeding programs at very affordable prices.
(12:40):
And they're also now developing a new way to calculate the value of carbon credits out of food loss avoidance, which is really exciting because that can generate additional income for them, then gets passed on to the farmers. This generates extra income for the farmers, for users put waste and also tackles greenhouse gas emissions. So very excited about them. The other last one, that's example I mentioned in essential services is a company called [inaudible 00:13:12], it's a company that is developing a mobile app and a web platform to offer users, the companies and households a way to monetize their waste and their waste recycling in a responsible way. So they connect a lot of waste pickers to households and businesses so that they facilitate their recycling and they basically offer rewards for that collection via an e-wallet, which eventually will also create a data trail then would allow them to offer other services to the correctors.
(13:46):
But really interesting model where you can see the outcome certainly is better waste management, reduction of risks that are related to this environmental pollution, but at the same time also build the resilience for the waste collectors, create employment and eventually could offer financial services on top of that.
Amee Parbhoo (14:07):
Really exciting set of companies. And just meeting them all a few weeks ago in Nairobi, it was great to see what they're working on. As an investor these last eight years in FinTech, I feel like you all have perfected the ability to kind of evaluate and then support FinTech companies. As you enter now this new climate lens sort of what stays the same, what are you finding are the common threads, what are the things that are changing in that investment approach?
Maelis Carraro (14:34):
Very good question. One that we wrestle with a lot before thinking about even exploring this intersection. The truth is a lot of it stays the same because the challenges of an early stage company a precede when you have a product in market, a few customers, but so many hurdles to figure out are the same. And as you know, our venture building approach goes very deep on a few of the functions that are so needed at that beginning of the journeys, marketing to fundraising to growth to sales and ops, to design, tech and software, product management. So those have stayed generally the same. And our approach that is very tailor and bespoke allows us to still understand where the companies are at and adjust their own venture building support in that context. Now, what is not the same? And we've worked on procuring obviously more specific knowledge of sectoral challenges. So for example, a lot of our portfolios in agriculture and we have built a network of agriculture experts to better understand climate impacts in that region, et cetera.
(15:45):
Similarly, the opportunity in carbon finance, we see at least 70% of the portfolio wanting to now leverage carbon credits as a source of revenue. And so we've engaged experts specifically on that topic to support the portfolio and are working to upskill ourselves too. So where I think we didn't have the expertise, we are either building it in-house, recruiting or procuring it, but let's say 80% or even 90% of the challenges [inaudible 00:16:16] the way we support companies is the same.
Amee Parbhoo (16:19):
One thing we are seeing among a lot of our portfolio companies is actually wanting to think about how they bring more of a climate lens or build kind of more climate resilient products within their own offerings to customers. What advice would you have to startups who maybe aren't started in the climate space thinking that they have some ability to impact climate change? What's a way in which they should start and go down this path and see if there's a way they could add a value proposition there?
Maelis Carraro (16:51):
Well, the first thing I would do is actually thinking about their customers. Who are they're serving? Where do they live? How are their lives and livelihood going to be impacted, like climate change? And what are the risks that they're facing in the short term and the medium and the long term? And that will often point you to a lot of climate vulnerabilities, whether you're serving rural communities or coastal communities, but also urban communities that may be exposed to more disasters or even health risks induced by climate change. And from there, mapping out what opportunities exist today in the current products or solutions to tackle that vulnerability and what adjustments are required. So thinking of insurance for example, if it's an insurance marketplace, how might you think about yield index insurance product that actually takes into account climate vulnerability or a disaster insurance product if you're in a credit space?
(17:55):
Similarly, how do you factor that in pricing to adding flexibility, for example, to farmers given climate conditions? So there really needs to map where the companies operate and what customers they're serving because climate impacts are so context specific and there's a lot of idiosyncrasies that need to be taken into account. The other thing I'll do is actually thinking at the system level. So oftentimes you see startups in just focusing on their problem they're solving that climate change impacts the whole value. So if you were, for example, in the ad tech space, how are climate impacts actually affecting your suppliers and producers, and then ultimately the buyers as well and trying to map those effects across the sheet because it might give ideas on how might I position solutions that help me and also others in the value chain. And then finally, for us, it was really also about understanding opportunities in the carbon and finances world because that's often a potential that is unrecognized and unrealized, but a lot of solutions already in the market could generate credits that can then be sold on Cumberland marketplaces.
(19:21):
And that's a third I think, easy win for people to start thinking about, but it's not straightforward and I think extremely dependent on the sector you're building on and the type of customer you're serving.
Amee Parbhoo (19:32):
Yeah, no, that makes a lot of sense. That's right, just taking an ecosystem lens too, I'd love to hear, are you finding startups that kind of fit within your thesis? How are you finding them? And then on the investor side, are you seeing a shift in investors also focusing on this space more broadly? I mean, what will it take? What do we need as an ecosystem to better support climate resilient solutions like what you're finding?
Maelis Carraro (19:59):
We were very worried at the beginning that we wouldn't find enough company with such a narrow thesis, but then we realized that actually the thesis is a narrow at all because we can look at many more sectors than we could in the past. And the spread is more in understanding how is this going to deliver those resiliency outcomes that we're looking for? How if it's actually tackling a climate related problem and avoiding greenwashing, right? But from a sourcing perspective to select these 10, we've actually reviewed over 1,500 deck, spoke with at least 400 companies and then arrived in the 10.
(20:42):
And so the inbound as well as us and the searching for companies led us to a very large number. And then parsing through or roasting the acceptance rate is very small, but it allowed us to also refine our own thinking, our one thesis. And I think there's a growing number of companies now positioning themselves as tackling climate adaptation resilience challenges. So it's going to be even easier I think in the next batch and we're smarter as well in the process. Now, from an investor's perspective, I think two things happened, and when we started about a year ago exploring this space, there were not a lot of investors looking at climate resilience and adaptation, especially at the early stage, especially in Africa, maybe two or three.
(21:28):
Now that's changing. We are aware, even just in a circle of investors like the group that we engage with and share our pipeline with, there's at least 30 that are now either launching climate funds or adding a climate lens to their own investment pieces, or at least asking to talk with our companies. That's a great sign. And finally, from a capital flow perspective, a lot of LPs are also focused on this and that will probably also incentivize more and more managers to come to this space. So there's progress, obviously it's still early days in the ecosystem and that's exactly the role that we see ourselves play. We're catalyzing in new space. We want to seed more innovation, make it interesting and attractive to other investors to then co-invest with us. As the sector matures, I hope we're going to see a lot more capital coming on board.
(22:19):
There's suddenly a big gap. They estimate the gap at 350 billion by 2030 in adaptation financing. So we would be scratching the surface.
Amee Parbhoo (22:29):
What advice would you have to new general partners out there? I mean, I guess more generally about fundraising for either a climate focused fund, but also to your point, adding a climate lens to the work they're already doing. If it's broader FinTech fund, I mean, what advice would you have? How would you go about doing that as you all have?
Maelis Carraro (22:51):
Well, we're very early in our own journey, so I hope listeners will take this with a green of salt and I'd love to learn with others as well. But I'll say three things. The first is to really first map out LPs that really care about this space and trying to understand how they're thinking about it. To your point, understanding the language. What positioning do I want my fund to have?
(23:15):
Is it more on the climate resilience and adaptation side? Is it on the mitigation side or both? What are the co-benefits? Sometimes actually the classifications are not that helpful, but it's important to articulate that narrative and body proposition to LPs. So really mapping the space would be the first step. The second is spending a lot of time understanding your own theory of change for solutions in the market today, so that we also avoid unproductive greenwashing pushback at a time where results pretty especially on ESG funds. And so if we invest in ag, what does that mean if we want to add a climate lens? What are the products that are being sold to farmers? What are the techniques that farmers using via this solution? Is it regenerative, is it not? So going beyond the surface is really important in the theory of change.
(24:11):
And then the third point I say is also talking to a lot of startups out there and founders, because they themselves often don't self label as climate adaptation and resilience and so need that support in going deeper and understanding actually, there's a lot of potential here to think about the climate impacts added to your value proposition, added to your product stack. But that requires, again, going beyond the obvious, especially when you want to invest in climate adaptation and resilience and not mitigation, which is much more easily understood or deep climate tech. So it's a bit more of a gray area as it requires an extra effort.
Amee Parbhoo (24:51):
One last question on my end. In a bigger sort of thinking about the 3.3 billion people who are climate vulnerable, which as you've talked about, I mean it's nearly half of the world's population. What do you think it's going to take? I mean, what's your sort of call to action to those listening either entrepreneurs, investors, to better reach those climate vulnerable populations and reach them with the work like you all are doing?
Maelis Carraro (25:19):
Say three things, capital or talent or technology innovation. So my call to action would be we need to mobilize a lot more capital to this space, and especially a lot more capital in the regions that contributed the least to climate change, but are affected the most like Africa, for example, and invest in locally led context appropriate solutions. As I said, the impacts are really contextualized and therefore we can't assume that one solution that work in X country might work in the other. So that's one. Then more deeply understanding the range of solutions needed and bringing all actors to the table from governments to private sector to even local nonprofit and community led organizations. It's clear that for this global challenge, we need concerted holistic action from a number of stakeholders. So there's not one single player that can solve it, especially from a private investor perspective.
(26:20):
And a key stakeholder on the table is the innovator and entrepreneurs with bold ideas, especially the young talent out there who feels more strongly about this because this is really about the future, our future and the future of our children, the children after them. And so we need to involve a young talent from the beginning. And then the third point around technology, there's a lot of technology innovation already developed also in the US and elsewhere that could actually have local applications obviously contextualized and really investing in deep technologies is going to be necessary if we really want to make the dent in this issue. So I'll definitely encourage investors and others to think about what are the technologies that are going to be most effective? How do we invest in R&D? And develop the future generation of solutions that are not even here yet.
Amee Parbhoo (27:15):
That's great. I love that call to action. Thank you so much for being here and for sharing more about the Catalyst Fund's journey and all of the exciting work you're doing today. Thanks so much.
Maelis Carraro (27:24):
Thank you, Amee.
Amee Parbhoo (27:29):
Join us next week as we head to India to interview one of Accion on Venture Labs portfolio company founders, Pavan Kosaraju. Pavan is the CEO and co-founder of AquaExchange, which provides fullstack, digital and proprietary farm management solutions and financial services to aquaculture farmers in India.
Speaker 3 (27:51):
Whenever we speak about climate change in this particular context, the way AquaExchange would always think about it is, how do we ensure that we break down the problem, the end problem of the climate change into something where a small activity or a small intervention where a farmer gets benefited. So what we believe firmly is for any change to be sustainable, it should have some kind of incentivization for the original player who's the farmer.
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