On January 28, the Global Innovation Forum hosted a discussion and breakfast in partnership with the Berkman Center for Internet & Society at Harvard University, Engine, Intuit and 1776 about the role of emerging technology-enabled financial services in empowering global entrepreneurship and development, and ways in which public policy can impact access to these services.

The Program

See who spoke and connect over social media

Keynote Conversation with Congressman Jared Polis @jaredpolis

Interviewed by Brandon Pollak, Director of Global Affairs, 1776 @BGPollak

Discussion: Innovative financing, global entrepreneurship and the role of policy

Jeff Kaufman, Group Lead, QuickBooks Financing @Intuit

Brian R. Knight, Associate Director, Milken Institute’s Center for Financial Markets. @MilkenInstitute; Co-founder and former Vice President – CrowdCheck Inc.

Paul Lawrence, Partner, EY

Kay McGowan, Digital Finance Lead, U.S. Global Development Lab, U.S. Agency for International Development @KMcGowan

Jonny Price, Senior Director, Kiva ZIP, Kiva.org @JonnyCPrice

Moderated by Jake Colvin, Executive Director, Global Innovation Forum @Colvin_Jake

↓ Scroll down to watch the discussion ↓

What We Learned

Takeaways from the discussion.

Technology and the Internet are revolutionizing access to financing

“Sixty percent of our businesses had applied for credit in the past two years, and 70 percent of them had been declined. The reason they were declined had little to do with the strength of the business, and more with the notion that it was hard to get the right data to the right financial institutions at the right point in time. Our premise was that if we could unlock this data, we could totally change the dynamic of the marketplace. By unlocking this data, with customers’ permission, and sending it to financial institutions, we’ve had great success in the last 18 months, funding over $100 million in loans to 3,000 businesses.” – Jeff Kaufman, Group Lead, QuickBooks Financing

“We see in Great Britain, they have a system quite similar to what we aspire to have. And their numbers have doubled in the past year from under a half billion to over a billion pounds. This shows a strong trajectory, and that access to money is filtering down. And the flipside of this is that it allows access to offerings to be obtained by a broader sector of investors.” – Brian R. Knight, Associate Director, Milken Institute’s Center for Financial Markets

“Kenya is the first country where you’ve seen a ubiquitous, very low-cost mobile payment system spring up, and it remains a great example of what can happen. In terms of entrepreneurship, in addition to bringing down transaction costs, it allows for a new class of consumer asset financing. If you think about the way the poor in developing countries buy telephone plans, they’re buying small chunks of minutes in a pay-as-you-go model, which makes it affordable. If you think about applying that business model to any sort of service delivery, such as water, power, or financial services, it takes a whole set of people who have not been seen as viable consumers of products and services before, and makes them viable customers.” – Kay McGowan, Digital Finance Lead, U.S. Global Development Lab, U.S. Agency for International Development

“When we accept a loan application, we don’t post it publicly on our website yet. We give the business owner a private URL, and ask the borrower to get 15 people from their network to fund them in private before we post it publicly. When we rolled out that program in January of last year, we saw that it led to a huge improvement in our repayment rate. Additionally, the more lenders there are on our loans, the higher the repayment rate. That’s what we talk about when we use the term “social underwriting.” Maybe there’s a wisdom in the crowd, and if you crowdsource due diligence through crowdfunding, you might make better investment decisions.” – Jonny Price, Senior Director, Kiva ZIP, Kiva.org

Access to financial services is expanding within the developing world

“We use M-Pesa mobile payments technology in Kenya to disburse our loans directly to borrowers’ mobile phones. That enables us to radically lower operating expenses, so we can do microfinance a lot more cheaply. We can pass this on to borrowers in the form of lower interest rates, and interest rates on Kiva Zip loans are zero percent.” – Jonny Price, Senior Director, Kiva ZIP, Kiva.org

“One of the great barriers to economic participation in the formal economy is a lack of ID, and there’s a lot of work being done in the developing world when it comes to digital identity. The problem hasn’t been solved yet, but there is potential as more people come online and participate in social media. This can be an interesting bridge to solve some of the core financial access problems.” – Kay McGowan, Digital Finance Lead, U.S. Global Development Lab, U.S. Agency for International Development

Regulation impacts innovation

“I’m worried that when they finally decide on a regulatory policy for equity crowdfunding, the rules will be so restrictive that it’ll eliminate the main advantage, which is reduced transaction costs. If someone can’t invest $10 or $15 without having to go through hours of paperwork, it won’t really work. The concept should be the same as crowdfunding without getting equity, like giving your money on Kickstarter or some other site. I don’t understand why we would make it harder, as you actually get something, equity in the business. It should have been done right away after we passed the law.” – Congressman Jared Polis

“I would ask you to take a much more skeptical line on regulation, which is that the people being regulated are fast and clever and smart, and governments imposing regulation tend to be none of the above. For example, when Congressman Polis discussed wanting to take Bitcoin donations, the Federal Election Commission had never contemplated how that would work. There will never be a regulation in advance of an entrepreneur; it will always come in after the fact.” – Paul Lawrence, Partner, EY

“A lot of concerns have come up because regulations were devised in a world that did not envisage the extent to which people were going to be comfortable sharing things through social media and online. There are regulatory challenges, and regulations could do with a refresh in that area. We see borrowers all the time promoting their Kiva loan to their Facebook or Twitter networks, and people will come to their page and fund them. Then, the borrower can use that network they created to share their progress over the course of the loan, and this does a lot to build confidence in the program.” – Jonny Price, Senior Director, Kiva ZIP, Kiva.org

“At least in the investment securities context, people will have to be very careful. The way you put information out, and the venue you put that information out through, is going to change based on the kind of offer you’re making. Furthermore, if you’re soliciting investment, you have to be careful what you say, because if you make misleading or incomplete statements, a disgruntled investor can point to that and use it to void their investment. Social media is more abbreviated, more impromptu, and less formal, and this can be concerning from a legal perspective.” – Brian R. Knight, Associate Director, Milken Institute’s Center for Financial Markets

New forms of lending have made finance more accessible for entrepreneurs

“Banks or conventional lenders may have strict criteria around which entrepreneurs can qualify for a loan. We have a community of over a million lenders, who are looking to lend not for reasons of financial gain but for reasons of philanthropy and helping out an entrepreneur, and we hope that we can significantly expand access in terms of which small business owners are deemed worthy of accessing credit to launch or grow their business.” – Jonny Price, Senior Director, Kiva ZIP, Kiva.org

“Digital payments had never been a cost-effective model in developing countries until you had the advent of mobile telecommunications networks. They provide a channel that, combined with the new model of agent banking, which takes access to financial transactions and financial services out of brick-and-mortar banks, gives you a new opportunity to have distributed electronic payment systems that engage more broadly.” – Kay McGowan, Digital Finance Lead, U.S. Global Development Lab, U.S. Agency for International Development

“One of the big criticisms of microfinance is that it’s only serving micro-entrepreneurs, and what’s really needed for economic development is the next level up, factories that are going to employ hundreds of people rather than cottage industries that will employ one person. I think that’s a fair criticism, but my perspective is that we need both. We at Kiva are focusing on micro-entrepreneurs, but there has been under-investment in the next level up. We’re starting to see that change though with some new programs, like the Unreasonable Institute discussed by Congressman Polis.” – Jonny Price, Senior Director, Kiva ZIP, Kiva.org

Governments have an opportunity to facilitate access to finance while regulating appropriately for the public good

“I hope we can break through this regulatory logjam. Crowdfunding-for-equity rules should be implemented in as straightforward and simple a manner as possible. Anybody can go to Atlantic City or Vegas and lose $10,000 whenever they want, so why can’t they just throw it at a fun startup?” – Congressman Jared Polis

“It’s not just the substance of regulation, but the structure and process of the regulatory environment. There’s a risk for startups, which are thinly capitalized, not necessarily sophisticated when it comes to regulation, and which can’t afford a $600-an-hour attorney, that the structure and process is daunting and non-intuitive. For instance, in the world of payments, there are something like eight agencies that oversee payments. So you might not know that there’s another agency out there that it’s not intuitive that they’re regulating you.” – Brian R. Knight, Associate Director, Milken Institute’s Center for Financial Markets

“There’s principle-based regulation and rules-based regulation. In rules-based regulation, the regulators set up a bunch of rules which you must follow. In principles-based regulation, the regulators put forward a general principle, e.g. “don’t defraud people.” You go off and do your thing, and later on, the issue is whether you followed the principle well enough. You want regulations to be predictable, but too many rules start bogging things down. We may want to see whether we want to adjust the balance, such that we emphasize the principles rather than the letter of the rules.” – Brian R. Knight, Associate Director, Milken Institute’s Center for Financial Markets

“We create software to help startups run their businesses effectively. We saw a lot of value in using the power of the network to bring financial institutions in that can unlock startups’ Quickbooks data. Our hope is that on the regulation front, that the movement towards alternative lenders and peer-to-peer lending will allow lenders to make fast decisions. As regulation comes down, we hope that the benefits of the technology are allowed to flourish.” – Jeff Kaufman, Group Lead, QuickBooks Financing

Trade agreements can help improve access globally to financial services and unlock new markets for entrepreneurs

“The main advantage [of trade agreements like TPP and TTIP] for businesses of all sizes, but even more so startups, is access to new markets by removing barriers that large companies can figure out how to get around. Whatever large businesses had to do under the old rules, startups were less able to do. By providing access to these markets, such as Japan, Australia, and European markets, startups can do what large businesses would have required lots of lawyers to accomplish.” – Congressman Jared Polis

“Too many countries still have laws that are not friendly to capital formation and startups. We can work on some of that through our trade agreements, removing barriers to capital formation. They have to do it themselves, we don’t set their policy, but we worked on a report on trade capacity building, encouraging countries to remove barriers to entrepreneurship.” – Congressman Jared Polis

The finance community should play a major role in mentorship and fostering a culture of entrepreneurship

“For me crowdfunding isn’t just about the money we’re allowing entrepreneurs to benefit from, it’s the social capital as well. We’re connecting entrepreneurs with potentially hundreds of lenders, who can become their customers, who can give them business advice, who can follow them on social media, or who can become their brand ambassadors.” – Jonny Price, Senior Director, Kiva ZIP, Kiva.org

“America can be the shining city on the hill and lead the way while showing best practices, and we need to continuously seek to improve what we’re doing here. In the district I represent, there’s a wonderful group called the Unreasonable Institute, that mentors businesses, both for-profit and non-profit, from the developing world, brings them to Boulder for training, and creates an ongoing network and funding structure to help support them. Examples like that are really changing the world.” – Congressman Jared Polis

“In the United States, most of us have a story about something we heard about a great entrepreneur, which is natural. Outside the United States, this isn’t the case. This is the hardest part that places outside the United States struggle with. In the United States, we don’t talk about how hard it is to be an entrepreneur, or the likelihood of failure. If we continue to refer to successful people as having got there by luck, we aren’t fostering a culture of entrepreneurship.” – Paul Lawrence, Partner, EY

Watch

Hear from participants about the opportunities they observe and the global public challenges for FinTech.