Kountable offers social supply chain financing to SMEs
Financial regulation, always a critical challenge for financial services firms, has assumed heightened importance in the aftermath of the recent banking crisis. Risk management forced banks to pull back from small business lending as pressure to reduce risk exposure increased. Needless to say, small and medium-sized enterprises (SMEs) have had it tough finding a bank loan across the globe—and that includes major economies like the U.S. and Europe—SMEs in emerging markets find they’re being shut out of the bank lending market altogether.
Alternative lending company Kountable, Inc. is bringing modern trade technologies and service providers to the global population of SMEs that participate in Fortune 1000 supply chain transactions using only the tools available to SMEs, says Chris Hale, CEO of Kountable, a financial and technology firm in San Francisco that facilitates overseas impact investments.
The company’s quirky name is a play on different words—including “accountability” and the “K-factor,” a marketing term for the viral quality of online content.
Hale, a former financial advisor with Ameriprise Financial, Inc. is also the founder of Kountable, which acts as a middleman linking financial advisors and U.S. investors to for-profit foreign entrepreneurs in developing countries carrying out impact projects.
The best of these entrepreneurs have well-developed capabilities to source and execute on significant untapped business opportunities in emerging economies that are invisible to U.S. investors.
“The trick for Americans has always been to find and vet high-quality entrepreneurs and deals in these locales with scarce information,” says Hale.
Kountable takes in large amounts of data on the identity of its users, gathering info from anti-money laundering and anti-terrorism databases, and reviewing trade histories, supplier and customer relationships and operating behaviors.
This information brings transparency and process controls to high-quality cross-border transactions that were previously conducted outside of a formal network.
“Each trade we do creates more data on our trading ecosystem and increases the value and power of the network,” says Hale.
Trade financing The Kountable platform creates an opportunity to invest directly into the units of economic activity in the global supply chain—cross-border trades. Significant growth in demand for high-quality products in developing countries provides ample opportunity to grow trading relationships quickly and profitably when the risks can be effectively mitigated and the barriers to financing overcome. Trade financing is often the exclusive realm of multi-national corporations and global banks.
The Kountable platform democratizes trade finance both to investors and to its users and makes the global distribution of Fortune 1000 products more efficient and effective, and it works like this:
An entrepreneur in Rwanda has a contract to put a computer lab in a school for girls and he wants to buy computers from a U.S. company. No seller is going to ship inventory to a small entrepreneur in Africa without getting paid first. But the school board doesn’t want to pay a small entrepreneur without seeing the goods.
The entrepreneur needs financing for those few weeks when the computers are being delivered. Kountable becomes the third party in the deal and provides financing for the entrepreneur to buy and ship the computers. Kountable gets paid by the school and passes the money on to the entrepreneur, minus a fee.
The projects provide an opportunity for short-term investments (an average of 90 days) in private debt. Kountable says the entrepreneur doesn’t get paid until we do, so they have extra incentive to get the deal done on time.
Finding and evaluating quality investments within a consistent framework is the greatest challenge when investing in foreign markets. With the availability of consistent information, investors can effectively evaluate the risks and mitigate them accordingly. Accessing short-term investments like those made available in global trade creates a strong degree of institutional participation in an otherwise retail transaction.
The goal of leveraging trade is to use known participants, like the Fortune 1000, and known mitigants, like currency hedging, insurance, and process controls and using Kountable technology platform to manage identity and project management within that framework.
According to Hale, any time an investor can leverage an existing framework and bring a more mature market solution to an emerging market investment they should find a way to do so.
Growing the U.S. economy and global market One of Kountable’s main contributions to growth globally is related to the velocity of capital. Many attractive trade deals get stuck in the origination phase and sales get lost because the retail treatment of the transaction causes it to stall before launch.
One of Kountable’s Fortune 1000 partners reported that they had lost 30% of sales in the East African market because of the problem Kountable is solving. According to Hale, any U.S. company looking to sell globally faces this problem.
“There are various levels of awareness of these issues that are seriously limiting the distribution of their products and the volume of their sales, says Hale. “With us, more high-quality U.S.-made products get into these fast-growing markets to contribute to the development of regional infrastructure like hospitals, universities, institutional technology infrastructure.”
Kountable: plans to expand Until February, Kountable was focused on building its platform around the lessons learned from dozens of transactions. In January, Kountable leveraged its experience and its knowledge of the market to close a $150 million Line of Credit to scale up and continue funding small businesses in growing economies around the world.
“We made our first draw against that line on March 1st and since then, revenues have been in line with expectations,” Hale says.
Founded in 2014, Kountable has been onboarding additional SMEs in multiple markets for over a year— evaluating expansion opportunities both in Southeast Asia and in the United States.
Hale says, “One of the grand challenges when building a platform like Kountable is answering the question: How do we gain enough knowledge and build a “smart” enough platform that allows us to deploy investor capital without pouring a bunch of money down a hole to pay for the lesson? My co-founder had a strong relationship with some of Rwanda’s best small businesses and we leveraged the strength of that relationship and the ecosystem surrounding these entrepreneurs to begin.”
Choosing to build for its SMEs first and gain interest from more traditional institutional partners later, Kountable may face hard times. Yet through the use of the app (kountable), the company is bringing technology to trade finance.
“We saw the value in bringing the millions of excluded participants that are our small business users into a more institutional framework,” says Hale.
Becoming a user is simple. Mobile is the point of entry into foreign markets and if a small business wants to begin with Kountable, they simply download the app on an iPhone or Android.
The trade gap The gap in trade is difficult to see because traditional trade participants and local financial institutions look at the transaction with a retail, balance sheet focused lens.
“We learned to look at the larger network of participants involved in the cross-border transaction,” says Hale. “We came to understand that any indirect channel like third-party distribution, local content requirements, diversity requirements, and sub-contracting all present similar challenges.
Trade has always been based on networks, both formal and informal. Individuals and countries that engage in mutually beneficial trade prosper together and want to do more business. Kountable is building this network and including local entrepreneurs and SMEs whose increased participation creates greater opportunities for all involved.
Africa and globalization Launching in East Africa, specifically Kigali, Rwanda in May of 2015, Kountable has experienced collaborating with small businesses in Kigali and has built a robust platform as a result; generating $12 million in fundable trades during the first week of marketing.
“We have had to address data scarcity and geographic risks that otherwise would not be part of the platform,” says Hale. “By beginning there, we are better prepared to scale. It took beginning in Rwanda to understand the breadth of the opportunity.”
The volume and quality of the opportunity of Kountable’s users originating into the platform have been inspiring.
“Our users found it difficult to do multiple deals at the same time,” says Hale. “They didn’t bid on larger contracts due to the difficulties of the traditional process. They also spent exorbitant amounts of time sourcing products or managing logistics.”
With Kountable, users are focused on the parts of the transaction where they add the most value. Many of Kountable’s customers have done their biggest deals ever on the platform. Some have grown over 50% per year and are bidding on contracts that they’ve always been qualified to do, but didn’t have the resources to execute on, until now.