The transformational power of microcredit
A journey that brought me from the Philippines to Bangladesh, and now Brazil
This piece written by Justin Hoffmann, executive vice president at Airfox.
My story begins before I was born, with my grandma Luz. Growing up, my mother would tell me stories about her earlier days in the Philippines, and how my grandma worked very hard to make a living to support my mother and her six siblings. Living in the province of Olongapo, my grandma would buy and sell furniture to those living in the nearby US Naval Base.
Living paycheck-to-paycheck, she didn’t have enough money to purchase the furniture up front — she was fronted the money by a local lender she knew, who in exchange received half of the profits. She used any leftover money to purchase groceries to cook for her children when they got home from school. It was really difficult for her to raise seven children on her own after my grandfather passed away, and my mother eventually dropped out of college to help my grandmother support the family.
The changing point
Hearing stories about my family’s humble beginnings was difficult for me emotionally throughout my early years, especially as I entered my late-teens and realized that at a fundamental level, this was a universal story. It felt like the whole system was rigged against hard-working families that simply wanted a comfortable, secure life.
Early schooling. As a teenager, I became torn: part of me felt cynical and helpless, while the other part was hopeful and optimistic about the opportunity for change.
Then came 2007, which solidified the side I would choose. Barack Obama announced his candidacy for presidency and his message of change and hope inspired me and my entire generation. I was 17 years old and knew I needed to be part of the solution.
I went from being a rebellious and stubborn high school student, known for being in the Dean’s office quite frequently, to obtaining a 4.0 GPA and being honored with the faculty-awarded title “Most Changed Student.”
Community initiatives. After high school graduation, I enrolled in my local community college and immersed myself in my studies and in my community.
In the aftermath of California’s 2009 statewide budget cuts, instead of protesting for more education funding, I worked with my college’s president and district offices. Together we created a revenue-generating initiative that partnered with local small businesses that were also impacted by the financial crisis in 2008.
After the 2011 Japan earthquake and tsunami (the most powerful earthquake ever recorded in Japan), instead of asking for donations from students, I convinced my fellow student senators to help organize the sale of water bottles and snacks to the student body. Our fundraising generated thousands of dollars in proceeds, which we then donated.
A new perspective
My experiences led me to focus on how business can be leveraged for social good. Instead of being cynical about how the capitalist system seemingly failed the vast majority of us in different ways, I wondered if one could apply business and capitalism to sustainably help solve some of those universal struggles.
Muhammad Yunus. After researching this topic more, I came across a Bangladeshi economics professor and Nobel Laureate by the name of Muhammad Yunus. As a pioneer of social entrepreneurship and microfinancing, he represented everything I was looking for.
After reading his two books, “Banker to the Poor” and “Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs,” I immediately applied for an internship at his microfinance organization, Grameen Bank. I was accepted for a summer internship in Bangladesh, and it changed my entire life.
I was 20 years old — and it was my first time traveling outside of the United States. I stayed in the Bangladeshi capital of Dhaka, and during my eight weeks I also lived in rural villages hours away from the city. I joined meetings with microloan borrowers, visited dozens of small businesses, and spoke with branch managers who handled the highly manual processes of microloan underwriting, disbursements, and repayments.
I also visited Grameen Danone’s yogurt factory, the first-ever social business that I previously read about in Yunus’s book! I visited various primary and secondary schools, and heard countless stories from female entrepreneurs who used microloans to start a micro-business and lift themselves, and their families, out of poverty.
I reflected a lot and ended up writing an op-ed titled “Educational Opportunity to Displace Poverty,” which touched on the education sector in Bangladesh. My piece was published in the country’s national newspaper, The Daily Star.
First hand experience. One thing I’ll never forget is the day when while visiting a rural dairy farm, a young mother holding her baby came up to me crying, speaking in Bengali. With the help of my translator, she pleaded: “Please, take my son to America with you; get him an education, give him a better life.”
I stood there helpless, and at a loss for words. With her single sentence, she forever instilled in me so many emotions and lessons that span beyond what I could describe in this article. To this day, I have hung a wooden carving of a woman holding her baby on my wall that I purchased from a merchant in Bangladesh. It stands as a symbol of my eternal mission, and of our united commonality in the universal struggle to simply make the lives of families better.
The next stage
Enraged, eager, and motivated, I came back to the United States with a burning fire inside of me to never take any opportunity that I had for granted. I worked extremely hard and transferred into UC Berkeley as an Economics major with an emphasis on finance and engineering leadership. My mission was to understand the fundamental mechanics of how our economic system works.
I completed four finance internships during my time at Berkeley, while enrolled in a full academic course load. After graduating college, I joined one of the world’s largest investment banks as a technology mergers and acquisitions analyst, where working 100+ hour weeks are common.
Professional career. My overall goal was to invest heavily in developing my understanding of business and finance during the early-stages of my professional career. I wanted to leverage my skills to eventually add value to firms focused on making a social impact. At the age of 25, I decided to start a technology company from the ground-up. I wasn’t satisfied with merely analyzing companies and developing financial valuation models; I needed to build a business from scratch.
Afterward, I joined two other complex, high-growth technology startups in senior operational and strategic roles, all before eventually joining Airfox — a financial technology startup that finally brought together my three passions: business, technology and social impact.
Airfox’s mission. At Airfox, we’re on a mission to accelerate financial inclusion and have built a mobile bank for Brazilian customers who are underserved by the traditional banking system. Right now, excessively high fees and astronomical interest rates are driven by the oligopolistic banking structure in Brazil. By leveraging mobile technology, software automation, machine learning algorithms, and alternative data, Airfox is able to offer digital banking services, payments, money transfer, and access to microloans from the comfort of one’s smartphone. We also provide our services with no fees and low-interest rates, both to underserved consumers and small businesses.
Interestingly, Brazil has a rather unique combination of high rates of underbanked customers, and high rates of smartphone adoption, creating a clear business opportunity to provide digital financial services. Airfox is the perfect example of a company that is leveraging capitalism in a way that empowers users with inclusive access to critical financial services.
Pros and cons of credit. Credit can be a double-edged sword, depending on how it is used. For consumers, credit can empower you to refinance, consolidate high-interest debts, and enable you to safely purchase a high-ticket item. It can also create a debt spiral riddled with fees, deceptively low “minimum payments” and compounding interest.
For businesses, credit can give you access to advanced sales/invoice payments, extend your accounts payables, and increase your growth. It can also create insurmountable debt burdens, drastically reduce retained earnings required for reinvestments, and potentially even put you in a situation where you can no longer qualify for a critical line of credit.
I’ve seen this firsthand with family members struggling with credit card debt, and no access to business financing assistance due to mistakes/miscalculations made years ago.
New solutions. Thanks to new financial technology lenders, it’s now easier here in the U.S. to gain access to debt consolidation, personal loans, and business financing outside of traditional lenders, often times by leveraging alternative data. By educating customers, creating a seamless user experience, and using state-of-the-art technology, “fintech” companies now have a wide-open mandate to generate vast amounts of value and cost-savings for consumers nationwide. This opportunity equally presents itself in Brazil.
It’s clear to me that using technology to enable responsible access to credit, for both consumers and small businesses, can have social impacts with tremendous ripple effects. Looking back, it’s incredible to realize how many of my personal life experiences have tied back to this common theme. I realized that we’re all part of the universal struggle to better the lives of our families. It’s an intergenerational effort that sometimes begins with one woman being approved for a small loan, and results in a grandson who is eternally grateful for both the opportunity to get an education, and for the opportunity to give back to others.
