(Bloomberg) — Ignacio Canals’ business plan was insane, everyone told him. In a country with a deeply cautious banking industry, he was going to lend money to immigrants — and only to immigrants.

Less than three years later, the company is flourishing in its lucrative niche of providing credit to Venezuelans shut out of the mainstream loan market, and is seeking to expand into Peru and Colombia.

More than 5 million people have fled Venezuela in recent years as their homeland descends into chaos and hunger. Many of the half a million Venezuelans who settled in Chile have professional degrees yet are unable to exercise their profession or even raise funds for a deposit to rent an apartment. That is where Migrante comes in.

The start-up has lent $16 million to 7,300 people since it was founded in late 2018. Its loan book is currently growing by about 1,000 people a month, while late payments over a 90-day period stand at just 1.4%. Banco Ripley’s non-performing loans were 5.6% at the end of the third quarter.

“People seem to behave better when they are outside their own country,” said Diego Fleischmann, executive director for Migrante Sociedad Financiera.

Much of that money has gone to buying motorbikes for delivery drivers, or cars for taxi services, but some has also gone to tide people over while they validate their degrees as doctors or lawyers.

Interest Rates

In many ways Migrante has a captive market because Chilean banks won’t lend to people without permanent residency or at least 12 months of income statements.

The company often charges annual rates of more than 25%, which is typical for unsecured consumer loans in Chile. While Canals says that Migrante’s interest rates are competitive and involve less commissions, there are much cheaper rates on offer for Chileans.

Enrique Hurtado has taken out two loans with Migrante, one as a deposit on an apartment, the other to buy some land to the south of Santiago.

“They just make it a lot easier, and they’re quick,” Hurtado said. “They don’t demand all the papers that Chilean banks demand of immigrants.”

Every loan needs an endorsement from a guarantor, which creates community pressure against defaulting.

Shanty Town

The need for such a lender is clear. The local news has almost weekly stories of Chileans sub-letting dangerous and unsanitary lodgings to immigrants who can’t get access to better housing. Police recently flattened a shanty town set up partly by immigrants overnight in Santiago.

In these circumstances, Migrante has no trouble finding clients. It gets about 10,000 “leads” a month, Canals said, the majority through its website. It doesn’t advertise or cold call potential clients.

Still, it hasn’t been an easy ride for Migrante. Shortly after it started operations a wave of protests brought cities across Chile to a standstill and forced the start-up to halt all new lending.

Then, just as the economy began to recover, the pandemic struck. Now, Migrante is bouncing back and growing faster than ever.

Private Equity

The start-up has raised about $30 million to date, largely through insurance companies and family offices. It’s now considering a private equity sale as well, Canals said, as it looks to expand abroad this year into Peru and Colombia, where about another 3 million Venezuelans live.

At home, it plans to expand into other immigrant communities, including the tens of thousands of Peruvians, Colombians and Haitians who have poured into Chile in recent years.

“This is not a charity, definitely not,” Canals said. “But it’s a business with a big social orientation and that is very popular at the moment.”

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Source: BNN Bloomberg