September 17th, 2020
Financial technology – “FinTech” – is an area where investment has led to impact on a large scale. As a former fintech investor, I’ve seen FinTech cover a diversity of interventions: digital-first banking, payments, insurance, alternative lending, capital markets, real estate, among many others. In aggregate, they have been able to provide affordable services and benefits to populations that were excluded or under-served by traditional financial service providers. For example, M-pesa’s mobile-phone based money transfer service transformed payments and micro-financing. More importantly, it has changed the lives of millions of people in a tangible way; before the launch of M-pesa, fewer than 15% of Kenyans had bank accounts, and now over 80% of the 50 million Kenyan population uses mobile money. That is the scale of change that our Fund aims to achieve.
Working Capital Investment Fund is, of course, not FinTech focused, but we see an untapped opportunity here to channel innovations in the fintech field towards marginalized workers directly. While we often invest in new and emerging technologies, there are times when our goals can be met by applying existing technologies to the problem at our core: that of remedying labor vulnerability.
At Working Capital, we are exploring how to apply a labor lens to “re-focus” FinTech tools to find solutions that mitigate the problems of labor exploitation, including forced labor. FinTech tools are democratizing financial services to a much greater extent than was possible even just a few years ago. But we can go even further by helping to sharpen, frame, and adapt tools to be delivered through channels that connect them directly with workers via workplaces. This presents an opportunity – particularly for employers/suppliers and brands – to customize and scale the delivery of the tools in a way that improve income and financial security for workers and outcomes for brands, including by reducing turnover and improving worker satisfaction.
The Fund has been evaluating areas where existing FinTech tools – some of which are already solving for reach and affordability – can be tinkered and tweaked to solve for worker vulnerability. For example, migrant workers are at significant risk for labor exploitation due to usurious recruiter fees that often saddle the workers with considerable debt. They also frequently face wage theft at the worksite, including at times without the knowledge of their employers due to illegal interventions by labor recruiters. Workers in agriculture in the US and elsewhere are often paid informally by intermediaries like farm labor contractors. All in all, greater transparency of wage payments and direct payments through digital tools can enable migrant workers to avoid vulnerability and ensure that they benefit during hiring, on-boarding, and employment.
Elsewhere, in construction, agriculture and mining, workers relying on day wages often face severe cash flow imbalances. These can be dire enough to turn them to predatory debt, so providing these workers with accessible and affordable cash to meet their urgent needs within the work setting can help reduce employee turnover for the brands while mitigating economic vulnerability for workers. Those that do not have savings could benefit from micro insurance to manage financial shocks that can result from life events such as a medical emergency.
These are just some of the areas where we at Working Capital are looking deeper with our worker-focused lens. We look forward to contining to explore how to refine existing FinTech tools in work-settings to create a scaled impact for the vulnerable workers and their employers in a supply chain. Please be in touch if you’d like to discuss this with us!