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Ivy League grads take on lenders charging 139% rates in Mexico

[MEXICO CITY] Allan Apoj, a 26-year-old graduate of Brown University, said he couldn't help asking himself one question during his stint working at a payday lender in Mexico City three years ago: "How can this be legal?"

He was shocked by the interest rates the company charged small businesses, which are largely shunned by banks because they typically can't come up with enough collateral. Loans from payday and microlender Compartamos SAB, for example, carry average rates of 139 per cent. The experience motivated Apoj to team up with fellow Brown alum David Poritz to offer a cheaper alternative in a country where only about 7 per cent of small- and medium-sized businesses get loans from traditional banks.

In April, the pair founded online lender Credijusto (Fair Credit), which uses an algorithm they developed to determine a company's creditworthiness and what kind of interest rate to charge it. Credijusto is backed by Victory Park Capital, a Chicago-based firm that funded numerous startups focused on non- traditional lending, including Square Inc's merchant lending program and Kabbage Inc., which helps online merchants buy inventory.

Mexico City-based Credijusto plans to ramp up lending to US$2 billion over the next five years, charging interest rates that range between 26 per cent to 32 per cent on its loans, Mr Apoj said. While they're higher than the those charged by banks, they're significantly lower than rates from payday lenders and microlenders.

"The banks still offer, for a lack of a better word, an archaic service to the clients," Mr Poritz, 27, said. "Even in the non-bank sector, there's no leader. So we thought there's an opportunity to create and bring together the best customer service, the most transparent lending practices with the best US investors to solve this huge issue." Banks in Latin America's second-biggest economy remain reluctant to lend even after Mexico passed laws more than two years ago to increase companies' access to credit. Corporate lending in Mexico was equal to just 31 per cent of the country's gross domestic product in 2014, according to the World Bank. That trails even much smaller nations in the region like Costa Rica and Panama. Faced with limited options, three quarters of businesses in Mexico turned to their suppliers for financing last year.

Edelman, a communications firm that represents Victory Park, declined to comment on Credijusto.

Apoj, who worked at Mexico City-based payday lender Lana Facil for six months, describes Credijusto as a social enterprise that's seeking to bring about positive change in Mexico. It lends to businesses with average annual revenue of just US$48,000.

"Providing access to companies and helping a business owner unlock their collateral - and activate it by making it productive - has a positive social impact," Mr Apoj said.


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