Exclusive: Mexico Micro Lender Baubap Banks $3M Growth Round For Mobile Platform

Baubap, a mobile lending platform based in Mexico, closed on a $3 million growth round from Mexican financial services firm Grupo Alfin to continue developing its proprietary technology aimed at boosting financial inclusion and education.

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Co-founders Roberto Salcedo and Luis Villarreal met in 2016 while working at the same media company and realized they made a good team, Salcedo told Crunchbase News. They decided to start Baubap in 2018 with a shared vision of providing financial stability to customers.

“Most banks require users to have healthy credit and a relationship with banks,” Villarreal said in an interview. “Most people don’t have that, so we came up with an alternative scoring technology.”

Alejandra Cullen, who manages institutional relations for Grupo Alfin, said her company has been a micro lender for more than 20 years and was looking for a partner on the digital side.

Baubap was an attractive partner due to its products directed toward small entrepreneurs and knowledge of the credit market.

“We were looking to invest in digital companies that can grow, understand how to grow, and serve the Mexican client, and we think Baubap is doing a wonderful job,” she said in an interview.

Spreading financial literacy

The business is personal for both founders: Villarreal was working in the tech sector and saw the challenges that small businesses had in securing loans. Salcedo grew up in a low-income family and watched his parents become affected by an economic crisis in the 1990s because they did not have enough financial literacy. In the following years, his parents had difficulty accessing financial services.

“I saw their struggle and wanted to understand why this was going on,” Salcedo added. “When I joined HSBC after college, I realized why this was happening: Banks just wanted to push products and not educate people.”

As a result, Baubap offers simple loans integrated with financial education. Its proprietary underwriting technology provides a customer’s credit rating using alternative data.

Its first product, a micro-loan of 500 to 5,000 pesos, is granted in minutes with the only requirements being a current Mexican voter registration card and an Android cellphone. Borrowers can save up to 50 percent in interest if they pay on time.

Loan approval rates vary over time, but are averaging 25 percent, Salcedo said. Meanwhile, the average loan is approximately 50 pesos, meaning most borrowers are looking to solve small liquidity problems, such as an emergency. In addition, 40 percent of borrowers are self-employed and are using the loans to invest in their businesses, something he said is one of the best uses of Baubap’s offerings.

“Access to money was a problem during the pandemic, so we adjusted the mechanisms and lowered the approval rates for new borrowers, as well as opened the funnel to existing borrowers and increased the amount given,” Villarreal said.

Next steps

Baubap currently has a team of 10, which the company intends to double this year. Including the new raise, Baubap’s total funding to date is $3.5 million, Salcedo said. Funds will be used to grow its loan portfolio, in which the co-founders expect to grant more than 220,000 loans and are looking to grow its customer base to 100,000 by the end of the year.

Next up, the company will push forward with its value proposition, delivering more financial education content with each loan, which features a Duolingo-like interface to enable borrowers to learn as they take the loan and start building the next step in their financial journey, Salcedo said.

The company will also begin branding bigger loan amounts, loans that have longer terms, and loans for specific purposes — evolving the company’s long-term vision.

“Micro lending service is just the first journey for us and our customers,” he added. “Our customers are becoming more complex, making changes in their economic life and moving onto other service providers, which was our goal. However, we now also want to serve them as their needs change. Our long-term vision is to be the bank for financial inclusion.”

Photo of Baubap co-foumders Co-founders Luis Villarreal and Roberto Salcedo courtesy of company.
Blogroll illustration: Li-Anne Dias