FIO

The main challenge we aim to address is the lack of credit history, which disproportionately affects low-income individuals who often lack sufficient income or assets to use as collateral. This barrier to accessing the financial system hinders their ability to purchase essential goods, access education, or secure housing. In addition, traditional loan evaluations performed by humans can be flawed and biased, leading to gender-based discrimination and further exclusion of the most vulnerable people from the financial system. Informal practices such as "Savings Networks" have emerged as a workaround for these issues but remain unrecorded in the formal financial system.

The scale of this problem is significant, with millions of people around the world affected by financial exclusion due to lack of credit history. This issue is particularly acute in low-income communities and among marginalized populations.

FIO is a unique mobile application in Colombia that aims to improve financial inclusion for marginalized populations by leveraging technology and artificial intelligence. The application collects and stores information on credit behavior within informal savings networks, using an AI algorithm that avoids discrimination. FIO focuses on analyzing positive behavior, such as timely payments, low default rates, and conflict resolution, to build a credit history for users. This data can then be shared with financial institutions, making it easier for users to access loans and other financial services.

FIO allows users to manage their saving changes. Saving changes are a community driven initiative very popular among those who do not have access to the formal banking system.

Key features of FIO include:

1. AI-driven credit behavior analysis within savings networks to create credit history.
2. Partnerships with financial institutions to facilitate access to loans for users.
3. Additional services such as credit advice, automated securities generation, intermediation for surety contracts, access to ODR platforms for conflict resolution, and guidance on collateral creation and registration.

The application has two versions: i) the free version and ii) the Premium version. It is divided in this way because it is a tool for reducing the financial inclusion gap. Anyone of legal age may use the free version, which allows the creation of online chains. The Premium version allows interested individuals to explore additional services at a modest cost, such as recommendations or "matches" in chains.

FIO is based on the collection of information from savings chains, which are present not only in Colombia, but throughout Latin America and even in African countries. Due to the large percentage of use of informal savings products around the world, this project has the potential to reach a significant number of people to facilitate these methods and provide the appropriate tools in the development of the market and conditions for citizens to save; as well as to expand regionally and internationally due to the constant growth of these chains in the market.

In summary, our solution, FIO, aims to tackle this problem by recording information on these informal savings practices, building a trustworthy credit history, and facilitating access to loans and financial aid.

By implementing FIO, we aim to bridge the gap between informal savings networks and the formal financial system, promoting financial inclusion and reducing gender discrimination in access to financial services.

FIO's solution aims to serve vulnerable and marginalized populations who face multiple barriers to financial inclusion, including low-income individuals, women, peasants, afro-descendant populations, and indigenous populations. These groups experience heightened discrimination and limited access to the formal financial system, preventing them from achieving financial stability and growth.

Our target population includes individuals aged 19-75 years who belong to who belong to strata 1 to 4 of the Colombian population, a measure used by the Colombian National Department of Statistics to categorize lower- and middle-class people. The application also seeks to serve other population groups experiencing financial exclusion. A study by market experts estimates the target audience to be around 9,060,733 people, segmented by age, economic factors, savings habits, and interest in accessing the financial system.

FIO's solution can have a high impact on the territory of Colombia, a country with limited access to financial education and persistent poverty. Even so, FIO considers different figures that can provide a preview of the impact it would have in this country:

• 24,4% of Colombians found it necessary to access non-traditional credit.
• 58% of labor informality in Colombia between December 2022 and February 2023.
• 7 out of 10 Colombians prefer to have the money under the mattress.
• 76% of Colombians use Fintech solutions.

FIO's impact on the target population includes:

1. Improved financial inclusion by building trustworthy credit histories using AI-driven analysis of informal savings networks.
2. Facilitated access to loans and financial services through partnerships with financial institutions.
3. Provision of additional services such as credit advice, automated securities generation, intermediation for surety contracts, access to ODR platforms for conflict resolution, and guidance on collateral creation and registration.

By serving these marginalized populations, FIO will enable greater financial security, independence, and opportunities for growth, thereby improving their quality of life and promoting economic development within their communities.

Our team is well-positioned to deliver the FIO solution, as it is led by REDEK (legally incorporated in Colombia as TECLEGAL), a Colombian startup with over twenty years of experience in implementing and optimizing electronic dispute resolution platforms (ODR) tailored to client needs. The FIO project also relies on the participation of a team with different backgrounds that provide an interdisciplinary approach. Among them are:

• Nicolás Lozada: Redek’s Company CEO. He started his career as a human rights lawyer and has focused his practice in the areas of legaltech, dispute resolution and international trade. Much of his career has been devoted to promoting the use of technology in justice, a topic around which he has written articles and given numerous lectures, including a TED Talk.
• Athenea Saavedra: Redek's CDO, is a Colombian lawyer with 10 years of experience working as an in-house lawyer with big-pharma and specialty pharma multinationals, as well as in-house lawyer in corporate, IT and infrastructure matters. Athenea also works pro bono in a Bogota-based health foundation that serves children living in extreme poverty in different parts of Colombia.
• María Alejandra Cárdenas: María Alejandra is a Colombian lawyer with expertise in gender issues. She holds an LLM in International Legal Studies from Harvard University and is a senior director of Global Legal Strategies at the Center for Reproductive Rights.
• Luz Helena Beltrán: Luz Helena is a Colombian lawyer with a PhD in International Economic Law from the University of Witwatersand. She is the author of multiple publications related to economic law, governance in the global south and has extensive work experience in supporting projects related to financial inclusion for marginalized groups.
• Daniel León: Daniel is a systems engineer with extensive experience as a fullstack engineer, software project manager and DevOps engineer. He has more than 7 years of experience managing web and mobile platforms focused on new technologies and scalable infrastructures.
• Dan Serbanoiu: Dan is a computer science graduate working for Goldman Sachs UK. He has worked on various types of projects including front-end applications, data analytics systems and financial tools. He has extensive experience in artificial intelligence development.
• Colin Rule: Colin is the CEO of Mediate.com and Arbitrate.com. Colin is a global expert in ODR and innovation in access to justice.
• James Daly: James is the COO of Redek, has over 10 years of consulting experience in the financial services industry and brings to this team his expertise in project execution and delivery.
• César Lozada: César is a civil engineer that has extensive experience in operative and administrative management and direction of large-scale projects in the field of civil engineering.

Our team's proximity to the target communities and our understanding of their needs enables us to develop a solution that is meaningfully guided by community input, ideas, and agendas. As we continue to engage with these communities, we ensure that the design and implementation of FIO remain closely aligned with their needs, fostering greater access and ease of incorporation into the economy and society.

Our pilot will engage approximately 1000 users.

By joining Solve, we aim to accelerate the development and implementation of FIO to achieve its intended social impact: empowering marginalized populations, closing the gender gap, and promoting financial inclusion for people with lower income and minority groups. This will result in improved quality of life and increased economic autonomy for our target communities, while also generating valuable data to inform the design of future financial products and services tailored to their needs.

We recognize that Solve connects Solver teams with partners who can provide both monetary and non-monetary support, which will be essential in advancing our project. We hope that Solve can help us address the following challenges:

1. Funding: Secure necessary financial resources to develop, implement, and scale the FIO platform.
2. Technical Expertise: Access a network of experts who can provide guidance and support in refining our AI-driven solution and ensuring its effectiveness.
3. Market Access: Leverage Solve's network to establish partnerships with financial institutions and other stakeholders, facilitating the integration of FIO into the formal financial system.
4. Cultural Sensitivity: Gain insights and guidance on addressing cultural nuances and sensitivities in our target communities to ensure successful implementation and adoption of our solution.

Our solution is innovative because it leverages technology and machine learning through artificial intelligence to creatively address the challenges that lower income people face in gaining formal access to the financial system. FIO is a unique application in Colombia that focuses on collecting and storing information on the credit behavior of people participating in savings networks while avoiding discrimination through its AI algorithm. By analyzing positive behaviors, such as prompt payments and reduced conflicts within the savings network, FIO aims to create a credit history for users that can facilitate their access to formal financial services.

The solution uses technology in the Colombian market that is novel in the exercise of FinTech companies through three innovative technological tools: A chain digitization mechanism, development of artificial intelligence to build an alternative credit score to that of traditional credit registry entities, and the use of online dispute resolution (ODR) platforms to resolve conflicts that users may present within the application. FIO's innovative approach has the potential to catalyze broader positive impacts by inspiring others in this space to adopt similar methodologies, ultimately transforming the market. By creating a more inclusive financial system, FIO can help bridge the financial inclusion gap and provide opportunities for marginalized communities to thrive economically. This can lead to a ripple effect, improving lives and promoting financial inclusion across different sectors and regions.

Our impact goals for the next year and the next five years are centered around reducing gender gaps, promoting financial inclusion for marginalized communities, and fostering access to formal savings methods. We aim to achieve these goals through the implementation and growth of the FIO app, which encourages informal group savings, connects people, and collects credit information to provide financial institutions with valuable data.

In the next year, our primary objectives include:

1. Expanding the user base of the FIO app, reaching more people, especially low-income individuals.

2. Developing partnerships with financial institutions to leverage the credit information collected by the app.

3. Enhancing the features and user experience of the FIO app to better serve our target audience.

4. Reach an estimated 7,706 users of the application in Colombia.

5. Reach 32,144 downloads of our app in Colombia.

In the next five years, we plan to:

1. Increase the number of people using informal savings methods facilitated by the FIO app, thereby promoting financial inclusion and economic empowerment.

2. Achieve a significant market presence, both nationally and internationally, by replicating the success of the FIO app in other countries such as México, Perú, Argentina and Indonesia.

3. Continuously improve the app's functionality, incorporating user feedback and adapting to the evolving needs of our target population.

4. Foster a sense of trust and provoke systematic transformation in the financial sector by promoting the replicability of our project.

5. Reach an estimated 500,000 users of the application in Colombia.

6. Reach 2,000,000 downloads of our app in Colombia.

We are committed to measuring our progress toward our impact goals using various Key Performance Indicators (KPIs) and specific indicators. These KPIs and indicators will help us evaluate the success of FIO's technological implementation, growth, and overall contribution to financial inclusion.

The specific indicators we use to measure our progress include:

1. Number of registered users: This indicator will help us track FIO's growth as a mobile app and understand the size of our user base.

2. Number of registered savings networks: This statistic will show us the extent to which users are utilizing FIO to facilitate informal group savings.

3. Average Difference in Credit Score per Completed Savings Network (ADCSCSC): This measurement demonstrates the influence of FIO's suggested savings networks on users' credit scores. A positive ADCSCSC indicates improvement in users' credit scores after participating in the suggested savings networks.

4. Number of suggested user savings networks opted in by users: This indicator measures the success of FIO's clustering algorithm in facilitating savings networks and user engagement with the app.

By tracking these indicators quarterly, semi-annually, and annually, we can monitor FIO's progress in achieving our impact goals. Regular analysis of our users' database will provide valuable insights into the effectiveness of our services in promoting financial inclusion and empowering our target audience.

Additionally, we will compare the ADCSCSC of regular users (who only use FIO to register and track personal savings networks) with those who utilize FIO's clustering algorithm to find new people to form savings networks (FIO premium users). This comparison will help us assess the success of FIO's services in generating financial inclusion for different user groups.

By focusing on these indicators, we can adapt and improve our strategies to better serve our target audience and contribute to a more inclusive and equal society.

Our theory of change is based on the understanding that by addressing the most significant causes of poverty, gender inequality and overall financial exclusion, we can create solutions that lead to real and effective financial inclusion. FIO aims to tackle the issues of limited financial autonomy, economic violence, difficulties in accessing formal education, and persistent poverty that many people face. By offering services that directly address these issues, we expect our solution to have a meaningful impact on the problem.

The process starts with FIO's AI algorithm, which collects and analyzes credit behavior data from users participating in savings networks. This information is used to create a reliable credit history for low-income individuals, enabling them to access formal financial services.

The services provided by FIO include financial advice, automated securities generation, intermediation for surety contracts, access to ODR platforms for conflict resolution, and guidance on collateral creation and registration. These services empower low income people to improve their financial behavior, formalize their savings, and credit relationships, and ultimately gain access to formal financial services.

As marginalized communities achieve greater financial autonomy and economic stability, we expect a positive impact on their lives, families, and businesses. This will lead to increased financial wellbeing and a reduction in gender-based financial inequality.

Throughout the project's implementation, we will continuously identify and address any risks associated with the design and execution of FIO. This will allow us to ensure that our approach remains effective in contributing to the desired change in people’s financial inclusion. By addressing the root causes of financial exclusion and tailoring our services to meet the specific needs of our target population, we believe FIO has the potential to create lasting, transformative change for marginalized communities.

The core technology that powers our solution is based on the following machine learning and artificial intelligence algorithms:

• Algorithmic credit scoring
• CURE K-means clustering algorithm
• Financial education chat

- Algorithmic credit scoring

Once the chain has been completed (all payments for all items have been generated and accepted), the information is stored, and the relevant reports are generated for the credit bureaus on successful payments. The innovation of this data recording and digitization lies in the fact that the payments are stored and associated with the respective profile to be processed by neural network algorithms.

This learning algorithm consists of a design with minimal parameterization to avoid the introduction of correlated data. It takes as input the frequency of acquisition of financial obligations, the average payment amount, and its fulfillment. All data are collected by the FIO mobile application for monitoring informal savings mechanisms of savings chains. The training of the neural network will start with the use of the application.

- The CURE K-means clustering algorithm

This method works by selecting features to group users based on (geographical proximity, gender, ethnicity, internal score, preference in amounts or frequency of savings networks, preferred payment method, etc.) and plotting these features in a mathematical space. K-means algorithms are then used to create user groups based on distances between their representations in this space, with each group having a representative profile.

CURE K-means takes an input list of users and returns the cluster they belong to. A cluster is defined by one or more centroids, which are elements within the group that are most similar to all other members. Users are represented as points in a mathematical space, with their positions determined by a numerical representation of the data collected by FIO. Distances between points can be calculated using various metrics like Euclidean distance, cosine similarity, Manhattan distance, Jaccard index, Hamming distance, or a combination of these.

The algorithm processes a subset of users that can fit within the available RAM and associates them based on their closest point using hierarchical clustering. This results in a dendrogram that shows the association history, with each created group representing a cluster. The optimal number of clusters can be determined using algorithms like the elbow method or silhouette method.

With the calculated user groups, a recommendation engine can be configured to associate a given user with the most similar cluster and recommend a random member from that group. A content-based recommendation center can also be created to recommend a chain to users based on their preferences and interactions with the platform. This will be the basic version used for the prototype.

- Financial education chat

FIO's AI-powered financial education chat service uses WhatsApp messages specifically targeted to individual needs to provide guidance on payment plans, debt management, and investment advice. It utilizes a database of evaluated information.

FIO's application itself is aimed at reducing gender inequality and poverty across the board. In fact, 55% of the people working on the FIO project are women.

Our approach to incorporating diversity, equity, and inclusivity into our work is a multifaceted one, focusing on the composition, selection, and functioning of our leadership team, as well as the committees within our organization.

Gender and intersectionality approach: Our team has the participation of people who have experience in the construction of projects with a gender approach and the interaction of social factors that affect the exclusion of certain populations in the formal financial system.

Composition: Our Board of Directors is made up of directors elected by the shareholders, with at least one Independent Director as required by law. Candidates for director positions must possess significant professional experience, independence of judgment, and availability of time for the proper exercise of their duties.

Selection: Directors are elected at the Ordinary Shareholders’ Meeting for terms of three years. In case of vacancy or resignation, the Board of Directors may appoint a replacement, requiring the entire board to be renewed. A profile of the different candidates for director positions is published on the company’s website, providing transparency in the selection process.

Board Diversity: We strive to have a diverse Board of Directors, consisting of members with diverse profiles and backgrounds, contributing different perspectives. This diversity enriches our decision-making process and enables us to better serve our stakeholders.

Committees: Our Board of Directors has a Directors’ Committee and a Risk and Audit Committee, both with diverse representation. The Risk and Audit Committee consists of directors elected by the Board of Directors, with at least one member being an expert in Corporate Governance and/or Risk Management.

Corporate Governance Practices Reports: We commit to annually disclosing the structure and operation of our company’s corporate governance in our Annual Report, adhering to regulations issued by the CMF or the standards defined by the company.

By prioritizing diversity, equity, and inclusivity in our leadership team, board, and committees, we aim to create an environment that fosters diverse perspectives, equal opportunities, and an inclusive culture, ultimately benefiting our organization, stakeholders, and the communities we serve.

Our business model at FIO is centered around generating trust in people and in financial institutions. For lower-income people because they will be able to interact with their family group, co-workers and friends to reach a savings goal that will allow them to have the money available for an individual and unique objective. Thus, trust is generated in them as tools can be activated to guarantee the savings of each of the members of the saving chain.

As for the financial entities, trust is generated to the extent that users are helped to build credit history through an algorithm that analyzes their savings behavior, i.e., their consistency in generating payments. Consequently, it helps an unbanked sector to gain access to financial products in the future.

To monetize the project, we have developed a multi-faceted revenue model based on the services we provide:

1. Free version: The FIO app offers a no-cost version that allows users to register chains and access basic services.

2. Premium service: Users can access additional features, such as entering unknown users' chains, expanding their savings possibilities, and accessing securities services through a premium subscription.

3. Financial coaching: The app offers a separate education and financial advice service to improve users' credit scores and help them with their financial needs.

4. ODR and legal collection: An electronic dispute resolution service is provided to manage and settle disputes without resorting to ordinary courts.

5. Promissory note and collateral services: Users can receive assistance in creating and registering promissory notes and collateral to avoid future defaults and facilitate collections.

6. Surety bond service: Users with a good ranking can access a surety bond service, subject to risk analysis and effective product approval.

7. Sale of data: The app collects data on users' savings and payment behavior to generate a ranking, which is then sold to a databroker for use in the financial sector.

8. Advertising: The free version of the FIO app offers advertising services to financially focused companies. FIO is a necessary solution for a large part of the Colombian population that is not banked and therefore does not have access to formal credit. Through its services, it will allow marginalized sectors of the population to build a solid credit history and will also allow a new market of clients to open up to Colombian financial institutions, along with financial education strategies that will help reduce inequality and consequently poverty

FIO's plan is to gain the necessary traction represented in the platform's profitability, turnover in the provision of its services and the attainment of new users in its month-to-month growth.

The services that would allow FIO to gain traction in the market are:

• Data sales: The FIO App will collect the savings and payment behavior data of its users and generate a ranking. This information will be sold on an annual basis to a databroker or financial institutions to be used by the financial sector.
• Premium Subscription: The FIO App will provide the possibility for the user to enter chains of other unknown users in order to expand their savings possibilities and will provide a securities service (bill of exchange and promissory note), by means of a subscription to the premium service.
• Investment returns: The possibility for the FIO App to collect investment returns provided by shareholders interested in this project.

Through these means, FIO hopes to attract those interested in investing in this innovative FinTech solution. These services will enable FIO to earn a net margin of 11.3% on the project within its first five years. This indicator is comparable to the profitability of the project in the same period.

These data will allow FIO to obtain the interest of multiple investors interested in the objectives of reducing the financial gap and poverty in markets such as Colombia. In addition, it will seek investment from conglomerates specialized in the development of new technologies based on artificial intelligence.

We have received funding from investors who believe in our project and its potential. With the financial support we have received, we have been able to continue developing our product and expanding our operations.