‘Hi, Azer & Alex here representing 1754 Factory LLC, Series LLC. We are very excited to bring to you our third offering: Branch Series 3.
This is a great opportunity to gain exposure to an exciting asset class and to partner with a world renowned fintech that does great things for financial inclusion around the world.
Premal from Branch: I’m passionate about global financial inclusion. I co-founded Kiva 15 years ago – a non-profit which has raised +$1 billion for microfinance in 70 countries. I’m now working at Branch (which was founded by another Kiva co-founder, Matt Flannery). Branch is a mobile app that provides loans and other financial services. We have lent over $500 million to emerging middle class customers in Nigeria, Kenya, Tanzania, Mexico and India.
Our app has over 20+ million downloads in the Google Play Store & we’ve raised over $100 million in equity from Andreessen Horowitz (biggest investor), Visa and IFC (the private investment arm of the World Bank). Excited to share more & learn from this community.
Community Question: Tell us about the Branch Series 3 Pool? What are the details and why should people pay attention?
Cauris/1754: This pool gives you the opportunity to partner with a world renowned organization (Branch) to provide capital to consumers who are otherwise excluded from traditional financial systems and don’t have access to financing.
Centrifuge is bridging on chain and off chain worlds to provide funding to assets originators like Branch for the betterment of the financial situation of millions of people around the world
This pool is backed by a secured note issued by Branch India with the proceeds used to originate micro loans to borrowers in India.
The aggregate value of the assets owned by the Issuer is expected to be 10,000,000 Dai.
The Issuer will issue two tranches of ERC-20 tokens: DROP Tokens and TIN Tokens. The DROP Tokens will make up 90% of the total asset pool. The TIN Tokens will make up the remaining 10% of the total asset pool, and will be subject to first losses up to the full amount of their value. Davoa Capital, the manager of 1754 Factory LLC, Series 3 will purchase a portion of the TIN Tokens to demonstrate their confidence in the asset pool and to act as a buffer against losses to investors in the DROP Tokens.
Community Question: Serving emerging markets has often been a subject of discussion in DeFi - it sounds like Branch is doing just that. Can you tell us more?
**Cauris/1754:**1754 provides a bridge between DeFI and dai holder and raises funds from Centrifuge to allow Branch to lend money to borrowers in India. DeFi is providing an alternative, cheaper source of funding for a fintech like Branch to serve its customers who are people who don’t have access to traditional financial products.
Premal: Branch customers typically don’t have a credit history so are not able to borrow money from a traditional bank. Branch gets around this challenge by applying machine learning to smartphone data to determine credit worthiness. We then use this and other data sources to make instant loans on our customer’s smartphones. As our customers repay, they get access to higher loan amounts on better terms. Our customers love the speed, convenience and privacy of working with Branch, in addition to the affordable & flexible terms that meet their needs (360K reviews / 4.6 avg rating in the Google Play store). And happy customers is making for good business – leading to profitable lending of over $500 million to 4 million customers. Fintech is at its most powerful when it’s applied to the people who need it most.
Community Question: Is Branch required to own a banking license to operate in India?
Premal: Yes, Branch is regulated as a Non Bank Financial Institution (NBFC) by Reserve Bank of India. As a NBFC, Branch is allowed to lend to borrowers in India.
Community Question: How do 1754 feel secure that loans get paid?
Cauris/1754: The following gives 1754 assurance of good performance on the pool:
Experienced management team: track record of launching and operating lending businesses in emerging markets (founded Kiva 15 years ago, raised over $1B in funding). Branch has raised over $100M from leading investors including Andreessen Horowitz, Visa & IFC.
100% collateral: In the event of a default, 1754 loan is secured against Branch India assets
10% TIN first loss protection held by the Manager of the Issuer (Davoa Capital)
Thorough due diligence conducted on Branch and their loan portfolio
Community Question: Given this loan is originated outside of the US (in India) what happens if Branch defaults
Cauris/1754: There are many structural protections in place to ensure a successful transaction:
- The asset financed by the pool is a secured debenture backed by all assets of Branch India (not just their loan book) up to 1x the loan amount. Upon an Event of Default, 1754 has power of attorney from Branch India to direct their bank accounts.
- 1754 has skin in the game. It holds the first loss tranche in this pool (10%)
- 1754 has expert legal representation in India, that has worked on the legal documentation for this deal and is well aware of the rule of law in India and will help navigate through legal proceedings
- 1754 and Branch both have a strong incentive to resolve issues as soon as possible outside of court to avoid bad reputation and legal expenses
Community Question: What details can you share about the Indian borrowers and their loan usage?
Premal: the majority of Borrowers are lower middle class i.e <$8500/ yr in income, located throughout all states in India. The loans are used for day to day expenses, paying for education or medical expenses. Small businesses may also use these loans for working capital needs.
Community Question: Can you describe Branch credit decisioning process
Premal: We look at several data points from the phone (SMS logs, mobile data, app bundles, etc), credit bureau data (if available) and other sources to create a 1-10 credit score for each customer. The higher the score, the more capital available. Scores improve or degrade over time based on customer payment behaviors
Community Question: What guarantees do TIN investors get (if any)?
Cauris/1754: Initially, the TIN tokens will be held by Davoa Capital, the manager of 1754. That TIN buffer provides protection to DROP borrowers, and shows the manager confidence in the pool. The structural considerations explained above will also benefit TIN investors
Community Question: Can you disclose the % of clients who can not pay back their debt based on your past experience?
Premal: Our current 60 day delinquency on outstandings is 3%.
Community Question: I saw in a documentary that in Asia (e.g. Philippines) money borrowing and lending on the street for small business owners is common but the fees for this kind of unofficial loans are extortionate and the risk for business owners is extremely high. Is this a potential group of clients who could profit from your microloans?
Premal: India (perhaps unlike the Philippines) is well regulated (if you are an NBFC lender like Branch). This means interest rate caps and other borrower protections (e.g. fair debt collection practices, pricing transparency, etc). Branch’s mission is to bring formal financial services to these users who do not have access to formal credit and have had to borrow from unregistered money lenders. Our aim is to provide a better alternative.
Question: Why should anyone invest in this pool?
Cauris/1754: Branch Series 3 has a social impact angle to it. By investing in this pool, you are providing capital to the most vulnerable borrowers in india who don’t generally have access to standard financial services products. Additionally, this pool offers attractive DROP and TIN returns to investors with strong structural protections in place to prevent against defaults . So, if you want to make a difference in the world and make money, this pool is for you.