Grupo R5: How to Fundraise through Genuine Impact Measurement + Management

About Grupo R5
Grupo R5 is a fintech company headquartered in Bogota, Colombia, committed to improving financial inclusion for low-income individuals and small business owners in Latin America. R5's mission is to make credit accessible to people who have traditionally been excluded from the financial system or who have faced barriers and high costs to access traditional loans.

Grupo R5's Motivation for ESG+Impact Measurement
In 2021, Grupo R5 came to Proof with the goal of building a comprehensive strategy for ESG+Impact measurement and management. While R5 knew that it was having a tangible positive impact on its clients, it needed support to:

• Quantify the impacts of its loan and insurance products
• Message that impact in a way that would resonate with its stakeholders, especially investors
• Use insights from impact data to enhance R5’s impact in the communities where it operates
  

Shortly after onboarding to Proof, R5 launched a capital raise. R5 had ambitious goals to raise capital from impact-minded investors, in order to further its work to create products that generate real savings and access to capital for vehicle owners in Colombia. As a mission-driven company dedicated to financial inclusion, R5 recognizes the importance of measuring its impact and messaging that impact in a way that resonates with prospective investors.

“Impact measurement is important to R5 because it allows us to track and evaluate the effectiveness of our products and services in achieving our mission of improving financial inclusion for low-income individuals and small business owners in Colombia. By measuring the social impact of our operations, we can identify areas for improvement, make data-driven decisions, and ultimately achieve greater social impact while maintaining financial sustainability.” - Pablo Armida, Co-Founder of Grupo R5

Proof supported R5 to define impact metrics, measure performance through automated integrations with R5’s existing data systems, and analyze data for continuous improvement. During its capital raise, R5 showcased its impact measurement results, and was able to close a strong round with impact-minded investors.

Read more to learn about how a relatively minor investment by R5 in developing its ESG+Impact measurement and management foundation resulted in a significant financial close for R5.

The Process

1. Metric Definition
First, R5 worked with Proof to define metrics to capture the impact of its products. R5 had a strong thesis about its social impact, but it needed support to measure and quantify it. While there is a large universe of potential metrics from which a fintech could choose, R5 needed to narrow the list of potential metrics to a manageable, meaningful set of metrics. R5 selected 15 metrics from Proof’s Financial Inclusion metric set to quantify its impact and focus its performance improvement efforts.

Many of the chosen metrics align to the Financial Inclusion metric set from the GIIN (Global Impact Investing Network) IRIS+ metric catalog. R5 also tracks progress against the Sustainable Development Goals (SDGs) targets and indicators. By aligning to Proof’s Financial Inclusion metric set, R5 was able to optimize for benchmark-ability and meeting investor reporting expectations.

2. Data Integrations
Impact measurement can be a burdensome process that requires manual data collection and reporting by companies. In order to remove this manual reporting burden, R5 was able to establish a direct integration between its existing data system and the Proof data intelligence platform. This way, Proof streams data into R5’s performance dashboard on an ongoing basis. So, any time that R5 conducts new transactions and signs new clients, the Proof system automatically updates R5’s impact metrics. This means that R5’s investors, employees, and other stakeholders have real-time visibility into R5’s performance.

3. Continuous Improvement
With some upfront work and coordination, R5 built a sustainable system for ongoing impact measurement and management. By spending less time on manual data collection and reporting, R5’s team is able to spend more time on mission execution and meaningful performance improvement.

One of R5’s impact indicators focuses on the percentage of financially excluded clients served over time. This metric is intended to track the percentage of clients with credit scores below the average accepted by traditional banks, who are underserved and have traditionally looked for credit cards or informal payday lenders. During its capital raise, R5 was able to demonstrate a steady increase in the percentage of financially excluded clients served over time. As companion metrics, R5 tracks credit disbursements to rural individuals and women, to ensure that it is prioritizing all dimensions of equity and inclusion.

R5’s genuine commitment to impact measurement and management made the company a stand-out during its fundraising process.

“Our focus on impact measurement was critical in attracting quality debt impact investors who prioritize both financial returns and social impact. By showcasing our commitment to impact measurement and reporting, we were able to differentiate ourselves from other fintech companies,” says Pablo Armida.

“Prospective investors were primarily interested in understanding how R5’s impact measurement practices aligned with their own values and priorities. They asked questions about the profiles of our clients and how our products and services were creating social impact for these individuals. [They wanted to be sure that] the loans were being used for their intended purposes and generating positive outcomes for borrowers.”

Alexandra Mogollon, Project Manager at R5, added, “These equity funds really wanted to make sure the resources they were making available to us were positively impacting the lives of our clients in accordance with our promise of value: saving vehicle owners money and pain to improve people’s financial health. Beyond improving financial wellbeing, R5’s offering has a significant positive impact on emotional and mental well-being.”

Business Benefits Beyond the Capital Raise

After Grupo R5 closed its capital raise, it has continued to reap the benefits of its investment in impact measurement and management.

Here are some of the ways in which impact measurement supports R5’s business:

1. Investor Relations: Ongoing Monitoring
Once the initial capital raise was over, R5 was able to feed the same impact data into investors’ ongoing monitoring requirements. This made it easier, more efficient, and more accurate for R5 to report. AlphaMundi, one of R5’s investors, has a comprehensive impact framework that includes metrics focused on supporting the growth of portfolio companies, maximizing the lives reached through portfolio companies, and applying “do no harm” principles to minimize the adverse impacts of its investments in line with the EU’s SFDR regulation. Several metrics requested by AlphaMundi overlap with the metrics that R5 is already reporting on. As a result, R5 can spend less time on manually gathering data to meet the data requests of its various investors.

2. Employee Engagement
Employees around the world are increasingly motivated to work at impactful companies. Genuine impact measurement prepares companies to attract top performers. Through its commitment to wage equity and comprehensive benefits for its employees, R5 lives out its mission of financial inclusion.

3. Enhancing Brand Reputation, Sales & Revenue
Through data-driven storytelling, R5 is able to prove to prospective clients and partners that it is fulfilling the priorities articulated in its mission statement.
“Impact measurement has supported our business priorities by helping us refine our underwriting policies to better serve customers with higher impact potential, and it has allowed us to gain brand recognition as a socially responsible fintech company.” - Pablo Armida, Co-Founder, Grupo R5

As more and more companies recognize the financial benefits of being mission-oriented and purpose-driven, “impact washing” (overstating or falsely claiming the impact of a product or service) is increasingly a risk. Impact measurement and measurement helps ensure that impact-driven sales and marketing initiatives are backed by data. R5 has been able to leverage impact data to attract more customers, increase its total revenue, and develop strategic partnerships. With a strong impact data foundation, R5 has cultivated business allies who are aligned with R5’s values, in order to create win-win relationships that have brought visible and strategic results for the development of affordable and fair products for R5 clients.

4. Streamlining Operations
Digital data collection means that R5 can report with increased ease. By reducing its manual reporting burden - especially when it comes to investor relations - R5 is able to focus more staff time on improving its services. By tracking data over time in conjunction with the company’s financial metrics, R5 can also see where there are opportunities to increase efficiency of its service distribution. For example, throughout 2022, R5 significantly increased the number of clients served on a per employee basis. R5 has taken note of the training, policies, and practices put in place that resulted in the efficiency gains and aims to replicate these practices, in order to further enhance the efficiency and quality of its loan distribution in the coming year.

5. Client Engagement
Stakeholder surveys are a fantastic opportunity for direct engagement with clients and beneficiaries of R5’s products. Last year, R5 conducted an in-depth stakeholder survey in partnership with 60 Decibels focused on quantifying R5’s impact across the five dimensions of financial inclusion: access, business impact, household impact, financial management, and resilience. This year, R5 plans to conduct another client survey with the goal of understanding the impact of R5’s loan product, including client satisfaction, challenges, outcomes, and customer experience and satisfaction.Through genuine engagement with its stakeholders via lightweight surveys conducted via channels such as voice, WhatsApp, and SMS, R5 can ensure that its services are meeting the needs of the communities it serves.
Moving forward, R5 has ambitious goals for impact measurement and management.

“Our goals for ESG+Impact measurement are to continue to improve our practices and increase our transparency in reporting. We aim to better understand the social impact of our products and services, particularly Car Finance, where we see opportunities for greater detail. In addition, we plan to engage with stakeholders more proactive to better understand their expectations and priorities regarding ESG+Impact, and to integrate their feedback into strategy and decision-making.” - Pablo Armida, Co-Founder, Grupo R5

For impact-driven companies looking to raise capital from impact-minded investors, R5 provides an example of genuine commitment to ESG+Impact measurement and management. Beyond raising mission-critical capital, impact data is the key to unlocking business benefits including enhancing operational efficiency, stakeholder engagement, and brand reputation to ensure that Grupo R5 can continue to provide its essential loan offering to customers throughout Latin America and beyond.