Gamechangers

April 24th, 2023

Jake Robson Editor at Large of Gamechangers speaks to Armin Altweger, Partner and General Manager of SCF Brazil and Jon Malmsäter, the Founding Partner of the Company on occasion of the LATAM - CREDIT AND INVESTMENT CONSULTANCY OF THE YEAR (RECEIVABLES), award won by SCF BRAZIL.

Can you provide an overview of the history and background of your company, including the circumstances that led to its establishment in the Investment Management sector?

Jon Malmsäter: Being a Trader and Geek by nature and having the added extremely good fortune of being hired by the supremely successful derivatives trading Partnership O’Connor and Associates straight out of Business School, I just cannot avoid seeing opportunities involving the automation of financial services businesses. When I started concentrating on the vast FIDC market in Brazil in 2015, it was rather obvious that many of the highly successful and reputable Investment Managers or “Consultorias de Crédito” as they are called in Brazil, basically were run on Excel at best.

Hence, it was highly tempting to utilise my knowledge and experience gained by doing what is now called “FinTech” starting in 1986 in the extremely lucrative lending market. Since our inception exactly seven years ago in February 2016, the philosophy of SCF Brazil has been and still is to automate all processes which do not require the supreme skills of the human mind. Thus, we are able to run the businesses with a relatively small number of truly top-level specialists.

Armin Altweger: In 2018, expanding the scope of the SCF Brazil Credit FinTech was a timely opportunity, as the industry was long over-due for disruption.

The scene for change in Brazil was at that point set better than ever given the maturity of technological advances in general and due to a law change in particular: The Brazilian specialised Receivables Finance Funds, FIDCs, were for the first time ever explicitly allowed to extend loans to individuals. We saw an opportunity to improve upon the “services” provided by traditional money lenders, mainly the extremely oligopolistic Brazilian banks, by leveraging technology. We could rather easily expand our existing lending infrastructure to offer better and faster services to under-served populations in niche markets.

We conducted extensive market research to understand the individual credit landscape and identified areas ofinefficiency and high demand such as driving schools, odontology and aesthetic surgery.

SCF Brazil did, thus, have a solid understanding of the market and our talented team with experience in technology, finance and compliance worked tirelessly to build a robust and scalable platform. We leverage state-of-the-art IT to assess creditworthiness, to offer loans as well as disbursing the loan proceeds in our proprietary, blockchain-based on-line banking system, the Conta S. Our focus on providing high-quality service, transparency, and fair rates helped us to gain traction especially since August 2022 when we rolled out the Conta S to all our Borrowers.

Could you please elaborate on the most significant milestones and accomplishments that your company has achieved in recent years, and the impact they have had on your business?

JM: An Investment Manager like us has one simple goal: to maximise the risk-adjusted return net of all fees to our Investors. We at SCF Brazil can proudly state that we have achieved this most fundamental of goals every year since inception. The latest year was highly special in the world of investments as global stocks and bonds shed a whopping 30 trillion USD in value. We gained 19 % net of all fees in EUR and USD to our Investors. Needless to say, our Investors are most happy and the Team here in São Paulo and on Grand Cayman are suitably proud.

Furthermore, I would like to emphasise that we have continuously been working on our entirely proprietary IT. From the inception in 2016, we introduced our SCF branded PoS:es to Merchants in São Paulo.

In 2019 we implemented the back-bone of our lending system. The same technology was subsequently developed and led to the full roll-out of our blockchain based accounts and payments system, the Conta S, in August 2022. The Conta S allows supreme control of the Borrowers’ use of the loan proceeds. If you ask any money-lender, this aspect is of utmost importance.

The blockchain initiatives also allowed us to launch our own stablecoin, the completely hard-asset backed Brazilla, in November 2022. Finally, the Conta S made it possible to launch a White-Label Solution for the “Favelas” in partnership with ORPAS in December 2022. Despite that this initiative only has been running for two months, including Christmas and New Year’s, we already see that the Borrowers receiving Micro-Credits from SCF Brazil are improving their businesses.

How does your company maintain a competitive edge and adapt to the rapid advancements in technology in the Investment Management sector?

AA: At SCF, we place a strong emphasis on staying at the forefront of technological advancements in Investment Management. We regularly assess and review our processes and systems to ensure that we are always using the most up-to-date and efficient technologies. Furthermore, we value the input of our Team who constantly suggest various features that are now implemented in our systems. We also do a lot of rapid testing and discarding of new features and technology – the underlying blockchain based ledger for the Conta S is a prime example of this continued innovation process. We are most pleased that this major innovation is now fully implemented.

JM: Both Armin and I are relentless, we are never, ever happy with where we stand today. Hence, we always run a myriad of small development projects for all routines and systems within SCF Brazil. We truly believe in and implement “Kai Zen” Brazil-style.

Can you discuss any notable partnerships or collaborations that your company has established and the benefits they bring to your business?

AA: One of the partnerships we are most proud of is clearly the collaboration with Obras Recreativas, Profissionais, Artísticas e Sociais, ORPAS for short (In English: Recreational, Professional, Artistic and Social Works). ORPAS is an NGO based in South São Paulo, which promotes community integration through exchanges, economic development, culture and professional training. SCF Brazil provides its white-label banking solution based on the Conta S for ORPAS which enables marginalised individuals from the “Favelas” to, often for the first time, have access to the Brazilian financial system.

How does SCF Brazil integrate the principles of sustainability and social responsibility into its operations and overall business strategy in the Investment Management sector?

AA: SCF Brazil is developing and is already distributing new credit products having supremely positive social and environmental impact. A prime example is loans for individuals in underserved communities such as the Brazilian “Favelas” where we provide capital for entrepreneurs who desire to set-up small businesses. On the environmental front, SCF Brazil offers loans for micro solar projects which are superbly effective and cost efficient in Brazil, even on a small scale, due to the abundant availability of sunshine.

Could you please provide your perspective on any notable trends or changes that you have observed in Investment Management, and how your company is positioning itself to stay ahead of the competition?

JM: As I indicated in my first answer above, I have been deeply involved in the increased use of computing power in all aspects of Investment Banking since 1986 when I started my first “FinTech”. The move towards more automation to support the still unbeatable human brain is marching along at increasingly high speeds. The traditional banks and fund managers will always be behind in this process, as they always have an IBM main-frame stashed away deep down in their systems prohibiting radical change. SCF Brazil benefits hugely from its nimbleness and from our extremely sophisticated international experience set and network in order to be at the forefront of bringing innovations to Brazil. The best recent example is our stablecoin, the Brazilla, which draws on all our skills gained from decades of experience and development efforts.

AA: We have observed a trend at financial institutions, although slow, towards digitalisation and automation of processes. Nevertheless, major banks are still very restrictive with loans for individuals and especially small to medium sized enterprises. To stay ahead of the competition, our company has invested heavily in our systems in general and in automation through IT in particular. These initiatives which are amply discussed above enable us at SCF Brazil to streamline our operations and improve the speed and accuracy of our services.

Additionally, we have expanded our range of products to include more specialised and customised credit solutions. This enables us to better meet the unique needs in niche markets and provide our Borrowers with truly bespoke solutions.

Can you discuss the reasons why SCF Brazil has been a consistent award winner to date, what it means for the company to be a Gamechangers™ Global Awards program winner and how it maintains that recognition?

JM: First of all I would, on behalf of the entire SCF Brazil Team and myself, like to thank the Readers of the Gamechangers Magazine for voting for us. As mentioned above, we are entirely committed to continually changing with the trends in the markets and to constantly improve our performance. We are acutely aware of the hard fact that lending is easy, but getting paid is hard. Hence, the recognition for our hard work granted us through these Awards is appreciated beyond what mere words can express.

AA: Being recognized as a Gamechangers Global Awards Programme winner is a testament to the hard work and dedication of the entire SCF Brazil Team. This recognition underscores our genuine commitment to excellence and sets us apart as a leader in Investment Management. We will continue to maintain this focus on excellence by staying vigilant and proactive in our efforts to provide the best possible services and support to our Borrowers, Banking Clients and Investors.

How does SCF Brazil methodically approach risk management in light of the ever-changing international market conditions, and what strategies do you implement to mitigate potential risks?

JM: Given that SCF Brazil is run as a trading organisation, we constantly stay on top of the news flow and all international market moves. As an example, we already in January 2020 predicted that the Corona Epidemic would be much worse than what was then common thought and we immediately steered the loan portfolio to sectors not only resilient, but actually benefitting from the coming panic.

AA: With the help of combining massive amounts of data from various public and private sources we are able to relatively quickly and thoroughly vet the creditworthiness of potential Borrowers. The most salient criteria are: a review of the potential Borrower’s financial capacity, background checks on owners and managers of Company Borrowers as well as scrutinising the Customers of the Potential Borrowers. Moreover, a personal visit is a prerequisite before decisions on loan disbursements are made in a weekly Credit Committee.

For the most part, we require Borrowers to provide adequate collateral and we establish crystal-clear contractual Agreements with highly strict terms deterring Borrowers from “forgetting to pay”. Furthermore, our real-time monitoring systems constantly which constantly scour public credit sources are set up to detect and respond to potential risks on a real-time basis. Finally, we spread loans across multiple Borrowers and Industries to reduce the impact of potential late payments and/or defaults.

Can you discuss any major obstacles or challenges that SCF Brazil has encountered in its operations, and the actions that were taken to overcome them?

JM: The international business person who desires to have some sort of success in Brazil in general and in São Paulo in particular has to understand that the culture is not Nordic/Anglo-Saxon transaction oriented. This cultural difference can be a real hindrance to success, especially in the receivables finance sector. The success of the city of São Paulo which is a true phenomenon both growth- and diversity-wise was basically created by the coffee farming families originating from Northern Italy. Hence, the business culture is Mediterranean and it is highly important to establish personal relationships with all business counter-parties. As SCF Brazil lends money, this “family style”-touch is of utmost importance with respect to our Borrowers. We have since the inception of the company, combined our semi-automated credit decisions with the forging of true personal bonds with the families who invariably own our “Mittelstand” Borrower companies.

Another example of problems we have surmounted, is the genuine fear of the stormy Brazilian political scene. We have several potential Investors with whom we have truly long-term relations after decades of doing business and who truly think that we at SCF Brazil are doing a stellar job running the business in Brazil. As long as Jair Bolsonaro was President they could, however, not consider investing in the country. Once Luiz Inácio Lula da Silva was re-elected, they warmed to the idea of an investment, but then the Bolsonaro followers idiotically invaded Brasília on 8 January this year which again created deep-rooted scepticism about the stability of the country.

We, within weeks of the tragic, fascist insurrection attempt, through our extensive Investment Banking and Insurance contacts, established the possibility to invest into the Cayman Feeder Fund with a Brazilian Country Risk Insurance. Through this arrangement we managed to move these Investors on-side again.

AA: Despite the internet providing ample information, many Brazilian entrepreneurs lack knowledge about financial products, particularly alternative credit products such as Receivables Financing. This lack of awareness can lead to missed opportunities for financial inclusion and result in over-reliance on traditional, often predatory, sources of credit such as mainstream banks.

SCF Brazil is trying to address this issue by providing general financial training and we also provide access to appropriate and justly priced financial services. We believe that this learning process is crucial for improving financial stability and prosperity in Brazil.

Could you please elaborate on any innovative solutions or strategies that your company has implemented recently, and their impact on your business operations?

JM: The entirely proprietary, block-chain based Conta S is nothing short of brilliant for the lending business. Given that we are no longer dependent on the traditional banks, we can put a “straitjacket” on the use of the money we lend to our Borrowers. As we solely disburse the cash we provide to the Borrowers for their Receivables in the Conta S, we direct the use of this funding to the purchase of input materials and other necessary goods for the Borrower. As far as we know, this innovation is unique in the world of Receivables Financing.

Could you provide an insight into the plans of SCF Brazil for growth and expansion, both domestically and internationally, in the near future?

AA: The market for personal loans and supply chain finance in Brazil holds tremendous potential for growth and development. With a large and growing economy as well as a large pool of small and medium-sized enterprises (SMEs) in need of financing, the market presents a massive opportunity for FIDCs like ours to provide valuable services and help drive economic growth.

The increasing sophistication and awareness of financial services in Brazil is creating a more favourable environment for the growth of receivables financing and other forms of alternative financing. With our technology-first approach we are perfectly positioned to ride this huge wave.

JM: I entirely concur with Armin: Brazil is an absolutely massive market and we have only scratched the surface of this most profitable of places for Lenders.

We do, however, have quite a lot of interest from jurisdictions relying heavily on Remittance Payments. As we can rather easily create a “clone” of the Brazilla we are entertaining these discussions, given that such plans do not interfere with our core business: Lending in Brazil.

Could you please elaborate on any innovative solutions or strategies that your company has implemented recently, and their impact on your business operations?

Could you provide an insight into the plans of SCF Brazil for growth and expansion, both domestically and internationally, in the near future?

AA: The market for personal loans and supply chain finance in Brazil holds tremendous potential for growth and development.

With a large and growing economy as well as a large pool of small and medium-sized enterprises (SMEs) in need of financing, the market presents a massive opportunity for FIDCs like ours to provide valuable services and help drive economic growth.

JM: I entirely concur with Armin: Brazil is an absolutely massive market and we have only scratched the surface of this most profitable of places for Lenders.

Go2B: A Story of Resilience and Growth in the Face of Financial Adversity

Go2B was started by seasoned entrepreneur Adriano Hamu in 2019 for providing customised solutions in human resources, including outsourcing and staffing. The goal of the company has since inception been to provide simplified personnel solutions which increase productivity and reduce costs. Go2B provides services to the Brazilian state-owned post office, Correios in Portuguese, the Brazilian Central Bank and other major companies in Brazil.

Go2B faced significant financial difficulties caused by a fraudulent business partner and the onset of the Corona pandemic in early 2020. Despite multiple attempts to secure financing from traditional banks and funds, Adriano could not keep his business afloat. In May 2020, he approached SCF Brazil and presented the rather unique business case.

The seasoned credit analysts of SCF Brazil speedily understood the rapidly growing demand and reliance on outsourced personnel at Correios. The Minister of Finance at the time, Paulo Guedes, a hard-nosed Chicago School Economist and former Investment Banker, had imposed a hiring freeze for all state owned companies. Thus, Correios simply could not expand the workforce in a time of exploding demand for its services as the lock-downed massive Brazilian population of 214 million was sitting at home ordering goods for delivery by post. It was easy to predict significant growth potential for Go2B. Based on a thorough credit and business potential analysis, the entrepreneurial experience of Adriano and the forecast for the near future of the company, SCF Brazil provided the loans needed in the form of Receivables Financing, which dramatically would change the fate of Go2B.

Within a calendar quarter of receiving the initial loan tranches from SCF Brazil, the business of G2B picked up significantly, and the company was able to secure various new tenders from Correios. The increased pivot to e-commerce forced by the Corona Craziness and the multiple lock-downs in all Brazilian States led to a dramatic rise in the volume of shipped packages. Needless to say, this boom resulted in a dramatic increase in revenue for Go2B.

By the end of 2022, the company had increased its revenue ten-fold since the start of the Corona pandemic and secured substantial new clients, including international insurance companies.

The superb success story of Go2B highlights the importance of understanding the current situation of a potential Borrower, considering macro- and microeconomic factors, when making credit decisions. A simple credit analysis alone can sometimes obscure the business potential of a company. The entrepreneurial experience and determination of Adriano Hamu also played a critical role in the stunning success of the company.

In conclusion, Go2B is a testament to the resilience of small businesses and the power of determination in the face of adversity. Despite facing financial difficulties and the challenges caused by the Corona Craziness, Adriano turned his business around with appropriate financing and the help of a reliable and transparent financial partner like SCF Brazil. This example shows that even in the most challenging times, achieving significant growth and success with the right attitude, hard work and suitable financing is possible.

One of the first Borrowers benefitting from the SCF Brazil Micro-Credit Offering, Marcia Roque (MR), is speaking to Paulo César de Melo Ladeira Junior (PCM), who runs the “Favela” Inclusion Initiatives at SCF Brazil.

PCM: For how long have you been working in the flower business?

MR: I established my flower shop four years ago and business was flourishing. In the Corona Crazy lockdowns, I did, however, run into cash-flow problems and I had to temporarily close my shop.

PCM: Where is your shop located? Is it in a “Favela”?

MR: Indeed, my business is located in the Bairro Jardim Horizonte Azul, a “Favela” where the NGO ORPAS is highly active to better the lives of the residents of the community.

PCM: Could you please give us some insights into your family?

MR: I am from a big, boisterous family, we are all in all eleven brothers and sisters. We are Protestants and in my generation highly large families are usual. In turn, I have, three children and already eight grandchildren whom I all love dearly.

PCM: Do you live in the “Favela” where you have established your business?

MR: Yes, I grew up in this place and I know a lot of people here. Therefore, I decided to start my business where I know the persons to whom I sell flowers and plants.

Marcia Roque (MR)and Paulo César de Melo Ladeira Junior (PCM)

PCM: Could you please let me know what happened during the Corona Pandemic with your company?

MR: As I mentioned earlier, I started my business in 2019 and when the lockdown hit us all, I had to temporarily close my shop. During this difficult time, I decided to start growing plants in order to prepare for the reopening. Thus, when I came back into business in 2022, I could add the new opportunity of selling potted plants to add to the cut flowers business I already was in.

PCM: Have you tried to obtain financing from another financial institution before you received your loan from SCF Brazil/Banco Orpas? If so, how was the process?

PCM: For how long have you been working in the flower business?

MR: I established my flower shop four years ago and business was flourishing. In the Corona Crazy lockdowns, I did, however, run into cash-flow problems and I had to temporarily close my shop.

PCM: Where is your shop located? Is it in a “Favela”?

MR: Indeed, my business is located in the Bairro Jardim Horizonte Azul, a “Favela” where the NGO ORPAS is highly active to better the lives of the residents of the community.

PCM: Could you please give us some insights into your family?

PCM: Do you live in the “Favela” where you have established your business?

MR: Yes, I grew up in this place and I know a lot of people here. Therefore, I decided to start my business where I know the persons to whom I sell flowers and plants.

PCM: Could you please let me know what happened during the Corona Pandemic with your company?

PCM: Have you tried to obtain financing from another financial institution before you received your loan from SCF Brazil/Banco Orpas? If so, how was the process?

MR: Yes. I did try to obtain a loan from one of the five big Brazilian banks and they were extremely bureaucratic. Despite the fact that I am highly organised and have all my documents in order, the bank declined the loan application after a highly long waiting time.

PCM: Given the negative experience with this legacy bank, what did you think when Daniel Faria of ORPAS told you that ORPAS had a new partner, SCF Brazil, which could provide credit to your company? Did you believe that Daniel was right or did you think it would be difficult to receive a loan?

MR: Obviously, I trust Daniel and ORPAS, but I still thought it would be severely difficult to receive a loan.

PCM: What do you think about the SCF Brazil/Banco Orpas credit application process? Was it difficult to register your company in the system and to have the loan approved?

MR: The registration was easy, the credit approval process was a little more involved, but once the loan was approved, I received the loan proceeds immediately into my company account with Banco ORPAS.

PCM: How was the company loan funding utilised for improving your business?

MR: The loan I received from SCF Brazil/Banco ORPAS was partially invested in improving the shop, as I needed to make some improvements and enlargements to my main shop room. Furthermore, I paid suppliers for plants as well as seedlings and I also had some overdue shop bills to settle.

PCM: How did this loan from SCF Brazil/Banco ORPAS help you and your business?

MR: As I started to explain above, I needed to expand the sales space. Furthermore, with the help of the loan, I launched my new brand which led to many new contacts and my sales have increased considerably.

PCM: It is now more than 60 days since the loan was paid out to your company, what has changed for the better?

MR: I am extremely pleased to say that I have acquired new customers, my shop has a better “look” and I have managed to contract a really good new supplier.

PCM: If and when you need a new loan, where will you go?

MR: Surely, I would contact SCF Brazil/Banco ORPAS again, but with the success I have had since I received the December loan, I really do hope I will not need any more credit.

“Gamechanger, what we define as an individual or business that aims to create a new model that leaves the older model obsolete. Gamechangers impact how the game is played from one objective and ruling model to a completely new vision – changing the face of how we know something.