Not Boring Founders: Zach Marks, Jia

0:00Our philosophy is to meet people where they are and not try to shove some innovative thing down their throat if they don't necessarily want that. And the reality is our customers, our borrowers, our members, they want liquidity for their business. They want loans. Not coming and clamoring like, oh, I want ownership, right? They just want a good lending product. This story is about working hard even when it seems silly. And for the people trying to make crazy things happen.

0:29Not boring is for the optimists. Take a little shot of Optimist. Take a little shot of Optimist.

0:46Let's just zoom out and take a little shot of Optimist. Happy Wednesday and welcome to Not Boring Founders, the podcast where we talk to the people building the future. Today, I have the pleasure of catching up with Zach Marks, the founder of one of our Fund3 portfolio companies, Gia. Gia connects capital to small businesses in every corner of the world. Borrowers receive fair, flexible financing to grow their businesses, and investors earn sustainable yields powered by returns from real-world assets. It's an evolution of the model that Zach and his co-founder Chang built while working at the fast-growing digital lending startup Tala, using crypto on the back end to help recreate many of the things that work offline in tight communities online and help them scale globally.

1:33Closing the$5 trillion credit gaps in emerging markets is a problem I'm very familiar with. My sister Megan is working to solve the issue in Ghana and throughout Africa with her company Oze, and Oze and Gia are actually teaming up to crack it together, which Zach will explain. The conversation with Zach is a masterclass in how small business credit works in emerging markets today and what the world might look like when anyone anywhere can lend to anyone anywhere. Let's get to it. Zach, welcome to Not Boring Founders. Oh my God. Thanks for having me, Paki. Going to make this one not boring if I can.

2:09Nice. There we go. We could lie and say that you're currently in market, but you are in San Francisco right now. We are recording this on the day that our Philadelphia 76ers are about to play game six in Boston. You have some Sixers gear with you. I am a trader. I'm wearing a green shirt right now, which I feel bad about. It was a mistake and I will burn it before the game tonight. I know I might quit the podcast. I'm not sure if your folks see this on video, but I'm like waving my trust the process towel right now. Some, some folks, a very small number of people will see this on, on video. I can confirm that he's waving a trust the process towel.

2:45Speaking of the process, give me your background like how'd you end up giving loans to small businesses in developing countries yeah great question we both grew up in philly and so we have that shared in comments you might ask like why is this guy from philly spending his career in kenya and india and the philippines giving loans to street vendors and i guess it probably goes back to just a love for just that for traveling learn new languages experiencing new cultures i started my life after college as an English teacher teaching in schools in India and Brazil and Ethiopia. And when I was at these schools, I would always hang around the street vendor who was selling food outside.

3:26And in India, I was close with the chaiwala who was serving chai outside my school, Ramesh. And you spend any time with someone who's just trying to run an honest, decent business in emerging markets, you just learn about this credit gap pretty quickly, right? I mean, to run Ramesh's chai business, He'd have to buy milk and tea and sugar and basic inputs. And he buys it in small quantities at a pretty bad price. And he can't grow his business. And he's sort of always just like living day to day to try to feed his family, tries to grow his stall, but he can't. And that sort of just like was my introduction, I guess, you know, just fresh out of college.

4:04And so when I started my professional career after teaching, I was working as a management consultant. and I had the chance to start working on financial inclusion projects. Largely, these were sort of microfinance projects financed by the World Bank and large development institutions. And that's when I sort of got a real formal academic understanding of this challenge. That's a good place to start. You hear debt and you're like, it's a bad, it's gotten a bad rap, but why is it so important for these businesses to be able to access credit? Yeah, let's just make it feel real. I think it's always easier to, when you read something like, oh, it's a$5 trillion credit gap in the emerging market.

4:41What does that mean? That's a big number, but okay, do we want more people getting in debt? And I don't think we want that. We've had our own challenge of credit in the States and pretty much everywhere in the world. I guess to make it feel very real, just talk about this guy I was just hanging out with last month, who's one of Gia's first borrowers named Fran. He basically runs a small spice stall in the market in Nairobi. He sells his cumin, his turmeric, his chili pepper. And while I was hanging out with him, just doing some user research, I saw a restaurant owner from a nearby restaurant, come by and try to buy 10 kilos of sesame seeds for his restaurant.

5:12And Francis was like out. He's like, you got to come back tomorrow. And I just asked him, well, how often does that happen? He's like, pretty regularly. I buy sesame seeds every other day for my wholesaler because I can either buy sort of like a 25 kg package or 100 kg. And 100 is just costs too much. I don't have that financing. So he ends up paying a much higher unit price. So he has lower margins and he runs out of stuff. This is just like a classic example of why people need working capital financing. So we're not talking about like having people levered up on a credit card debt or taking out student loans that their careers will never really afford.

5:46This is more just like how does someone run a business? And basically any business you step into in the U.S. is able to function because of access to working capital. But in much of the world, people don't have that access. And if you asked a Kenyan bank, well, why don't you give a loan to Francis? They'd probably say like two main answers. One, they'd say there's no data to underwrite him. I have no idea how many packages of sesame seeds he sells. So you can't really assess his credit risk. And two, he's probably not even worth my time. Kenyan banks mostly serve large Kenyan corporations or larger Kenyan enterprises.

6:22But for someone who needs maybe$500 or$1 ,000 of working capital, they say, well, it'll cost me more than that just to go acquire this guy and service his loan. So that's sort of like the core problem set I think I've been focused on for my career. And the first attempt to solve that was Grameen Bank model sort of community microfinance institutions. And that's really where I'd say I cut my teeth. That's where I began my career when I was working on these development projects. We can talk about why they work or don't work, but that's sort of what we're what we talk about when we mean credit and why it's needed.

6:56Yeah, it's a problem that I'm actually surprisingly familiar with. As you know, my sister runs a company based out of Ghana that is working on attacking the same issue. And yeah, I mean, she'll give stories about the fact that like, if we're lucky, people have like kind of pencil and paper accounting of their business, and nobody's going to underwrite on that. And to your point, like, there's a lot of small businesses that are not worth it to acquire. I want to get to like kind of how you're solving those. But first, I know you took a stopover in Tala, which is one of the more famous examples of trying this.

7:27What did you learn there? What were the challenges? And then I want to hear like how you ended up going from established company into Web3 to solve the problem. Yeah, maybe even I'll talk about how I even got to Tala because I think of my career just to sort of simplify it as like maybe three waves of microfinance. Microfinance 1.0, 2.0, 3.0. And so 1.0 is like the first wave of programs trying to solve that credit gap that I mentioned, which was largely rooted on community microfinance groups like savings and borrowing groups. And this is how people have traditionally organized themselves for thousands of years.

8:01I mean, before there were banks, people were just saving and borrowing together and helping each other out. And so what microfinance, the sort of the Grameen Bank, Muhammad Yunus model people might have read about in a college class or something, that was basically working with these groups that already exist that have a lot of trust in each other and just providing some financing. And we get over that data underwriting problem because even if, like, let's say I'm in a group with you and five of our friends, you know, Paki, even if you default, I'm on the hook for you. So the microfinance institution knows someone's going to repay.

8:32The problem is these groups sort of break down once they get to a certain side. Like once you get beyond 15 or 20 people, people don't know each other. The trust is sort of gone. And it's really hard for these models to scale. I was working on these programs in South Sudan and basically the cost to operate was like for every new, say five farmers you wanted in the group, you need to hire another loan officer. It's just not a model built scale. And in search of something more systemically change-making, that's what led me to Tala and what I call microfinance 2.0, sort of the fintech lending boom.

9:06And Tala was one of the first companies in this space. I think it was really the pioneer of what we now know as mobile lending, which is, you know, there are now hundreds of companies around the globe that do this, but it was a really revolutionary concept. The idea was there's 3 billion people in the world without a credit score. Many of them now have phones and your phones have all this data about you. What if we use that phone data to underwrite people for a loan as small as$10? Really revolutionary and powerful idea. and so powerful, it scaled pretty rapidly. In the six years or so that I was there with my co-founder, the company grew from like 6 ,000 to 6 million borrowers, which is a pretty rapid scale.

9:43We went from just a handful of folks in Kenya to all of a sudden we're lending across Asia, Africa, and Latin America. I think what Tala got in scale and what fintechs get in scale, sometimes I saw we sort of lost the beauty of community trust and ownership that I saw in microfinance 1.0. And I think it was probably listening to like some Web3 podcast, like with Chris Dixon or something, you know, someone spitting the gospel, talking about how, you know, why does Spotify make all the upside instead of the musicians? Why is Uber get all the upside instead of the drivers? And I was thinking, right, why did the fintechs get all the upside instead of the borrowers who are really busting their butts?

10:22They're the ones who are like getting up at 4 a.m., running a bakery, working all day on their feet just to feed their families and be able to pay off those loans. And the idea for GIA really actually even came from some customer interviews I was doing. When I was in Kenya, I heard this a handful of times where people would say, hey, in my Saco, a Saco is a savings and credit cooperative in Kenya, and they go by different names in different countries. But they'd say in my Saco, after I repay my loan, I put my money in and I get shares. Like, you know, they effectively saying I'm an owner of this community, of this savings group.

10:57And I've been taking your guys' loans for a year now. Like, how come I can't get shares? You know, I've seen the TechCrunch articles. I know how much you guys are worth. The reality is, even if we had wanted to, it's very difficult for a U.S.-based company to just distribute sort of fractional ownership around the globe. And even if you could, it's not really liquid, right? You can't do anything with those shares. But what's really exciting to me about crypto is this concept of programmable money. And the idea of if you represent ownership or a claim to some revenues on chain with a token, and you can then program all sort of interesting use cases into that token, you can say, oh, the more of them you have, then you can unlock lower interest rates or higher loan amounts.

11:35That just felt really powerful. And that's sort of where the genesis idea came. Like, what if we provide blockchain-based financing? We'll give small loans to small entrepreneurs, but when they repay, we reward them with ownership. And so we turn them from sort of customers on the end of a one-way transaction to actually owners and builders of this ownership economy. I remember when I was at my last company, Breather, we went through this months-long process of trying to figure out how to give all the folks who cleaned and operated our spaces equity in the company. And we did it. And we gave it to them.

12:11We had this big town hall. We were so excited. And they were like, what the hell are you giving me? I guess like the education piece for you is solved by the fact that they get ownership in the Socos. But like how much education is there on this whole concept? Our philosophy is to meet people where they are and not try to shove some innovative thing down their throat if they don't necessarily want that. And the reality is our customers, our borrowers, our members, they want liquidity for their business. They want loans, not coming and clamoring like, oh, I want ownership, right? They just want a good lending product.

12:44So that's where we start. And there, frankly, is just a massive gap in the market for someone providing affordable, flexible, micro business financing. I think in emerging markets, what you see is banks don't serve anyone under maybe$10 ,000. And then you have a bunch of these consumer fintech lenders who maybe give you loans up to, say, 200. But from that$200 ,000 to$10 ,000 gap, there's just this massive white space that's being underserved. And that's really where we see ourselves playing. So just to begin with, that's what we're serving folks with. And that's the need we're meeting them with.

13:18When they repay, they're rewarded first with GIA points. So the GIA token itself is not live yet. And so a lot of this is being replicated right now with a point system that we're doing a lot of fun experiments with. And really, I think if we came out and said, your GIA point represents ownership in a global economic community, I think like maybe your breather employees, they'd be like, why? I don't care. Just pay me. Yeah. And I think that's a fair response. And so for us, like the points initially just represent something that they really need today, which is better credit terms. The more points you have, you can unlock lower interest rates or higher loan amounts or more flexible repayment periods.

13:56We begin to expand on that basic loyalty point by taking what people are already doing offline into this online world and just giving them more rewards for it. So for example, what would be really common in a SACO, say I was in a SACO with 10 people and I bring you in, Paki. And Paki's like, I want a loan. Well, in order for you to get it, I'd have to put up collateral for you. Like effectively stake collateral. And this is really common. You'd take the loan, you'd repay. I'd get my collateral back. We'd all move on. But I should get some rewards for that because I let the loan happen. I let the Socko get more revenues.

14:29And so what we're doing is you can sort of stake your GIA points or eventually your GIA token on someone else you bring into the network. And then you get rewarded because you've enabled that loan to happen. I think what's really happening here is we're just slightly changing the math around value distribution. It's not like a magic internet money or something like that. It's just people are actually creating value in the real world enough to pay off some interest. But instead of all of that interest being sucked out of, say, the Kenyan economy by a foreign lender, more of it just stays in there because some of it goes to borrower rewards, some of it goes to the referrer or guarantor or sponsor rewards, and just creating a bit more of a sustainable, resilient economy that way.

15:08And so that's how we're beginning to unveil the crypto education. What happens next is once they get their GEO token, that's probably for most of our borrowers, their first cryptocurrency. There are some early adopters who are already kind of trading a little bit. The most common desirable thing is just to hold some money in a US dollar stable coin. I mean, the Kenyan shilling is down 10, 20 % at times against the dollar. Same with the Philippine peso, same with a lot of emerging markets economies. So people just want to hold USDC. And so those would probably be their first two crypto assets, right?

15:43As a GIA token and USDC. And from there, now we have this trusted platform, this trusted relationship with these members that we can begin to roll out more products. And I'd say it's not that, you know, it's not that if you're in Kenya right now, you can't just sign up for Binance or get some crypto wallet. This stuff exists, but it just hasn't taken off with mainstream adoption yet because it doesn't really meet an everyday need in their lives. Like, yeah, I want to speculate or maybe this is a way for me to hold some money in dollars, but I'm not really going to use this in my everyday business.

16:15But by meeting people where they are, I think we really become that trusted platform. What I love about the model is that it feels like it's really taking all of these offline behaviors and mapping them to different things that you can do when the token or the points for now are programmable. Are there things that currently in the model you don't have programmed in, but that you think are really interesting kind of offline behavior that you'd like to build in at some point? Definitely. Well, one thing that I hear from folks all the time is they don't just necessarily want capital, but they want resources more broadly to help them grow their business.

16:52It could be, I want access to a supplier with lower prices or different products. Or a really common thing now, especially brought on by the pandemic and just the growth of the internet is people want to go take their business online. Francis doesn't just want to sell his spices from Gitarai Market to the people in his immediate vicinity. He wants to have, I mean, at the very least, let's get this guy a Facebook page so he can do some marketing, but then maybe set him up with the local equivalent of Shopify so he can sell across Kenya, maybe even internationally. He doesn't necessarily have the resources or know how to do that.

17:22He's not a digital marketing expert. He's a local spice vendor expert. And so what we're really interested in doing is creating not just a financial services provider, but really this small business community. And I think a really powerful thing that we can do with these points or tokens is use them as sort of a currency within that system, basically for small business providers to sort of barter or swap services so that maybe Francis can get digital marketing from someone. And it could be someone on the other side of the globe and, you know, keep that sort of small, keep that economy within this circular group.

18:00That's super cool. So you just launched and I just participated in the very first pool. So congratulations. Where is that money going? Who are some of the first businesses who are going to be taking loans from GIA? Thank you. Yes. So we just launched our, what we call our Pioneer Fund pools, our first on-chain pool where investors from around the globe can deploy their liquidity, their capital, their US dollar stablecoins, and effectively be financing small businesses. So right now, those are financing a range of small businesses in Kenya and the Philippines. And thank you for your participation.

18:33We can drop some links of how people could get in touch of how else to do it. But primarily what that's funding is inventory financing and invoice financing across a couple of verticals. And I commerce is like very disaggregated. I mean, here in San Francisco, you walk down the street, there's like a CVS and a Walgreens, but in Nairobi, you might have a ton of just like roadside medical clinics here and there. And so we work with local partners that sort of aggregate or serve these networks of small businesses that have a need for liquidity. And I mentioned the medical clinic example, because our first, our first partnership is with a company in Kenya called Ilara Health.

19:10They basically have a network of 2000 small roadside clinics, and they provide low-cost devices for them. They also sell medicines at wholesale and they just help these clinics run more effective healthcare service provision. All of the clinics want financing because they say, hey, I buy my medicine on Monday, but my patients don't come until Friday and maybe they don't pay me for another week. And Ilara doesn't want that sort of sitting on their balance sheet. They want to use their balance sheet for going and signing up more clinics and selling more medicines, right? And so we step in and we partner with them as basically the inventory financing partner.

19:46We use a bunch of proprietary data that Ilara has, and we're able to reach these customers through this really trusted network. And I think that overcomes like two main hurdles in running a fintech lending business in emerging markets is one, overcoming trust, because people are gonna be like, wait, who the hell are you trying to give me a loan? And overcoming data, because as we said earlier, it's not like they necessarily have a ton of data with the Kenyan Credit Bureau or something, right? And so it's more sort of, it sits in these silos and we're able to access that data through this partnership.

20:15We reward also the partner with some of these tokens. So they're part of this economy. And that's how we enable the clinics to buy their medicines on credit. And we have about 10 of these partnerships live. Some of them are just partnering with consumer goods retailers, people selling like flour and cooking oil from a small roadside shop. And there's medical clinics and there's a handful of other industries, but that's effectively what you're financing. How are you underwriting these folks? what do the interest rate terms look like? I know, you know, hearing from my sister, like the interest rates that they're able to access outside of GIA are like eye-poppingly high.

20:53She'll give me numbers and I'll be like, oh, that's not a terrible annual interest rate. And she's like, no, no, no, that's monthly. So like, what does the underwriting look like? And then what do the interest rates look like? That's right. And actually I should mention, so we are running a pilot right now with your sister, with Megan. I mean, her company, if everyone wants to look it up, is called Oze. And they are doing awesome work in Ghana, basically bringing MSMEs, bringing, that's an acronym, micro, small, medium enterprises, bringing them online so that they have more digitized records so that they aren't just writing things in paper and pen and can access formal credit.

21:25And we're providing that. And what we're providing for them actually is an invoice financing product. And that I think is a super interesting future space for what can happen on chain is if you can bring any real world asset that is sort of illiquid, like an invoice, and then unlock liquidity for it by providing some money in advance. That's an amazing use case for blockchain. And so that's sort of what we're doing with them. And in a lot of ways, this is not like revolutionary, like blockchain based stuff, because they don't really have on-chain data yet, although we're building that for them.

21:56Because what happens when they take a loan is, even though it's abstracted from them, money is being off-ramped from that liquidity pool where money that you provided, you know, goes. And when they repay, it's being re-on-ramped so that the LPs can withdraw. So the underwriting, a lot of it is just taking into consideration the basics about their business. I mean, we have a ton of proprietary data, as I mentioned, from these partners. That could be their revenue, their expenses, their margins, even down to the SKU level. Like what are they, how many antibiotics is this clinic selling every month, right?

22:25And you can get into really interesting data-based, sort of alternative data-based underwriting. And some of it, I think, ends up basically being leveraging alternative data sources, which maybe banks aren't using. So for example, in Kenya, it's really common for people to use mobile money to do transactions. A lot of times, even this guy selling spices, his customers might come by and want to pay them, want to pay not on cash or not with a bank transfer, but just on his phone. That's the most common way of accepting payments. And so we have partnered with a payment gateway in Kenya where we're able to access a ton of these mobile money receipts and use that to underwrite.