The experiment explored the context, limitations, and opportunities that prevent SMEs from accessing fintech factoring. The experiment had 3 hypotheses: 1. Hypothesis 1 (Demand): SMEs do not access fintech factoring due to a lack of knowledge about the product. Justification: The lack of information on how factoring works and its benefits limits adoption. 2. Hypothesis 2 (Demand): The process of accessing fintech factoring is perceived as complex and costly for SMEs without experience. User journey observation: The lack of knowledge about the factoring process creates administrative and financial barriers. 3. Hypothesis 3 (Supply): Anchor companies hinder the free circulation of invoices, restricting the use of fintech factoring. The experiment had achievements, challenges, and lessons learned: Successes • The experiment was succesful in raising awareness and training SMEs on fintech factoring. Through a series of training sessions, participants acquired critical knowledge that enabled them to better understand the benefits and functioning of this financing tool. • Additionally, the collaboration of factoring Fintechs provided technical support that assisted SMEs in managing the administrative and financial aspects of their factoring operations. After the training sessions, 85% of participants reported an improved understanding of the process, and 60% planned to implement it in their operations in the next year. • These results not only demonstrate the positive impact of the training but also reinforce the potential of fintech factoring as an effective resource for improving the cash flow of SMEs. Challenges The implementation of the experiment presented various challenges that affected the accuracy and scope of the results. • First, the use of a non-probabilistic sampling method limited the representativeness of the sample, making it difficult to generalize the findings. • Furthermore, the non-random assignment of training and support generated biases that impacted the causal analysis between the treatments and the observed outcomes. • For example, SMEs had the freedom to decide whether to participate in the training and support, which may have influenced the results due to internal factors such as interest in factoring and administrative capacity. • Additionally, the selection of specific Fintechs for each SME group limited control over variations in the support provided, making it difficult to equitably compare the different treatment and control groups. Lessons Learned • This experiment highlighted the need for a more robust methodological design for future studies aimed at evaluating the effectiveness of alternative financing mechanisms. • The importance of ensuring a representative sample selection and random treatment assignment became evident to mitigate biases and improve the external validity of the results. • Feedback from SMEs was also relevant, as they valued the opportunity to learn about fintech factoring as a viable tool but emphasized the need to better understand the associated costs and adapt their internal processes. • These insights will help refine the public policy recommendations that Colombia Fintech will present to the UNDP, aiming to promote the adoption of factoring in the SME sector and facilitate their access to financing on more favorable terms. The most relevant insights regarding the proposed hypotheses are as follows: 1. Hypothesis 1 - Lack of Knowledge and Process Complexity (results in SMEs after training) • Lack of Knowledge about Fintech factoring: SMEs lack understanding of how fintech factoring works and its benefits. Suggestion: Allow more observation time and follow-up sessions with SMEs to better understand their post-training perceptions. • Low Interest in Adoption: Low attendance at training sessions; possible preference for traditional financing mechanisms. Recommendation: Include roundtable discussions or specialized meetings to assess SMEs' interest in alternative solutions. • Opportunity for Improvement in Training: Simplify concepts and adapt content to the operational reality of SMEs. Recommendation: A practical approach that better addresses the daily needs of SMEs. 2. Hypothesis 2 - Complexity and Access Limitations (results in SMEs after training) • Complexity and Costs of Factoring: (i) The administrative process is complex and requires internal adjustments, (ii) Perceived costs are high compared to other types of credit, (iii) Business relationships: SMEs are concerned about how adopting factoring might affect their liquidity image. Recommendation: Be transparent about the costs and benefits of factoring compared to traditional methods. • Limitations Imposed by Anchor Companies: (i) Financial risks from anchor companies undergoing restructuring or facing financial uncertainty, (ii) Supplier relationships: Suppliers are concerned about potential impacts on their clients if factoring is adopted, (iii) Regulatory environment: There is a need to better understand the applicability of regulations in factoring. 3. Hypothesis 3 - Barriers Identified from the Supply Side of Fintech factoring • Barriers from the Supply Side of Factoring: (i) Specific challenges limiting SMEs' access to factoring, (ii) The need for development to scale this market in Colombia. • Critical Factors in Implementation: (i) Additional barriers from factoring Fintechs, (ii) The importance of addressing these limitations to promote adoption. 4. Other Barriers: Risk Models from Fintech factoring Fintechs • Policies and Risk Assessment: (i) Internal policies: One Fintech could not work with an anchor company undergoing restructuring, which led to the reassignment of the company to another Fintech, (ii) Financial risk assessment: Issues of liquidity and high leverage ratios were detected in an anchor company, leading to the decision to avoid operating with it to mitigate risk. • Difficulties in Contact and Operations: (i) Problems contacting 70% of assigned suppliers, which slowed down the conversion process, (ii) Escalation of requests: Some suppliers lacked decision-making power, increasing transaction costs and slowing down the factoring adoption process.

As part of the handover process of the experiment, a workshop was held with public and private stakeholders to present the public policy recommendations. The workshop involved key actors who can use this information to make adjustments to existing processes (Minnistry of Commerce, Industry and Tourism, DIAN, SIC, Society Superintendency, USAID, Colombia Fintech, Finaktiva, Liquitech, Exponential, etc). The main recommendations were as follows: 1. Recommendation 1 (demand): Create training and knowledge-sharing spaces a. Problem: The lack of knowledge causes SMEs to: i. Perceive factoring operations as complex. ii. Worry about costs without fully understanding them. iii. Self-exclude from these financing mechanisms. b. Policy recommendation: Create training and knowledge-sharing spaces on electronic factoring as a financing tool for SMEs, focusing on the potential benefits associated with it. c. Expected effect: The goal is to equip SMEs with the necessary skills to make better financial decisions and gain more benefits from factoring, as the training would be designed according to their needs. 2. Recommendation 2 (demand): Strengthen the sanctioning process (free circulation of invoices) a. Problem: Despite the legal framework recognizing the importance of invoice circulation, in practice: - The circulation is denied due to internal policies of anchor companies. - Additional requirements or agreements are requested to carry out factoring. - Payment of invoices to factors is denied for not being suppliers. b. Policy recommendation: Strengthen the sanctioning process for behaviors that prevent the free circulation of the electronic sales invoice as a title, encourage spaces for promoting good practices, and generate mechanisms and statements from the competition authority regarding these practices. c. Expected effect: The process of circulating invoices is expected to be facilitated for SMEs by improving oversight of payers. 3. Demand 3: Strengthen SMEs' trust in Fintechs and the financial system a. Problem: SMEs do not trust financial entities or Fintechs because they do not perceive the benefits of resorting to formal financing sources. b. Policy recommendation: Strengthen the trust between SMEs and Fintechs by creating more transparent and simpler processes that SMEs can understand, highlighting the advantages of formal financing. c. Expected effect: It is expected that SMEs will trust Fintechs and the rest of the financial system as they understand the benefits of formal financing, enabling them to improve liquidity and financial management. Additionally, the information from this exercise serves as the starting point for a new Fintech Factoring project by Colombia Fintech, funded by USAID Colombia, in which we are also participating.

The choice of these data types was driven by our need to understand both the broader context and specific industry insights. • Focus groups helped us identify user needs and preferences, addressing a gap in understanding the target audience's expectations and experiences. • The literature review provided a solid theoretical foundation and helped identify trends and gaps in existing research. • Interviews with factoring companies were crucial in gaining practical, industry-specific insights, addressing a lack of real-world, practical data on the challenges and operations within the factoring industry. • These diverse data types collectively helped us gain a well-rounded understanding of the fintech ecosystem and the specific dynamics of the factoring sector.

• Bilateral meetings with various stakeholders, including industry experts and potential users, allowed us to refine our understanding and approach continually. These meetings provided opportunities for direct feedback and collaboration, essential for developing a tailored and effective fintech solution. Specifically, interviews and focus gropus with SMEs, anchor companies and fintech factoring companies. • Design Thinking was used during the experiment phase, enabling us to adopt a user-centric approach to problem-solving and innovation. This method helped us in ideating, prototyping, and testing solutions effectively.

Innovation Methods: The use of Design Thinking and bilateral meetings allowed us to address challenges from different perspectives, fostering a user-centered and empathetic understanding. This method not only facilitated creative problem-solving but also ensured that the solutions developed were tailored to the real needs and contexts of our target populations. New Data Approaches: The use of qualitative data from focus groups, literature reviews, and interviews with factoring companies provided us with a multifaceted view of the financial technology landscape. This diverse data collection allowed us to understand the nuances of financial inclusion challenges and identify specific barriers and opportunities within the factoring sector, which quantitative data alone might not have revealed. Unusual Partners: Collaborating with partners outside of our traditional network, specifically within the dynamic fintech ecosystem, opened the door to innovative ideas and practices. These collaborations brought new perspectives and insights, which were crucial for understanding the rapidly evolving fintech landscape and its potential impact on development and equity. The synergy of these elements facilitated a deeper and more holistic understanding of the challenges 

Thanx!