Yusef Jacobs is changing microfinance and giving people access to life-changing appliances with a simple notion: Even those who don't have a lot of money will pay for what they really need.
Jacobs, 28, launched Graviti, a "buy now, pay later platform" for basic home appliances for the unbanked sector of the population in Mexico.
Graviti gives low-income people the ability to buy solar hot water heaters, refrigerators, and washing machines even if they don't have the money to pay for such an appliance in a lump sum or the ability to get access to credit.
"What we measure is whether this customer truly truly needs a certain product. And if they truly, truly need it, they're going to pay for it well," Jacobs tells CNBC.
Graviti puts internet-connected meters on the appliances to collect data about how the customer is using them — and turn them off remotely if a customer falls behind on their payment.
"What traditional microfinance institutions do is if a customer gets behind on their payments, they charge late payments," Jacobs said. "In Mexico, they go over 100 annual percent interest rates ... which is crazy. And that just over-indebts the customer and increases the debt."
Instead, Graviti gradually reduces the functionality if customers don't pay.
"If you get behind on your payments, let's say a week or two, then what these control meters enable us to do is basically control the flow of hot water from the water heater, and maybe limited to a certain amount of liters per day. If you keep getting behind on your payments, maybe we should shut down the flow of water completely," Jacobs says.
That hypothesis bears out. Graviti has an overall default rate on its loans of 1.21% on loans, Jacobs says.
For comparison, the default rate on credit cards in the United States was 3.15% in March, according to data on from S&P Dow Jones Indices and Experian released in April. The The default rate for auto loans in the United States was 0.48%.
Jacobs, who is from Mexico City and has lived there his whole life, launched Graviti at the end of 2019 with solar hot water heaters.
"We acquire the customer, we do the underwriting of the credit, we approve the credit," Jacobs says. "Then we basically connect that customer and the credit with the distributor that holds the product and the distributor goes and installs the product. We pay the distributor for the product upfront. And then we do the payment collection of the credit from the customers."
The solar water heaters are a more climate friendly option than the liquefied petroleum gas most people were previously using.
Graviti has since added other energy-efficient appliances and has the goal to expand to other countries in Latin America in the future.
"Our customers said, 'Okay, and now I have hot water. Do you have washing machines? I have to wash my clothes by hand. Or, do you have refrigerators? I don't have a way of refrigerating my food? Or do you have the stoves either electric or gas stove?'" Jacobs says.
There's a lot of demand: Only 37% of Mexicans adults have a bank account, according to the most current data The World Bank has available.
Graviti, which currently has 20 full-time employees and 6 part-time employees, is not Jacobs' first start-up.
In his second year of college at Universidad Iberoamericana Ciudad de México in 2014, where he studied physics, Jacobs started a company working on called Vitaluz, which was a pay-as-you-go home electricity service, powered by solar. The company officially formed in 2017, after Jacobs graduated from college.
"We were basically giving an electricity service to families that don't have access to the grid," Jacobs says, a need he discovered when he was working with a chemical company designing ecological kilns for brick production for low-income communities.
In 2018, Jacobs sold Vitaluz to an investor and rural house producer in Mexico, Grupo Mia.
Graviti makes money by charging a commission to the appliance distributors it works with, including Whirlpool, Acros, Daewoo, Mabe, to name a few. It also makes money from the interest rate it charges customers for the loan.
Making money and being profitable is necessary to provide access to appliances to all of the people who need them.
"What we want to do is reach millions of new customers each year, and the way to do that is to really build an a scalable, profitable business," Jacobs says.
For Graviti, Jacobs has raised $3 million in total funding.
The majority of that, $2.5 million, Graviti raised in a round closed in April with the help of a networking product of San Francisco-based bank Mercury.
"Someone like me... I have built up my network, I can go to my friends, or people who have invested in my previous companies and get like a funding round done quickly," Immad Akhund, the CEO and founder of Mercury, a bank for start-ups, tells CNBC. "But someone like Yusef, it is much harder to kind of break in."
So Akhund launched Mercury Raise, a service connecting Mercury bank customers looking to raise money with investors interested in finding quality entrepreneurs to invest their money in.
Akhund was born in Pakistan and moved to London at nine years old, where he grew up, before moving to Silicon Valley when he got into Y Combinator in 2007 and stayed to pursue his start-up dreams.
"As an immigrant founder myself, I thought it was really important supporting U.S. companies but where the founders are not U.S. residents, because that's the way it was for me for the first couple of years," Akhund tells CNBC.
In February, Akhund had 745 applications from start-ups looking for capital and a panel of external judges helps whittle the list down to about 50 companies which investors agree to review and invest in if they like.
Graviti was one of those 50 companies highlighted, helping it raise $2.5 million in April from a variety of investors in San Francisco, Los Angeles, San Antonio, and New York City entirely via digital meet-and-greet video meetings on Zoom and Google Meet.
The pandemic "has opened up this whole world people raising [funding for their start-up] online via Zoom," Akhund says. "A lot of investors before this point would be very hesitant to make a commitment without ever meeting someone. That's basically in the past, especially at the seed stage," he says.
"That's enabled a much more efficient marketplace," Akhund says. "We're not making people fly across the world. Before used to be okay, I'm going to do a funding round, I'm going to spend three months doing it, I'm going to fly to San Francisco, see who I can meet there. Maybe I have to go to New York to see if there's other investors there."
"In hindsight, it feels crazy that people used to do all this effort to get a million-dollar funding round done."