Crowdfunding as a way to finance construction projects in Colombia

Using technology to solve one of the biggest problems that builders have when beginning their projects was the starting point of German Jaramillo, civil engineer and CEO of Finnova, to start developing the idea of creating the first collaborative financing company for construction in Colombia.

After 22 years in the sector, he identified what he calls “a great problem”: the delays and long procedures with financial entities so that projects in the construction and building sector have the necessary resources to be executed.

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How his proposal started to emerge 

Why not use the crowdfunding model – collective project financing – to bring investors closer to this field?

“High resources are always required to develop this activity and almost everything is achieved in the banking sector, which is why the concern to seek more financial alternatives for this field was born,” Jaramillo pointed out.

Everything finally led to the creation of Finnova, a fintech company with a business model of real estate crowdfunding that allows a large number of investors to support construction projects in different cities of Colombia.

The novelty, he pointed out, is that to participate, a person can invest from $47,500 (one million pesos) onwards.

This led to the filing of the operations license in November of last year in the Financial Superintendence, which the Ministry of Finance determined as the entity in charge of inspecting and monitoring this type of model.

Finnova hopes that by the end of this year the Financial Supervisor will give the green light to its platform and thus be able to start operations in February next year.

What does it consist of?

The platform has an algorithm that is based on information from the sector, including reports from Camacol, market data, prices per square meter and studies on other projects.

“The algorithm can calculate a number of scenarios and situations that give us very valuable measurement parameters for the information. This will continue to be fed with the data we will have as the platform evolves,” he said.

This allows the page to make an evaluation of the documents presented once they are entered into the platform and give them a rating. This can take a period of up to one month, Jaramillo said.

With this report that generates the algorithm, a committee of experts, composed of engineers, architects, commercial agents and experts, evaluates and gives the green light for the real estate initiative to become part of the investment catalog of the crowdfunding page.

“Only projects that comply with high quality standards, market risk, legal, soil studies, and earthquake resistance, among others, will arrive. And those are the ones we publish on the platform so that the investor can select only the best projects,” explained Finnova’s CEO.

People interested in participating in this model make a completely virtual registration. Therefore, they do not need to print any documents. The contracts that are made are digital, including the signatures. Also, a biometric recognition of the investor is included, who also has access to the platform’s app.

“Once the person linked can access the projects that we already have published, choose according to your profile and your interest, depending on whether you want to invest the money and recover it in a year or invest in offices or apartments. There are a number of parameters that the person chooses according to their tastes and risk profile,” says Jaramillo.

Finnova seeks to have a maximum of five projects at the same time within the site and depending on each one of them offers returns, Jaramillo assures, between 12 and 18 percent effective per year.

The market for crowdfunding platforms is growing

Although in the country, the Colombian Stock Exchange already has a crowdfunding platform, a2censo, which has managed to unite 1,257 investors with small and medium businesses in Colombia, Finnova would be the first collaborative financing company focused solely on real estate.

Jaramillo assured that it is a market that has many possibilities in the country and that in Latin America it is growing. Only in Mexico there are already 26 crowdfunding platforms operating.

“An ecosystem is built with actors. The call is for us to grow as an ecosystem, there is room for many more platforms in the market and it is a solution that the economy requires at this time. The country, after the crisis, needs more companies, more entrepreneurship and more innovation,” Jaramillo pointed out.

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(Featured image by bergslay via Pixabay)

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First published in EL TIEMPO, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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