MicroSave Consulting (MSC) is a boutique consulting firm that has, for 25 years, pushed the world towards meaningful financial, social, and economic inclusion. These podcast series are hosted by MSC for dedicated founders, start-ups, investors, and other stakeholders in the startup ecosystem. Through this bouquet of curated conversations around developments in the financial inclusion space, we offer insights and lessons based on our research and expertise.
Embedded finance is the seamless integration of financial services into traditionally non-financial services or products. In the Indian context, embedded finance will play a crucial role in providing access to savings, credit, and other financial services to lower and middle-income segment users. Fundfina primarily intends to provide small merchants with credit. Tune in to our podcast to hear from its co-founder and CPO on how Fundfina has imbibed this concept, how Indian consumers can benefit from this evolving concept, and what challenges lie ahead.
This blog is about a startup under the Financial Inclusion (FI) Lab accelerator program’s fifth cohort. The Lab is supported by some of the largest philanthropic organizations across the world – Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network.
The FinTech market in India is estimated at USD 31 billion in 2021, around 6% of the overall financial market valued at USD 500 billion. Over the next five years, the FinTech market will grow annually at 22% and become more mainstream than today.
Lending FinTechs comprise 16% of the 6,300 odd FinTechs countrywide. Many try to cater to the sizeable unmet credit demand of almost USD 200 billion within India’s micro, small, and medium enterprise (MSME) sector. FinTechs in this highly contested space differentiate themselves based on the efficacy of their digital credit offering to the underserved.
According to the Reserve Bank of India, digital loans increased twelvefold to INR 1,41,821 crore (USD 18.3 billion) from FY 2017 to FY 2020. The share of non-banking financial companies (NBFCs) in the digital lending ecosystem increased from 6.3% in FY 2017 to 30.3% in FY 2020. The increase can, in part, be attributed to many new-age FinTechs tapping into the loan books of NBFCs to funnel credit to last-mile customers. Despite this tremendous growth, digital lending comprises of just around 1% of the total lending in India, with private commercial banks still dominating the space.
Credit is not distributed equitably in India, especially among underserved and unserved populations. At the end of 2021, more than 50% of Indians remained credit unserved. This customer segment lacks formal credit history, making it difficult for traditional financial institutions to analyze their credit behavior. This segment is known as “credit invisible.”
CreditHaat has identified the following three significant gaps in the distribution funnel of credit product workflows:
Figure 1: Gaps in the credit distribution funnel
The light bulb moment
Tanuj Sinha, the founder of CreditHaat, is an entrepreneur who investigates market gaps and creates innovative and scalable solutions to address them. His previous startup, Finlok, influenced him to develop the idea of CreditHaat. Finlok was a digital platform that provided financial services to the traditionally underbanked customer segment. It was based on a chit fund—a saving and borrowing financial instrument in which a group of subscribers contributes a fixed monthly amount for a set period, and members receive returns and take loans based on their contributions. As Finlok grew, Tanuj identified a large customer base keen on availing credit products.
Due to the limited visibility of digital lenders, clunky user interfaces of mobile applications, and complex documentation processes, these customers could not access the right credit providers and navigate the loan application process. Tanuj identified the broken distribution chain for credit products as a significant gap that needed urgent attention. He created a digital credit marketplace solution to bridge this gap, which matches potential borrowers from the credit-invisible segment with relevant credit providers.
Further, the exciting opportunity and potential to make a large-scale impact attracted Awdhesh and Archana to join the core team. Before joining CreditHaat, Awdhesh worked with PaisaBazaar, where he was part of the growth team, and Archana has worked with Bajaj Finance and Digit Insurance previously.
Figure 2: The CreditHaat team
What does CreditHaat do differently?
The CreditHaat platform has created a comprehensive loan marketplace with a simplified lending funnel to bridge the gaps outlined in Figure 1. The platform has registered 800,000 users and has disbursed more than 37,000 loans worth INR 250 million (USD 3.3 million). The focus is on handholding customers through the lending funnel while ensuring that they match with the right lender at the best possible interest rate to prevent drop-outs. The customer can find a suitable lender and complete the journey with operational support from the back-office team, as outlined in Figure 3 below.
Figure 3: The CreditHaat lending model
The loan ticket size ranges from INR 2,000 to INR 1 million (USD 26 to USD 13,000), with tenures ranging from 62 days to five years. CreditHaat uses several channels to source customers to cater to different segments and preferences. They include fully digital acquisition and assisted acquisition through local partnerships (like business correspondents) and on-the-ground field staff for digitally inactive customers. The platform also captures additional customer data, such as demographic and income patterns, to create user profiles and personas. CreditHaat uses this data to gather insights and predict customers’ financial behavior and potential credit needs. This information helps lending partners when designing credit products for the credit-needy segment.
Impact on the low- and moderate-income (LMI) segments
CreditHaat primarily caters to customers from the LMI segment. It acknowledges the unique challenges these customers from less developed geographies grapple with. Nearly 70% of its current customer base has a total monthly household income of less than INR 25,000 (USD 325) and resides in non-metro cities. The focus is to get the right product-market fit so that customers can reach the right lender that offers them a suitable credit product.
The team believes in simplifying access to credit. It also provides an assisted model involving field agents called “Sahayaks,” who handhold customers throughout the onboarding process till disbursement.
CreditHaat wants to expand its partnerships-based acquisition model by onboarding aggregators in the financial inclusion space. It intends to use the aggregators’ agent network and reach out to the target LMI customers. MSC and CIIE.CO supported the startup by developing a strategy to partner with aggregators, such as BC Network Managers (BCNMs), cooperatives, microfinance institutions (MFIs), and farmer producer organizations in its target geographies of tier 2 and tier 3 cities.
MSC developed a detailed approach for CreditHaat to target suitable aggregator partners. The CreditHaat team can use it to prioritize and onboard strategically relevant aggregator partners to enhance its visibility and outreach further among the target customer segments.
The future
CreditHaat has successfully navigated the challenges of building a startup over the past two years by managing available resources efficiently. With multiple partnerships already in the pipeline and the team’s indomitable spirit, its goal is to reach 5 million customers by July, 2023.
As a part of its long-term goal, the startup plans to diversify its product suite by offering investment, savings, and insurance products via its digital platform. CreditHaat aspires to add more aggregator partners to mobilize their existing field force and serve much-needed small-ticket credit products to LMI customers.
This blog post is part of a series covering promising FinTechs that make a difference in underserved communities. These startups receive support from the Financial Inclusion Lab accelerator program. The FI Lab is a part of CIIE.CO’s Bharat Inclusion Initiative is co-powered by MSC. #TechForAll, #BuildingForBharat.
MicroSave Consulting (MSC) is a boutique consulting firm that has, for 25 years, pushed the world towards meaningful financial, social, and economic inclusion. These podcast series are hosted by MSC for dedicated founders, start-ups, investors, and other stakeholders in the startup ecosystem. Through this bouquet of curated conversations around developments in the financial inclusion space, we offer insights and lessons based on our research and expertise.
Account Aggregator framework – Changing the financial ecosystem in India
byMicroSave Consulting
NITI Aayog introduced the Account Aggregator (AA) framework to ensure secure and seamless data portability of consumer data among service providers. It can revolutionize financial services by simplifying data sharing. This unified platform will help all players in the financial ecosystem provide better tailored demand-based products for the consumers. Listen to our podcast with Nikhil Kurhe, Co-founder and CEO of Finarkein Analytics, to learn how this framework will impact the Indian financial ecosystem.
Read Nikhil’s Inc42 article on the Account Aggregator (AA) framework transforming FinTechs here.
GreyMatter is a startup under the Financial Inclusion (FI) Lab accelerator program’s fifth cohort. The Lab is supported by some of the largest philanthropic organizations worldwide—the Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network. MSC is a partner to the FI Lab, part of CIIE.CO’s Bharat Inclusion Initiative.
As per the National Statistical Office’s (NSO) latest report, 31%[1] (93.09 million) of Indian households depend on agriculture as their primary source of income. Around 82% of these households are small or marginal, of which almost 70% of households spend more than they earn to meet their basic needs. This pushes them into a vicious cycle of debt—even for basic needs, let alone an emergency. The NSO report further warns that more than 50% of agricultural households are indebted, and the numbers continue to rise. Alarmingly, farm debt has increased by 58% in the last five years. The average outstanding loan per household stands at INR 74,121 (~USD 988) in 2018, compared to INR 47,000 (~USD 627) in 2013.
Figure 1: Average indebtedness per agricultural household in India
NSO’s report states that medium and large farmers took 69.6% of outstanding agriculture loans from institutional sources like banks, cooperative societies, and government agencies. A limited number of small and marginal farmers (SMFs) availed of such loans. The remaining SMFs borrowed money from informal sources like local moneylenders or friends and family. Respondents cited several reasons for availing of loans from informal sources—the farmer-applicants were unqualified to borrow from formal institutions, the processes were too lengthy, and interest rates against MFI-based loans were too high.
What does GreyMatter wish to solve?
Every day, SMFs in India battle multiple challenges—access to finance is just one among many issues. GreyMatter currently provides them access to finance and quality agri inputs, and is working towards helping them with other phases of the value chain.
GreyMatter’s current work focuses mainly on solving issues farmers grapple with during the initial phase of every crop season, as shown in the figure below.
Figure 2: Areas that smallholder farmers need assistance with
Upaz—from an idea on paper to its implementation as a unique product
These challenges compelled IIM Indore alumnus and Chartered Financial Analyst Neetesh to take matters into his own hands. He had been in the industry for more than 11 years and was associated with the OneAcre Fund before starting GreyMatter.
The industry largely believes smallholder farmers struggle the most with inadequate access to affordable formal finance, which hinders their growth. However, this statement is only partially true. Even if farmers get their hands on formal credit, they often fall prey to local agri-input traders who trick them into buying low-grade agri-inputs for a higher profit margin. If the farmers protest, the traders refuse to supply agri-inputs. Here, the farmers have almost no bargaining power and accept whichever agri-inputs the trader sells them.
Moreover, farmers lack suitable guidance and struggle to grow healthy crops. Unhealthy crops lead to a lower-than-estimated yield, further lowering their income from selling the produce. Since the farmers earn less, they find it difficult to pay their loan installments in full, which pulls them into a—largely informal—debt trap. This is a textbook example of the “domino effect,” as represented in figure 3.
Figure 3: The “domino effect” in smallholder farming, which leads to accumulated debt
This segment specifically needs effective interventions throughout the entire value chain. As shown in figure 2, these farmers need help with access to formal finance and access to quality agri-inputs alike, up until they sell their produce. A bid to solve this problem spurred Neetesh to create Upaz. The product is based on the buy-now-pay-later (BNPL) model, enabling smallholder farmers to access quality agriculture inputs at the best possible prices through affordable financing.
It was important for GreyMatter to ensure that the farmers use the funds only to generate income through farming and do not divert them for personal consumption. The NSO report notes another disturbing feature that only 57.5% of the total loans that respondents availed during the survey were explicitly used for agricultural purposes. This moved GreyMatter to provide in-kind credit to farmers in the form of agri-inputs instead of cash. The total loan amount is divided into six-month EMIs, which the farmers repay during the same crop season. The startup’s offering makes it convenient and affordable for farmers to purchase good-quality agri-inputs using a formal loan process that creates a credit score for them in the background.
GreyMatter employs an engine that recommends the right amount of agri-inputs for its users based on their land size and the crop type. Under the Upaz model, farmers can choose from an array of land size-based packages that apply to them, curated specially for a particular land size, which considers the region, soil types, and other factors that would determine different types or quantities of agri-inputs. Moreover, these packages are customized to fit both the crop seasons—Kharif and Rabi.
Figure 4: Example of different packages offered to smallholder farmers under Upaz
First, the farmers select a suitable package. Then a field officer places a collective order for agri-inputs on behalf of all the farmers in a particular panchayat or village. Within a few days, the company delivers the order at a pre-decided location in the village, which all the farmers can access. GreyMatter’s field officers then distribute the agri inputs equitably among farmers based on their orders.
Currently, GreyMatter procures its agri-inputs from national and state-level distributors. As it adds a substantially higher number of farmers to its network, it plans to procure products directly from manufacturers, as it could then place higher volumes of orders. This will lead to a further reduction in the unit prices of different agri-inputs.
What sets GreyMatter apart from other agri-commerce players out there?
Figure 5: Factors that differentiate GreyMatter from other service providers in the agricultural sector
Upaz can cater to different types of farmers who may have varying needs
Figure 6: Three use-cases where GreyMatter can add value to farmers
Support from the FI Lab
The Lab has offered a holistic support package to GreyMatter, ranging from mentor hours and grant capital to field studies led by financial inclusion experts in consumer and market insights. The support helped GreyMatter understand its users and their scope of usage better to build a more resilient, robust, and impactful solution.
The impact made till now and its vision for the future
GreyMatter has been operational since October, 2021. Currently, the service is live in the states of Bihar and Uttar Pradesh, with a direct impact on the livelihoods of more than 2,500 active users in its service network. However, the impact can be categorized further into the following:
Figure 7: Classification of the impact made by GreyMatter
Currently, GreyMatter is on track to expand to more than 240 villages in India, engaging a total user base of 10,000-plus smallholder farmers. While the startup is currently powered by only one financing partner, it will onboard a few more banks and non-banking financial companies (NBFCs) as financial partners. By 2024, GreyMatter intends to extend its services to 700,000-plus farmers like Bhagwan Singh, Avdoot Kumar, and Hemlata in India.
This blog post is part of a series that covers promising FinTechs making a difference for underserved communities. These startups receive support from the Financial Inclusion Lab accelerator program. The Lab is a part of CIIE.CO’s Bharat Inclusion Initiative and is co-powered by MSC. #TechForAll #BuildingForBharat
[1] Population of India, as of 2020 – 1.38 billion; Average size of a rural Indian household, as of 2012 – 4.6 persons
The vulnerable blue-collar worker segment in the country desperately needs advocates
The blue-collar industry in India has seen rising demand, especially with the advent of the digital economy and the subsequent increase in demand for at-home services. Companies in the delivery space have shown little respect to their delivery partners by introducing gigs like 10-minute delivery services, which puts their lives at risk as they are pushed to race through traffic to complete assignments on time. Could there be a better time when we need advocates for this vulnerable employee segment of our country?
Fresh graduates in India lack employability skills in the tertiary sector, while agricultural employment continues to plummet. As a result, many continue to join India’s sizeable blue- and grey-collar workforce.
India currently has more than 250 million blue-collar workers like Anjali who earn less than INR 15,000 (USD 194) per month and likely lack fair working conditions or secure employment. Furthermore, most employers do not give them even essential benefits, such as medical insurance and pension, which are crucial to their health and security. Studies suggest that providing these benefits also improves performance and cuts down attrition rates.
Anjali’s cousin Megha, who works as a receptionist at a hotel chain in Delhi, gets value-added benefits like medical insurance. When Megha was hospitalized in a road accident, the insurance company paid all the expenses. Megha’s savings were not affected, nor did she have to take a loan to pay her hospital bills. Now, Anjali also wants to work for an employer that offers such essential benefits.
The FinTech Entitled recognized such needs of people like Anjali early on. Our previous blog charts how the founders work to make a difference in the lives of the fast emerging blue-collar and gig worker segment. With innovative product bundles, Entitled has reached out to about 300,000 users and served their wellness needs through its bouquet of products and services to improve customers’ financial health.
A complex problem needs a strong vision
Empathy, passion, and business acumen drove founders Anshul, Krishna, and Arpan to set up Entitled to address the challenges in the daily lives of blue-collared workers. The startup now provides financial wellness solutions for the segment—a critical but often missing piece in the puzzle of employees’ personal and financial health. It handholds its employee beneficiaries by providing financial consultation alongside other benefits from its product suite. Entitled happily responds to more than 20,000 inquiries for different financial service availability each month.
Further, the startup fulfills the recurring loan needs of 30% of its users who need more than one loan a year. The founders believe that credit alone will not build the financial resilience of low-and-middle-income (LMI) households. Savings and insurance are also essential to help these households absorb financial shocks. As Anshul remarks, “We look beyond credit as it alone cannot pull these households out of the poverty trap. It is time the blue-collar segment also receives white-collar benefits to enable their financial well-being.”
It is not about credit; it is about financial health
Entitled expands the horizons of employee engagement by stitching together diversified products and services, including government benefits, into a wellness suite. 25% of the Entitled users avail of insurance and health schemes, while the startup helped 10% of users enroll for relevant government schemes. This is a stepping stone in the startup journey to empower financial wellness for users by building on risk mitigation products. Further, Entitled has built a comprehensive product that combines access to health financing, teleconsultations, and discount on outpatient expenses across the primary healthcare network. The Entitled user base has hugely subscribed to the bundled financing product. While more than 80% of customers usually avail of health loans, 95% sought home loans during COVID-19 as a coping mechanism. Entitled now wants to evolve into a platform where workers can avail all these services. It is designing alternate channels where users can effectively learn about the services.
Entitled offers a wide bouquet of services for the blue-collar worker segment. After a consultation call, it provides the services at nominal charges to interested beneficiaries. Entitled’s employer partners often offer a few selected services to their employees at a subsidized cost as a part of their contract. After an employee is onboarded onto the Entitled platform, they can navigate through Entitled’s services and avail literacy and counselling sessions they may need.
Entitled also plans to launch a rewards and recognition program for workers, customized to the requirements of its partners.
A safe space for the blue-collar worker segment to achieve financial wellness
Entitled sees itself as a one-stop solution for its user’s problems. Its mantra is, “where there is a problem to be solved for blue-collar workers, we ideate.” The startup wants to deliver innovative solutions in an accessible manner. Entitled relies on user data to strengthen its understanding of the demand gaps for blue-collar workers and intends to reach five million beneficiaries by 2025.
Since its inception, Entitled has directly provided benefits like medical consultancy, insurance, and credit to about 100,000 active users through employer partners. Around 40% of Entitled’s customers currently use financial services for the first time. This narrates the responsibility of startups like Entitled in giving their customers an informed first-time user experience. The startup intends to enhance its channel delivery to onboard another 5 million beneficiaries through the existing B2B2C model and further innovate the B2C customer acquisition model. The founders are building effective communication and service delivery channels to this effect.
Channel enhancement for improved user experience
Entitled acknowledges it is essential to reach workers through their employers and an interface they can trust. At present, Entitled communicates with its beneficiaries using a WhatsApp chatbot. MSC is helping the startup explore and evaluate different interfaces for service distribution channels to make the experience convenient for users. Entitled understands its customers well and has been working on assembling the pieces of the wellness puzzle.
Employers also increasingly recognize the need to make their employees financially healthy since it directly impacts their business. Now, Entitled’s founders seek to reshape the startup into a holistic benefits platform that can ease the complex and multifaceted struggles of India’s numerous blue- and gray-collar employees.
The authors reach this conclusion based on discussions with CEOs of leading MFIs across the globe under the remarkable Sentinel Project. But we at MSC believe it is important to amplify some of the points made in the blog, and repeat the plea for microfinance institutions (and those supporting them) to invest in digitalization and accelerate the pace at which they are digitizing their operations.
It is clear that digital transformation is a journey, not a destination – so incremental progress is to be expected. Equity Bank, one of the leading microfinance providers in Kenya, developed a well-articulated approach and took over a decade to digitalize its operations. It started with the equivalent of a digital readiness assessment (see figure 1 for MSC’s approach to this), on which it based its digital transformation strategy in 2010. MSC worked alongside Equity Bank, providing consulting services, for much of its digital transformation journey.
Equity Bank’s strategy comprised a wide range of strategic and operational variables. With M-PESA playing an increasing role in the market, many of these were context-specific, but digital transformation typically encompasses six key focus areas (see figure 2).
While the digital transformation of Equity Bank was time-consuming and resource-intensive, the results have been spectacular (See graph 1). The vast majority of transactions are conducted outside the bank’s branches, which has allowed it to redeploy tellers and branch staff members to play the role of advisors and wealth managers. Ninety percent of transactions are self-initiated by customers on mobile or e-banking channels. The resultant cost savings, and thus profitability, have been enormous – far eclipsing the very significant investments made in the digital transformation of the bank.
Equity Bank: Growth in customers, profits, and digital transactions
Graph 1
See this short video for more details on Equity Bank’s digital transformation and its remarkable impact.
So while MFIs and the investors behind these often very profitable organizations might claim that they do not have the resources to invest in digitalization, this seems to be a very short-term perspective. This might reflect short-term key performance indicators, but often in our experience, it also reflects a lack of vision and/or a fear of change.
But the pace of change is also slowed by the reality that few countries in Africa, or indeed in Asia, have the level of digital capability that we see in Kenya. Ogden et al.’s concern that many customers are unwilling to “take the leap” into a digital world is well-grounded. Mathematica has developed an elegantly simple approach to segmentation:
Table 1: Segmentation approach by Mathematica
Applying this to four countries in East Africa, based on the Findex 2017 data, we can see that the levels of inclusion and usage are alarming – particularly amongst women (see figure 3). Segments 1 and 2 deserve special attention as they are likely to lack the digital capability to engage with digital financial (or indeed any other) services.
“Surely the Findex 2017 data is old and presents an outdated and thus paints a pessimistic picture?” we hear you say. You may be right. Findex 2021 will tell. But, our discussions with industry experts in Uganda and Tanzania suggest that taxation on mobile money transactions and the debilitating impact of COVID-19 on household income, are leaving increasing numbers of women stranded in segments 1 and 2 … on the wrong side of the digital divide.
Addressing the digital divide will require a greater emphasis onassisted transactions (typically agent-assisted), not self-initiated transactions. By way of example, in Kenya, even after a decade of M-PESA, about half of users (66% of women and 34% of men) still sought agent assistance with transactions. Agents are uniquely well-positioned to deliver money management tools and services tailored to the oral and poor segments – thus enabling MFIs to deepen their service to these groups. This can be done through smartphones or (better still) tablets at agent outlets running apps that provide intuitive user interfaces and reflect the mental models people use to manage their money.
Digital transformation provides unique and compelling opportunities to build and deliver tailored products for the different market segments served by MFIs (see figure 4). Many of these will require strategic relationships with other financial service providers endowed with the relevant licenses, but doing so will allow MFIs to offer a comprehensive suite of products to enable their clients to manage their household and business finances much better.
The business imperative to undertake the digital transformation journey is compelling. McKinsey estimates that the digital transformation of financial institutions could add 45% to their annual net revenues: 15% from enhanced product uptake and 30% from reduced operational costs. And MFIs have an excellent opportunity to build on the relationships that they have with their current clients to offer an assisted, “phygital” hybrid experience combining physical and digital to meet their needs.
Failure to do so comes with many attendant risks. As Wright noted in The digital transformation: Four opportunities and three threats for traditional financial institutions: “There is a clear and present threat of a yawning digital divide—and with it the demise of many MFIs unwilling, or unable, to transform to operate in the digital world. FinTechs are building their customer base in urban and peri-urban areas with connectivity, smartphones, and the ability to buy data packages. They are serving the high-value customers. Thus, MFIs will be left trying to serve rural communities with poor connectivity, no smartphones, and not enough money for data packages – the low-value customers.”
This means that MFIs would no longer be able to cross-subsidize services to their rural, lower-value customers with the profits from urban, higher-value customers. And most fintechs would not be able to reach rural customers without access to 3G data services and smartphones—even if they were interested in doing so.
If MFIs fail to digitalize, it could mean the end of financial services for the rural poor, because the business case is so challenging, particularly compared to the diverse, low-cost opportunities to serve the higher-value, connected urban market. In short, this could end years of progress towards financial and social inclusion.
The Financial Access first published this article on 2nd June, 2022.
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These challenges compelled IIM Indore alumnus and Chartered Financial Analyst 
Fresh graduates in India lack employability skills in the tertiary sector, while agricultural employment continues to plummet. As a result, many continue to join India’s sizeable blue- and grey-collar workforce.
Entitled acknowledges it is essential to reach workers through their employers and an interface they can trust. At present, Entitled communicates with its beneficiaries using a WhatsApp chatbot. 
