Blog

Kosh: A community-based credit platform that offers financial security to blue-collar workers

Posted on by MSC

This blog talks about Kosh, a start-up that is part of the Financial Inclusion Lab. The Lab is an accelerator program supported by some of the largest philanthropic organizations across the world, such as the Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network.

Suresh, aged 40, works at a manufacturing firm in Haryana. He needed some money urgently to pay his daughter’s school fees. However, he did not want to fall prey to the usurious rates local money lenders charge. Suresh was also not comfortable asking his family members for money. He came to know about Kosh from a colleague and decided to approach the platform for a loan. Suresh was delighted with the quick processing and disbursement of the loan. Today, he is an active borrower at Kosh. With a good repayment history and the leads he has generated for Kosh, Suresh has now graduated to the role of a group leader.

India is home to more than 120 million blue-collar workers like Suresh. Most of these workers struggle with a lack of financial awareness and have limited access to affordable financial solutions. Financial institutions are reluctant to serve these customers due to the high cost of acquisition (CAC) and a high operational cost. This gap between financial institutions and customers, albeit in a group setting, offers an opportunity for start-ups like Kosh.

The light-bulb moment

Founded in 2018, Kosh is a digital lending platform that provides community-based credit through its mobile application, primarily to blue-collar workers who reside in tier-2 and tier-3 cities.

Co-founders Aayush and Sahil know each other since high school and used to work together at a global investment banking firm before founding Kosh. During their time together, they spoke to multiple gig-economy workers, such as drivers, food delivery personnel, and factory workers. These interactions helped them realize the struggle blue-collar workers face to access affordable credit. These workers also find it difficult to manage their finances efficiently. The occasional chat soon turned into full-fledged interactions with blue-collar workers to gather a detailed understanding of the challenges they face to access formal financial services.

Sahil and Aayush discovered their mutual passion for solving issues related to financial access and usage for the low- and middle-income (LMI) segment. Soon after, moved by the plight of many like Suresh, Sahil and Aayush decided to set up Kosh. Their idea was to offer the LMI segment a platform to gain awareness of financial programs and to access formal financial services at affordable rates.

What makes Kosh unique?

Kosh is one of the few players in the digital lending space that gives importance to social capital in communities to which their customers belong. Despite having a fully digital model, Kosh is passionate about understanding the community. Kosh capitalizes on the belief that such customer segments use their close social circles for liquidity farming to help each other financially, and exchange credible financial information and advice.

Kosh uses this social capital to verify the background of potential customers before it processes and disburses loans. Trusted colleagues or influencers in the community act as guarantors on the platform and Kosh onboards them as group leaders. These leaders are tasked to create a group of two or three members to avail credit from the platform. All members, including the group leader, need to repay each loan installment on time.

Kosh also offers financial incentives to group leaders to onboard others in their network. This places the onus on the group leaders to introduce more users to the platform. This joint liability model based on social capital helps Kosh provide credit, especially to vulnerable segments. Access to credit also opens opportunities for these customer segments to access a bouquet of other formal financial services, which enables Kosh to make a meaningful impact in their overall financial lives.

The joint liability model also offers several other advantages to Kosh, a few of which are as follows:

  • Lower cost of acquisition: The onus to form a group is on the group leader, which reduces the customer acquisition cost for Kosh.
  • Fewer defaults: The group creates social pressure on the members to maintain discipline and repay the installments on time.
  • Opportunity to offer a suite of financial products: Kosh can use the data collected during the lending process to further design financial services customized to these segments.

Kosh follows a simple digital onboarding process to acquire customers. Moreover, the app provides a group chat facility for its customers to discuss their queries and concerns with each other and the Kosh team. Kosh also offers complete parallel support through WhatsApp and over calls to help customers complete their registration process and get their other queries addressed. The frequent interaction, both among the members and the team, helps build mutual trust.

Roadblocks in its journey

Despite a good start to its journey, Kosh faced a few roadblocks. The first major barrier came after the decision of the Reserve Bank of India to offer a moratorium to borrowers from March, 2020 as a relief measure during COVID-19. Many customers believed that their loans were waived. This behavior affected the collection rates of Kosh. However, the start-up adopted a proactive approach and actively engaged and informed these customers about the importance of timely repayment, which helped them pull through.

The second major roadblock is around the adoption of products and scale-up. Currently, Kosh depends on its contacts or existing networks to onboard group leaders. So far, the startup has only worked with blue-collar segments and most of its business development is through existing networks. This limits growth and creates barriers to scale-up. Kosh continues to actively explore new avenues to boost its business, even as it keeps existing customer segments engaged.

Support from the FI lab

As part of the Lab’s accelerator program, MSC supported Kosh with a set of technical assistance (TA) activities, as described below:

  • MSC derived additional insights from the feedback of existing and potential customers of Kosh. This helped the start-up understand the perception of customers about availing group loans through a digital platform. Equipped with better knowledge of its current and target segment, Kosh designed a more customer-friendly application process based on the UI/UX insights.
  • In a quest to scale up, Kosh wished to explore partnerships with financial service providers, such as NGOs, MFIs, and other non-lending FinTechs. These organizations would be best suited for collaboration as their efforts also focus on serving LMI segments through relevant products and services. Such collaborative efforts would help Kosh grow its business further. Based on its offerings and requirements of potential partners, MSC helped Kosh identify a few such partners.

As a part of its short-term vision, Kosh plans to scale up and boost customer acquisition aggressively. Kosh is aware of the need to optimize its loan repayment management system to scale up. It also needs to strengthen the group incentive structure to minimize defaults. As a part of the FI Lab, MSC continues to work closely with Kosh to strengthen its business model and devise appropriate strategies to improve business operations.

Plans for the future

Along with higher customer acquisition, Kosh aspires to transform into a financial services platform that offers a host of community-based services, such as credit, savings, employment opportunities, and others to blue-collar workers in tier-2 and tier-3 cities. Kosh intends to use technology extensively to create a network of employees across different industries and regularly engage them on the platform to collect data. This data will help Kosh design and offer customized services to its customers in the future.

Further, Kosh plans to develop its next-generation group savings product by understanding the savings behavior of self-help groups (SHGs) and members of cooperatives. This will help Kosh digitize community savings on its platform, like a digital rotating savings and credit association (ROSCA). To achieve this goal, Kosh plans to partner with a few MFIs, SHGs, and other FinTech players to further strengthen its business and expand its reach.

Despite a brief setback due to the pandemic, Kosh managed to get back on track toward its goal of alleviating the financial struggles of customers like Suresh. Kosh intends to become a leading digital-first financial services platform that offers greater control to customers over their finances, thereby creating a positive impact in their lives.

This blog post is part of a series that covers promising FinTechs that make a difference to underserved communities. These start-ups 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

Role of FinTechs in transforming the future of work

Posted on by MSC

Digital transformation continues to revolutionize the future of work, especially after the COVID-19 pandemic hastened its pace. However, financial constraints still hinder the growth of the LMI workforce. This video highlights how start-ups under the FI lab have been trying to solve these challenges through human-centric solutions for an inclusive future.

Entitled: A synonym for empowerment of blue-collar workers through customized financial services

Posted on by MSC

This blog talks about a start-up called Entitled, part of the Financial Inclusion Lab accelerator program, which 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.

In India, more than 170 million people are classified as blue-collar workers. Most are semi-educated migrants from rural areas, who often lack formal financial history. Most blue-collar jobs do not provide any form of social protection, unlike white-collar jobs in the country.

A combination of a lack of financial literacy, low income, and lack of financial data has rendered this segment extremely vulnerable. The recent migrant worker crisis in India, brought about by COVID-19 further amplified this vulnerability. Traditional financial products that are designed for the top-of-the-pyramid customers often fail to meet the needs of this segment, leading to their exclusion. 

Sana Qureshi is a 23-year-old woman who works at a healthcare platform in Mumbai. She faced the pain of such exclusion when she could not source a loan for her sick father’s medical treatment. Information asymmetry and fear of getting scammed worsened her conundrum as she searched desperately for options. This is when Sana came to know about Entitled—something that she recalls, “gave her hope”.

The fintech was founded by Anshul Khurana, Krishna Yadav, and Arpan Jain in 2019. It uses technology to provide access to a range of financial products, such as health insurance, emergency credit, and savings solutions for blue-collar workers, such as Sana. 

It takes three to tango

Two of the founders, Anshul and Krishna, met at an organization that works with a large number of blue-collar employees. Here, they saw that blue-collar workers struggled with exclusion from formal financial services. These workers frequently needed loans and salary advances. They lacked knowledge about Employee State Insurance (ESIC), provident fund (PF), and other statutory deductions as well as workplace benefits. Moreover, the workers spent close to a tenth of their income each month on unnecessary expenses like bank withdrawal charges and late payment fees.

This spurred the idea of a platform to engage employees through financial products.

Solving problems for employees: What Entitled does

The two co-founders had another profound learning. They realized that they should focus on two interconnected aspects to solve these problems for the workers. The first is to educate them about financial management. The second is to counsel them to bring about effective lifestyle changes through a mindful selection of financial solutions suited to their context and needs. So, they started looking for a “partner-in-crime” who could help them add this dimension of education and counseling for their targeted customer segment.

Fortunately, they soon crossed paths with Arpan who shared the vision to support blue-collar workers. The trio was completed and their brainchild was formally given a name, Entitled. Combining their expertise, they began to engage employers in Mumbai to gather employee details. Gradually, Entitled began to offer financial wellbeing products to empower workers while bringing cohesion and clarity in their financial lives.

Entitled: A full-service financial wellness platform for blue-collar employees

Entitled helps blue-collar workers to access a range of financial services and rewards through its financial wellness platform. 

How does Entitled do this? It links up with employers to offer services on the platform as employment benefits to these workers. The product suite includes: 

  • Financial counseling;
  • Access to emergency funds;
  • Insurance;
  • Long-term saving instruments; and
  • Rewards programs for employees based on their use of financial products.

The platform uses the employment information of the workers to build profiles and map the appropriate services to the employees.

Figure 1: User engagement of Entitlement

Sana Qureshi, 23, who is employed at a healthcare platform in Mumbai was introduced to the Entitled team by her employer and became an early adopter of the platform. Entitled not only provided her access to credit but also handheld her through the onboarding process and helped her to learn and leverage other features of the platform.

How does Entitled ensure the efficacy of its platform?

While providing financial wellness products, Entitled also captures the impact they have on their users. Entitled maps impact against specific metrics and tracks them continually. For instance, these metrics:

  • Gauge the convenience and simplicity of formal products for workers who access them for the first time;
  • Map product usage patterns against employee awareness and knowledge to design similar products for other segments; and
  • Benchmark each of the platform’s products and services against the market rates at which these can be accessed through formal banking institutions be it lending or savings products, as applicable.

Such impact assessment helps Entitled in multiple ways. 

  • Enable increased awareness or understanding of formal financial products
  • Create and deepen financial history for its users
  • Catalyze their users’ access to financial institutions in the future.

Impact assessment helps Entitled ensure the financial wellbeing of users like Sana Qureshi, who we met earlier in our blog even during the pandemic. The Entitled team provided her guidance and timely nudges to meet every repayment in full and on schedule. This improved her credit score, which will enable her to avail cheaper and easier loans in the future. Sana is one among many others whom Entitled have helped in their nascent journey—a fact that is not lost on happy employers.

Trials along the way

While some employers are yet to recognize the importance of offering financial health initiatives and providing workplace benefits to their workers. Others simply fail to prioritize the financial health of employees. This leads to delayed interventions and denies employees critical financial aid and advice. 

The first significant challenge for Entitled is user capability. The employee’s lack of awareness about technology and financial products requires significant handholding. Owing to the COVID-19 pandemic, user engagement has deteriorated. 

Secondly, regulations, such as the moratorium announced by RBI in March 2020, have diminished investor willingness to lend—which in turn has impeded customer traction for Entitled. Nevertheless, the resolve of the founding team is strong and the team has invented ways to overcome the hurdles. The team has quickly adapted and shipped new product designs to ease the onboarding flow in a self-service delivery model.

Support from the FI Lab:

Entitled has been part of the Financial Inclusion Lab accelerator program, which receives support from some of the largest philanthropic organizations in the world—Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network.

The Lab has offered a cohesive and holistic support package to Entitled, ranging from mentor hours and grant capital to field studies led by financial inclusion experts in the areas of consumer and market insights. This has helped Entitled to gain a deeper understanding of its customers and build resilient, impactful solutions for them.

Vision for the future

While the pandemic has had an impact on Entitled, the company was able to refine its strategy to move forward and engage with more users on the platform. Based

on its knowledge of users’ behavior and familiarity with WhatsApp, Entitled has designed a customized WhatsApp bot for digital on-boarding. Such an approach tackles the first set of challenges that new users face while onboarding in the absence of over-the-counter interactions.

Figure 3: Entitled’s WhatsApp onboarding flow

Entitled has taken an efficient path to move forward by remaining lean and agile with minimal operational staff and by prioritizing product development for features based on customers’ needs. It continues to move toward improved digital features on the platform through a mobile application. The mobile app will make interactions easier, more efficient, and explanatory for users while adding a positive dimension to the financial lives of their customers once on-boarded.

This blog post is part of a series that covers promising FinTechs that are making a difference to underserved communities. These start-ups 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

The many aspects of financial inclusion

Posted on by MSC

Latest Episodes

Delivering social assistance during COVID with a “digital-first” approach: Lessons from India

Posted on by MSC

As the COVID-19 pandemic started to exact a toll on lives and livelihoods in early 2020, countries imposed strict lockdowns to stem the spread of infections, disrupting economies and societies across the world. With pandemic-induced constraints on in-person interactions, many countries adopted a “digital first” approach to delivering social assistance, primarily cash transfers. How did these digital systems perform? What worked and what did not? And, as the world still grapples with COVID disruptions, including periodic lockdowns, how can governments better design and implement social assistance in an increasingly digital environment?

In a new CGD policy paper, we look at India’s experience to begin answering these questions. Together with a strict lockdown and information campaign, India’s early response to the COVID-19 pandemic included the launch of the Pradhan Mantri Garib Kalyan Yojana (PMGKY), a major social protection package covering both in-kind food distribution and cash transfers to women, the elderly, and farmers. We draw lessons from a nationally representative household survey conducted in India during April and May 2020, shortly after the launch of the program, and find that while PMGKY was by many measures successful in delivering benefits, there remains room for improvement.

How India implemented PMGKY

Unlike countries such as Colombia, Brazil, and Pakistan, India did not immediately launch a major new program targeted towards the “new poor”—the mostly informal-sector workers and urban wage laborers who lost their livelihoods and left cities for rural areas in the aftermath of the lockdowns. Instead, PMGKY built on five of India’s many existing social programs and one new program targeted at women to deliver additional benefits. For nearly a decade prior to the pandemic, India had invested in building digital platforms to transfer social benefits directly to beneficiary bank accounts, as well as to help manage the public distribution system for food rations. By early 2020, the vast majority of households were included in the “JAM”—the combination of digital ID (Aadhaar), Jan Dhan bank accounts, and mobile phones—making it possible for the government to implement a “digital first” social assistance strategy.

What did we find?

First, a caveat. The early stages of the lockdown were extraordinary times, with severe disruptions to the “real” economy—local and country-wide transport, commerce, and the functioning of supply chains. School closures suspended India’s school feeding program—the largest in the world—affecting nearly 144 million children and imposing an additional burden on poor households, especially women. These disruptions made transactions of any sort difficult, including those conducted digitally within aid programs, as physical goods must eventually be delivered to those in need. There is, therefore, a limit on what can be expected from even well-functioning digital systems, starting from the point at which they interface with real activity.

Related Content

That said, in general, the survey results point to a relatively successful rollout of social assistance at scale: India’s relief measures reached nearly a billion people in a short time, with many households benefiting from multiple programs. Digital systems were instrumental in sustaining and rapidly scaling up financial assistance, no doubt helped by the decision to route benefits through existing programs rather than create new ones. However, many registered beneficiaries faced challenges in realizing the assistance, partly because they were not fully aware that it had been provided to them, and also because of perceived and real difficulties at points-of-service.

The in-kind public distribution system also played a vital cushioning role, possibly with the highest percentage of recipients receiving and realizing their benefits.

Based on survey responses, many people reported not receiving their full benefit in addition to the extra PMGKY food allowance, but it is not clear whether everyone who received the additional ration actually understood that it had been distributed to them because it was free.

Our analysis suggests that the delivery systems were not biased against any particular set of beneficiaries.

The patterns of responses do show statistically significant differences in the experience of different groups (urban/rural, male/female, etc.) but these are not large enough to undermine the general picture. Gender effects were limited, place of residence had only a modest effect on survey response with no consistent pattern, and there is no evidence that poor households had less success in accessing benefits.

Smartphones provided key benefits for communications, including awareness of social assistance as well as information on COVID-19.

Smartphone owners were more likely to be aware of at least one coronavirus symptom and more likely to report receiving information about the virus through six of the seven media channels polled, especially social media and YouTube. Smartphone owners were also more likely to receive information on the PMGKY package, with less need to check bank balances manually on passbooks or through local officials.

Among our respondents, 74 percent reported that at least one person within their household possessed a smartphone, indicating deep penetration both in rural and urban India.

Moreover, the survey provides no indication that smartphone ownership is dependent upon income; although men and urban dwellers were statistically more likely to report owning one. In short, a smartphone is no longer a luxury in India.

Despite unprecedented pressure to deliver benefits, the payments systems themselves appear to have worked reasonably well.

However, it was not always easy for people to get the benefits. The first impediment to realizing the financial transfers was that beneficiaries were not consistently aware that these had been paid into their accounts. In many cases, beneficiaries needed to verify bank balances manually, a process that was often complicated by lockdown conditions. The second related to the logistics of safely accessing cash-out facilities while complying with COVID prevention measures, a common problem across many countries that delivered social assistance digitally.

India offers lessons on the interaction of “real” and “digital” relief programs during an unprecedented emergency. Digital mechanisms have played a vital role. But even in a country that has made huge investments in digital ID and payments infrastructure, our research highlights the importance of local institutions and human resources to reach large numbers of people.

The Center for Global Development first published this blog on 22nd July, 2021.

AgriTechs: Shaping the future of agriculture in India

Posted on by MSC

Agriculture is the life of the Indian economy. However, several structural challenges, such as intermediaries throughout the value chain and limited access to technology, credit, and markets, hinder this sector from reaching its full potential. This video highlights how AgriTech start-ups under the FI lab have been shaping the agriculture sector through technology and innovation.