GreyMatter: Delivering impact to farmers at the last mile

Posted on by MSC

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

They deliver, they survive, and finally, they BELONG – Blue-collar workers in India are now “Entitled” to what they deserve for their services

Posted on by MSC

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 Revolution MUST be Digitalized

Posted on by M1croSave!2025

In “After the Fall (Part 2): The Revolution Might Not be Digitized,”  Daniel Rozas, Sam Mendelson & Timothy Ogden eloquently argue that Covid-induced digitalization among MFIs is happening much more slowly than expected. “There remains a gap in the capabilities and resources of MFIs, along with a large segment of customers who are not yet ready to make the leap… Many futures are still possible.”

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 on assisted 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.

However, to achieve this, MFIs will need to develop products that respond to the needs, aspirations, perceptions, and behavior of their target market and then market them through agents and other opinion influencers and social marketing channels. The poor have more resources and more propensity to save than expected. For example, after about five years, the 450 million PMJDY accounts opened for the unbanked masses of (primarily) rural India. Despite around 50% dormancy, these accounts now have an average balance of INR 3,623 (USD 48). And these relatively stable balances are growing over time. Furthermore, poor people also seem willing to adopt market-priced life and accident insurance policies, when these are adequately marketed. And, of course, the demand for credit can be taken as a given … the question will be how to modify existing products to tailor them to the rural poor.

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.

The “Mool” mantra – A neobank for everyone

Posted on by MSC

Opportunity knocks on every phone through the power of digital lending

Posted on by MSC

Only 10% of rural people in India have access to formal credit. The lack of financial history and limited digital literacy makes it difficult for them to avail of loans from formal institutions.

Prakash is a 28-year-old self-employed milk vendor from Kurawar village in Madhya Pradesh. His customer footfall reduced during COVID-19. He could not sell milk to the nearby dairy due to restrictions on travel, and his income reduced. Many others like Prakash had to use their savings to sustain their families during the pandemic. After the situation improved, Prakash needed a working capital loan to expand his business. He asked his friends and relatives about formal institutions where he could get credit. Prakash had never availed a loan before the pandemic. Banks and NBFCs would not give him a loan since he lacked formal credit history.

He spoke about his problem to Kashi, a fellow merchant. Kashi explained how he could use the FLYK application on his smartphone to get a loan to stock his kirana store. This got Prakash interested to understand the process of application.

Many credit FinTechs in India offer solutions to the unbanked and underbanked, with easy digital application processes. Yet they face several hurdles while lending to rural borrowers. Such challenges include limited financial awareness of borrowers, language barriers, lack of income proof, and limited availability of data. FLYK is one such startup that provides credit to the underserved with a specific focus on a simple digital application process.

An idea that pivoted to fulfill the needs of the rural segment

FLYK’s founder Apratim Ganguly had struggled with the rigid norms of the lending system when he applied for a credit card. The bank did not process his application despite his income, lendable CIBIL score, proper documentation, and digital literacy. Apratim realized he was not alone, and young people like him had a need for credit. He developed the idea of lending small ticket-size loans to young people like college students who faced a shortage of money in the absence of income.

Apratim introduced FLYK for such borrowers to avail of loans without a credit history. FLYK’s algorithm analyzes a customer’ eligibility based on data collected by the platform. Apratim realized that FLYK’s scope of lending could include rural borrowers too. He ran a pilot across selected villages near Bhopal and decided to push ahead with rural borrowers after receiving a positive response.

From dreamers to creators

FLYK was Apratim’s second startup. He had met Prafful while developing his first app. Prafful was drawn to startups that worked to make a social difference. Apratim and Prafful decided to build the platform together to enable meaningful change for rural customers through loan services.

FLYK and CRN

We now return to our milk vendor from Madhya Pradesh, Prakash, who was in conversation with fellow vendor Kashi. Kashi explained the concept of the Combined Responsibility Network (CRN), through which FLYK lends. He warned Prakash to thoroughly screen the person he plans to add to his network, as an unscrupulous member would hurt his score.

A borrower can join a pre-existing group on the FLYK platform through CRN or add more members through it. FLYK’s underwriting assessment system for lending combines the study of borrower behavior and alternative data. Any bad repayment behavior affects all group members’ credit standing and the services they can access. The CRN-based approach differs from the traditional joint liability group (JLG) approach that underpins much of global microfinance.

FLYK offers incentives to borrowers to avail platform services like money transfer, credit, soft collections from defaulters, and to refer other customers. Borrowers receive monetary and non-monetary rewards like larger ticket sizes, better interest rates, and cashbacks. If a borrower helps with loan recovery from their network, they get a monetary reward on the FLYK app. Besides motivating borrowers to use the FLYK platform more, the reward system also helps rural borrowers learn the digital process flow as they encourage and support each other to use the app.

Progress for FLYK

With 8,000+ successful downloads, FLYK is taking its first steps toward success. The startup has processed about 1,508 loans until April 2022 and envisions expanding rapidly. Out of 635 users, FLYK has an 86% retention rate on its platform.

Besides the numbers, Apratim is happiest when people like Prakash call him to thank him for the services they receive and leave positive feedback. For the FLYK team, such moments spark the motivation to spread the network further.

 

Where a challenge arises, so does a solution

Addressing the various needs of the rural customers can be difficult due to their low awareness and reluctance to change. Yet FLYK sees rural customers as an opportunity to grow and improve for its platform.

Customer challenges to adopting FLYK

During the pandemic, FLYK struggled to connect with borrowers in the field, so it could not gather vital insights into its borrowers’ credit aspirations. However, this proved to be an opportunity since the team could double down on developing the app and its customer interface. As the team seeks to expand, it continues to play multiple roles to complete tasks effectively.

Support from the FI lab

Earlier, FLYK mainly focused on product development. With MSC’s help, FLYK identified the need to shift the focus toward borrowers. MSC helped FLYK understand potential partnerships to scale up FLYK’s business. Through this research, MSC gathered insights on how FLYK can quickly onboard and train such potential partners.

Future milestones

FLYK’s vision is to become an umbrella platform for various financial and non-financial services. FLYK plans to expand across different geographies, increase its outreach toward the deeper ends of the rural population, and emerge as a holistic financial well-being platform. People like Prakash, who had lost hope of receiving credit earlier, now see a ray of hope through FLYK.