BackThinking small to weave a safety net of savings
A Chennai-based startup is aiming to provide financial services to 600 million people in the informal sector
PremiumRamani Sekar, 38, is the sole breadwinner of her family of five in Tambaram, Chennai. She works as a daily wage labourer and a domestic help, earning around ₹200 a day. Her 47-year-old husband went blind a couple of years ago and has no work. Her son, 17, quit studying after school and stays at home. Her daughter, 20, completed a nursing course, but is unemployed. Ramani’s mother also stays with her.
Despite the hardship, she manages to save ₹500 a month with Kaleidofin, a Chennai-based fintech startup serving the underbanked. “I have set this money aside for emergencies like medical expenses for my husband and mother," she says. She also puts some money in the savings scheme of a self-help group.
The usual financial products that banks, mutual funds and insurance companies sell are ill-suited to the needs of people like Ramani, whose incomes are low and vary from day to day, says Sucharita Mukherjee, CEO and co-founder of Kaleidofin. The neobank takes a customer-centric appro-ach, working out combinations of financial products that meet goals of those who cannot afford to invest in a range of services.
DESIGNED FOR INFORMALITY
One of Kaleidofin’s products, Lakshya is aimed at fragile households with small amounts of surplus monthly income. The money invested goes into debt funds selected by proprietary algorithms according to a customer’s financial profile. These are geared towards goals with a two- to four-year time frame, such as a wedding, college education, or medical procedure. The package includes insurance for death or disability where the capacity to earn disappears. A third component is a credit line to tide over exigencies.
Financial products such as these are designed for informal sector workers like vegetable vendors, shopkeepers, daily wagers and house help, says Mukherjee. “Their incomes and expenses are volatile. They support a large number of people. A sickness or accident can be a large financial shock, but they also experience frequent smaller shocks, which account for more than half of their volatility."
Lakshya helps its customers manage the smaller shocks by setting goals. It tries to habituate them to saving before spending, instead of taking loans and falling into a debt trap. The insurance component aims to mitigate the large shocks.
Kaleidofin has designed three products, Udaan, Lakshya and Ummeed, for long-term, medium-term and short-term goals respectively. It ties up with banks, mutual funds and insurers as a distributor providing last-mile linkage to a wider network. Customers invest in debt funds recommended by Kaleidofin, based on its analytical engine, targeting a minimum of 6% to 8% returns. It provides a ‘customer return monitoring service’ that signals a switch in funds if the projected returns go below expectations.
“This is generally available to wealthy individuals who need it the least. We wanted to flip it around and make the service available free of cost to 600 million people in the informal sector who need it more," says Mukherjee.
Kaleidofin’s biggest presence is in Bihar, eastern UP, Rajasthan, Gujarat and Tamil Nadu. It partners with microfinance institutions, co-operative banks and NGOs to reach rural areas, small towns and urban slums outside the network of the traditional financial industry.
“Financial inclusion has to move beyond providing access to financial services," says Roopa Kudva, MD of Omidyar Network India, an early investor in three-year-old Kaleidofin. “Jan Dhan Yojana gave everybody a bank account. Does that mean everybody uses a bank account? No."
A neobank like Kaleidofin can bridge gaps like these by designing user-friendly financial products, and through ground-level partnerships for access to customers.
Latha P., for example, is a young mother running a small shop in Chitlapakkam, a residential neighbourhood in Chennai. She took a loan of ₹30,000 from microfinance firm Samasta to start the shop a year ago. It was at the Tambaram branch of Samasta, a partner of Kaleidofin, that she came across the startup and liked its savings schemes. “I’m planning to save ₹519 a month for three years for my five-year-old daughter Monica’s education," says Latha, whose husband is a contract worker.
CREATING PARTNERS
Kaleidofin reaches out to its partners’ customers through a call centre as well as through the app. It has an assisted model where an agent, typically from the local community, helps a new customer with financial assessment and planning. “A number of our customers only have feature phones, which makes it difficult for them to access financial services," says Mukherjee.
Even those with smartphones are often not confident about doing a financial transaction online. “Digital confidence takes time to build. You also have to keep in mind that these are people who have often been taken advantage of by informal lenders and chit funds. They have lost lots of money."
Mukherjee became an investment banker after graduating from IIM, Ahmedabad. She was a VP at Deutsche Bank and then Morgan Stanley in London. She moved to India in 2008 to lead IFMR Capital, now Northern Arc Capital, a non-banking financial company. It was at IFMR that she moved to retail finance and tried to push the envelope on financial inclusion.
“I saw how broken this space was, how much needed to be done, and how slowly we were getting there," says Mukherjee. “At the same time, there were a lot of fantastic things happening in India like Jan Dhan for bank accounts and Aadhaar for authenticating customers. There was a lot of new financial infrastructure rolling out."
That prompted her to launch Kaleidofin in 2017 along with Puneet Gupta, who was also at IFMR. “We thought a neobank approach providing services to hundreds of millions of customers could be possible. Every customer today is contactable, has a bank account, and is uniquely identifiable—those are three big pieces in place which were not there earlier," says Mukherjee. “We kept talking about it until the idea became so big that I would have regretted it for the rest of my life if I hadn’t done it."
Women were the more enthusiastic early adopters, but the founders ran into a problem: usually only the men in the family had smartphones. They thought they could instal the app on the husband’s phone, but that turned out to be unacceptable.
Most women using Kaleidofin did not want their husbands to know about their savings. “Two-thirds of the women did not want SMS messages going to their husband’s phone. That’s how our assisted model got started and we gave the option of using a friend’s number," says Mukherjee.
Kaleidofin, which recently raised ₹36 crore in series A funding, is going deeper into the lives of customers like Ramani Sekar even as it expands.
Malavika Velayanikal is a consulting editor with Mint. She tweets @vmalu.
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