Sucharita Mukherjee and Puneet Gupta had spent quite some time at IFMR, helping conceptualise and build many of the financial inclusion and rural strategies of the group. So, when they wanted to do something on their own last year, it was but natural that they look at improving access to finance as an idea for their venture. Sucharita credits her stint as Group CEO at IFMR Trust for the insight she got into rural finance, rural retail distribution and financial inclusion.
Puneet says at IFMR he was initially involved a lot more on the retail rural financial services business, where he was trying to create a wealth management approach so that customers got multiple financial services.
“I understood rural distribution, how to reach the customer much, much better,” says Sucharita. They had been at IFMR for almost a decade; a period when many changes were taking place in the macro environment. Mobile phone penetration was going up, more and more people were accessing the internet on their phones, even in rural areas, and Aadhaar had made authentication easier and cheaper. Credit bureaus had got set up. “In some sense, it did seem like all of the forces were coming together and it made for a perfect storm in a nice way,” she adds.
Despite what IFMR had achieved, they couldn’t help but think that there must be a different and cheaper way to reach customers. “All of those thoughts combined to form Kaleidofin at some stage,” she adds.
Puneet says that they had done quite a lot at IFMR to make financial inclusion happen and they had set up new businesses that were ably managed. “We just started to talk about still there is so much more that can happen to reach out to individuals,” he says. “With the power of all the digital work that had happened, we felt that there was a way to scale it much faster,” says Puneet. He adds that it was around March 2017 when they decided it made sense for them to set up something greenfield and the two of them quit IFMR in September to start Kaleidofin.
Promoting savings culture
They had the kernel of an idea – that they should do something that will help inculcate a savings culture in the informal sector and provide financial products and services that will help them meet their goals in life. The products had to be tailored to suit individual needs and aspirations, especially given the high income volatility that the targeted population faced. They did some pilots with SEWA Bank, which helped them fine-tune their idea.
“We thought a fresh approach using the power of technology, information, analytics to deliver financial solutions so that customers can meet their goals,” says Sucharita.
What was the problem that Kaleidofin was trying to solve? According to Sucharita, customers have goals and the goals are remarkably similar across various types of households. But each customer has a different situation. One customer can be a construction worker with a highly volatile income, another could be a tailor with probably a double income. Their goals may be similar, some short-term and some long-term – children’s education, daughters to be married off. With irregular incomes, savings was least of their priorities.
“Our goal was how can we make finance much more intuitive and personalised to deliver a custom-made financial solution for that customer’s goal. It doesn’t exist,” says Sucharita. Such tailor-made products don’t exist even for middle class customers and it is certainly not available for under-served customers, where the income and expense volatility is high. You need to think of product design from scratch, says Sucharita.
According to Puneet, the issue is to identify what the customer wants to save for. “One part is to understand what is the real goal of the customer. The conversation starts from there. The goal has to be important enough for the customer to say I want to save for this goal.” The second part of the work that Kaleidofin does, says Puneet, is to assess the amount that a household can put aside and save.
Given the volatile income and expenditure condition of the customers, there is need for insurance to ensure that the cash flow continues, if the customer has to meet his or her goals whatever the situation.
“We bundle the insurance products for the customer. What we do is, we get customers to save towards their goal. We make money on the savings that the customer is making. That is, typically either the mutual fund houses pay us or we get paid if we are an adviser to the customer. We use a part of the monies that we make to be able to bundle group insurance products for customers. The customer doesn’t pay for it,” says Puneet.
Kaleidofin has three products – Ummeed, Lakshya and Udaan – each one of them a savings product meant to meet different goals.
The company has partnerships with non-banking finance companies and financial institutions, including SEWA Bank, Sonata Microfinance, ICICI Pru MF, UTI, Aditya Birla, SBI, ICICI Pru Life and Bharti Axa. The seed round of ₹18 crore ($2.8 million) that it raised in April wil be used to acquire customers, expand its network of partnerships and for investment in technology and analytics. The founders expect this money will see them through till December 2019. At present, Kaleidofin is present in Chennai, Bihar and Gujarat and will increase its presence in other States.
Assessing the risk
According to the founders, Kaleidofin assesses the risk capacity of the household, understands its goals – both short- and long-term – and comes up with savings products, a mutual fund or a debt fund, depending on the type of customers. It has launched two insurance covers, for health and catastrophe. It is not just through a mobile app that the work is done, there is a lot of personal interaction as well. It gets its customers through its network or community partners – microfinance institutions, dairy cooperatives, the HR head in a factory.
The company also leverages the full India stack to provide customer and product partners with a seamless integration to the platform, including eKYC and Electronic National Automated Clearing House.
Both Sucharita and Puneet believe that the tools they have built to understand customers will be their biggest moat against competition. “We have a headstart, we have trust and relationships with many networks that have access to informal customers. Building a seamless technology platform as well as analytics both on the goal side and really knowing the right solution, that is going to be our biggest moat,” says Sucharita.
Puneet adds, “it is understanding the customers and being relevant to them always, we are genuinely entering into partnerships which we want to have in the long run.”