PEOPLE
Can smart tech combined with customer focus drive India’s financial inclusion?
Avanti Finance is a digital financial inclusion platform using new technologies, business models and partnerships to re-imagine financial inclusion at the bottom of the pyramid. Their goal could hardly be more ambitious: make financial services affordable and accessible to 100 million households in India that are currently financially excluded. The CEO of this young 'for-profit but highly impact-driven' company, Rahul Gupta, explains why he believes Avanti Finance can revolutionize how we approach financial inclusion.
What makes Avanti Finance different from other financial institutions focused on inclusion, Rahul submits, is how they leverage technology to make the digital journey easier and products more appropriate to their target users, in combination with the innovative way they use partnerships to scale and customize their efforts.
Avanti sees itself as a 'bold experiment' in financial inclusion. The operating model is based on a paperless, presenceless and cashless 'digital spine'. The loan management system is highly flexible, which lets Avanti and its partners tailor fit-for-purpose loans and products to meet the hyper-local and diverse needs of their very varied client base. “It’s the difference between an offering that’s standardized at scale versus a deep-tech platform that’s mass-customizable at scale.”
Flying start
It took Avanti a few years (during which they also had to negotiate COVID) to test how to make their digital delivery model for a new target group work in practice. “We had to work out everything from how we’d manage the risks involved with customers who are data-dark, to how the unit-level economics would play out, to customers’ adoption of an assisted digital model.”
All the homework seems to be paying off. Avanti’s assets under management (AUM) is now around US$120 million, and they have served some 400,000 households. Their goal for this financial year is to reach US$200 million AUM and 750,000 households served, which equates to positively impacting some 3 million lives. And importantly, about a third of those assets are targeted off-balance-sheet, confirming Avanti’s hypothesis that a co-lending model can work for this segment. “By aggregating multiple pools of capital from different financial institutions, we partner rather than compete. And that approach is very different from traditional institutions, who lend only based on the power of their own balance sheet.”
“The initial results have been very encouraging. Now we’re getting ready to scale." Three to four years from now, Avanti hopes to be serving a few million households, of which 50-60% would ideally be previously financially un(der)served customers, with a makeup of around 80% women (currently 91%). On the financial side: some USD 1 billion in AUM, of which 70%+ off-balance-sheet.
goal for this year:
Assets Under Management
households served
Platform for success
Rahul seems very aware that Avanti is standing on the shoulders of giants. “It’s not that the issues around financial exclusion haven’t been long known or well-articulated. They have. It’s just that we’re looking at the problem differently: from the perspective of customer-centricity, scalability and impact. We sat down with people from the worlds of financial services, tech, development and the social sector. The consensus that emerged was that proprietary models can only be scaled to a limited extent.”
So Avanti concluded that what India needed (and didn’t have) was a platform on which multiple actors can come together to access and serve financially-excluded customers. By partnering with multiple institutions on the demand side of both capital supply and those involved in livelihood value chains, Avanti could create powerful network effects. "Of course, last mile frictionless delivery, aggregation of quality capital and disaggregation of risk are all key pillars for success."
Beyond credit scores
But unlike most Fintechs, Avanti’s challenge was more than just technical. The platform needed to reach, understand and adapt itself to some of India’s most marginalized citizens. How do you serve customers who don’t have a smartphone, the digital literacy to self-serve and/or any formal credit history? Avanti’s answer? Partnerships.
“Although ours is a digital-first model, we’ve leveraged and built a layer of ground-based partners who have the customer’s trust and can coach and onboard them onto the application.” And it's absolutely true: their partner footprint currently covers some 40% of the countries districts.
“Our partners also provide us with crowd-sourced information to support the customer’s case for a loan. That's because only about a third of Avanti’s customers have credit scores that might get them loans with traditional financial institutions," he says.
For example, a lot of customers are ‘data dark,’ so underwriting cannot be based on information from a credit bureau, as someone who has been living outside the formal financial system doesn’t have a credit bureau record. Other customers may, through difficult circumstances, have been unable at some point in the past to repay a debt properly and therefore have a tarnished credit score. "Our partner can explain why that person couldn’t repay their debt back then but are now in good shape to take on a loan. We can then take on that calculated risk — and actually we find that this group behaves no differently than other customer sets.”
Hyper-localized
To serve such a diverse customer base, Avanti has developed back-end tech that can accommodate tailored flexibility in terms of setting tenures, moratoriums, interest rates, repayment schedules, and more. “This is unique in our segment. Microfinance lenders, for example, tend to put their customers in pretty straightjacketed products, whereas ours are hyper-localized and -customized to real livelihood cashflows and circumstances.”
On the tech side, Rahul also takes a moment to big it up for the Indian state. “Our application has over 100 validations and is integrated with payment systems, banking systems, credit bureaus and biometrics for digital contracts and so on. That wouldn’t have been possible without the impressive public digital infrastructure that India has developed in recent years.”
No size fits all
To illustrate why it’s so important Avanti can hyper-customize its offering, Rahul gives some examples from agriculture — about 60% of Avanti customers work in agri-aligned sectors, and smallholders form a large part of their clientele.
“Imagine two farmers, one in the north of the country and another in central India, both seeking a loan to buy two cows. The local cost of buying the cows will differ, as will the cost of delivering milk to their local cooperative and the productivity of the types of cattle suited to each region. So the timelines of the two farmers’ respective cashflows will also differ. That means our loans need to reflect that. If a smallholder farmer is monetizing her crop every three months, there’s no point in asking her to pay you back every fortnight. So we’ll tailor her product in terms of tenure, repayment frequency, etc. We may also suggest monthly repayments, say, in order to manage the risk and help the farmer not lose sight of the need for repayments. So we really do think with our customers.”
Avanti’s technology is sophisticated enough to offer a unique product to every single customer. That obviously isn’t necessary, but they do currently have 180 product variants. In addition, the front-end allows partners, under certain operating parameters, to design a product themselves which they know fits the needs of customers on the ground where they operate. Avanti can then create this new product for them, which they call ‘product development on the fly.’
“If a smallholder farmer is monetizing her crop every three months, there’s no point in asking her to pay you back every week.”
Data protection
Given the potential vulnerability of many of Avanti’s customers, ensuring the protection of their data is clearly critical. Rahul sees two main aspects to this issue.
“First, data accuracy. Our focus is on what information we need to assess a customer’s creditworthiness and work out the best loan for them, while obviously also complying with local regulations. It’s not always straightforward, and we guide our partners and partner agents on which information is non-negotiable, which is good to have and which is definitely not to be collected. And gathering objective data can be problematic, for example getting accurate income data when some customers don’t even know the difference between revenue and disposable income. So we provide education to both customers and those interacting with customers.”
"Avanti’s technology is sophisticated enough to offer a unique product to every single customer."
At each stage of the loan process, Avanti goes through a hygiene process to ensure they only collect necessary, accurate information. “We SMS the customer to confirm they requested a loan (to make sure it’s not a ghost customer) and understand the terms & conditions. If they see discrepancies between what they were originally offered and the SMS information, they can contact Avanti on a toll-free line. We then sort out the discrepancies and do a 100% verification by phone. We also do on-site audits using internal and external auditors to ensure our partners are adhering to the set standards and to determine how any gaps can be addressed. Is it a reporting issue, training issue or something more serious? Our auditor teams also meet with a sample of customers to check they understand their loan terms, that the loan was for the amount and purpose originally agreed upon, etc. In other words, we try to ensure everything stands up not only in terms of the letter but also the spirit of the loan.”
On the infrastructure security side of things, protocols and requirements are more clear-cut. “The regulator has very clear norms for digital lending regarding data localization and user protection, and we obviously comply with all of those. Our access tool ensures that, if it concerns collections, an agent can access the next repayment date for a customer, but not their credit score. And finally, as a cloud-based data organization, firewalls, other front-end protections, and disaster recovery protocols are all covered by institutional suppliers, for example for our app on the Google Play Store.”
Future focus?
Asked where he sees the focus for the coming five years, Rahul doesn’t hesitate. “Scale. Because as an organization, we genuinely are impact-driven. The more we scale, the more impact we’re having.” Given the flying start Avanti Finance has made so far, that sounds like good news for millions of financially excluded people across India.
Rabo Partnerships is a subsidiary of Rabobank, a leading global bank specializing in food and agriculture. Through its deep understanding of the industry, long-term approach and extensive network, Rabo Partnerships strives to enable financial inclusion and sustainable development within the agricultural sector across emerging markets, contributing to growing a better world together through advisory and investment partnerships.
In April 2023, Rabo Partnerships made an investment in Avanti, which focuses on providing data-driven finance solutions to smallholder farmers through local cooperatives and service providers. The investment supports Avanti's mission of providing frictionless access to affordable and hyperlocal credit products to smallholder farmers in India, enabling them to build sustainable livelihoods. Rabo Partnerships is convinced that smallholders play an increasingly important role in feeding a growing world population, therefore, increasing access to financial services will benefit farmer households and help achieve rural development and global food system change.
Interested in learning more about Rabo Partnerships’ work? Visit our site at Rabo Partnerships - Rabobank
