India is starting to reap the benefits of several transformational initiatives launched in recent years, which are focused on improving access to the formal financial system. A staggering number of bank accounts have been opened by the Jan Dhan program. Aadhar enrollment has reached record numbers. Adoption of India stack platforms by innovative entrepreneurs—leveraging open APIs and the Unified Payments Interface (UPI)—has created a new wave of financial services that build on the growing penetration of mobile phones to promote greater financial inclusion in the country.
Although access to formal financial services has grown dramatically, with 99 percent of Indian households having at least one member with a bank account, and a local culture that favors prudent financial habits, with nine out of ten Indians claiming they save and only six out of ten stating that they borrow, uptake of formal financial services has been slow.
Omidyar Network set out to better understand the reasons why a large number of Indians are not participating in the financial services digitization that is unfolding in the country. During our time in the field, we met people like Victor, a shop owner in Kohima, Nagaland, who told us:
“I have bank accounts with SBI and Bank of Baroda and I learned to use both of their mobile banking apps on my own. However, when I needed money for my business, I went to the entrepreneurs’ association for a loan—I took a INR 100,000 loan with repayment in the next two years. They come to me and collect INR 220 each month.
Mahesh, who lives in Chichode, Telengana, said:
“I took a INR 40,000 loan from a private finance organization with 3 percent interest and pawned some gold for INR 30,000 at 2 percent interest. Both agents come to me to collect the payments and note the deductions in their paper diary. I used to run four chit funds—two for INR 50,000 and two for INR 20,000—with interest rates decided on auction of the ‘chitthi’ every month. All transactions were noted in a paper diary.”
Stories such as Victor’s and Mahesh’s are common across India. Improved access to formal financial services has not translated into active usage by Indian consumers with seven out of ten Indians saving via informal services and five out of ten borrowing from informal sources. In addition to the high levels of non-institutional debt, there is extremely low penetration of insurance and pension products.
Our research has documented many reasons for this alienation from formal financial services. Standardized supply-focused solutions often fail to address consumers’ complex financial lives. Issues like income and expense volatility—which make long-term, consistent engagement difficult—and lack of proximity, familiarity, and trust experienced by consumers when dealing with formal financial services providers, are frequently mentioned by consumers as barriers to adoption.
That’s why we invested in Kaleidofin, a FinTech platform that helps underserved consumers to meet their life goals by providing tailored financial solutions via an intuitive mobile app. Kaleidofin builds consumer personas by analyzing users’ socio-economic and transactional data and applies machine learning algorithms to recommend a personalized solution—which is possible by combining best-in-class financial products such as credit, investment, insurance, and savings. This approach resonates both with consumers, who get a combined offering that is tailored to their unique needs, and with formal financial services providers, who have been trying to reach more consumers, but have not been able to do so at scale.
Kaleidofin’s roadmap is to serve consumers who are presently managing their finances through informal means and have low engagement with formal financial services providers. By bringing an unique “tech and touch” business model that fully leverages the India Stack to seamlessly onboard customers and rides on existing relationships with community partners to build consumer trust and proximity, the company can truly deliver tailored solutions at scale.
At the heart of Kaleidofin’s business is a technology platform that focuses on consumers, gathering data related to their socio-economic profile and financial goals, and suggesting appropriate combinations of financial products that best fit their unique context. The menu of services is constantly rebalanced based on the needs and constraints of each individual—combined solutions from highly-quality financial institutions are offered to each user, featuring tools that are most appropriate for their current situation while nudging them to achieve their future goal. For example, Kaleidofin’s Lakshya solution combines investments and on-demand credit, enabling consumers to better manage day-to-day income and expense volatility, while keeping them disciplined toward their long-term financial goals.
At Omidyar Network, we believe that re-imagining financial products and solutions with a human-centered design approach leads to greater adoption and usage of financial solutions and better financial outcomes—Kaleidofin checks all of these marks. By tailoring existing financial products to people’s real needs and leveraging a distribution network that engages local communities, Kaleidofin is removing several barriers that keep Indian consumers in the underserved category, while creating a virtuous cycle for both consumers and financial services providers.