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Providing affordable credit to the self-employed: Why We Invested in Bon

31st May 2019
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250 million Indians, that’s one in two members of the workforce, are self-employed. Most of them work in the ‘low skills’ category – rural agricultural labourers, electricians, drivers, beauticians etc. Over the past few years, market place aggregators such as Uber, Ola, UrbanClap have started to organise these informal sector workers to create a more formalised system of employment.

These self-employed people have also been historically underserved by formal financial service providers with regards to their business and personal needs.

Formal financial service providers are unable to service this segment due to three main reasons:

  • lack of an easy customer discovery process given the diverse nature of the segment
  • lack of underwriting capabilities – the self-employed segment generally has inadequate income records as well as a few peculiar characteristics such as income volatility and a significant volume of cash transactions
  • legacy high cost structures that make servicing low ticket/ high volume business financially unviable for the formal financial service providers

This financial exclusion affects the ability of this workforce to scale up their trades and access to capital often becomes the bottle neck to their economic prosperity. The segment depends heavily on informal sources of finance that often have very exploitative terms.

“The number of rides I made every day depended on the amount of cash I had for fuel. Lesser cash meant fewer rides and a lower number of rides also meant lesser income. The cycle was unending. I often had to ask my brother for help to meet the shortfall in cash or take credit from a local money lender at a high interest rate” confesses Vinayak Nadiger, an Uber driver from Bangalore.

Stories such as Vinayak’s are common across this 250 million strong segment.

It’s precisely to provide solutions to this underserved category that we invested in Bon – a technology platform that facilitates credit to self-employed people for meeting their working capital needs.

Bon acquires customers through market place aggregators like Uber, UrbanClap and other online and offline aggregation platforms. Bon underwrites customers based on their business volumes with the aggregators and facilitates credit through licensed NBFCs and banks. Credit limits are dynamically reset based on repayment history. The use of funds is restricted to business purposes and collections are synchronised with the earnings and cash flow cycles of the borrowers.

For the customer, Bon offers an easy-to-explain financial solution – a flat weekly fee as opposed to confusing interest rate structures that offers liquidity when you need it and you’re charged only on drawn balances.

At Omidyar Network India, we believe that formalisation and digitisation will lead to innovative business models that will leverage “use of big data for small credit” and provide relevant financial solutions to India’s Next Half Billion to help them create a more meaningful life.

We are confident that Bon with its unique customer acquisition and underwriting model will be able to address the unmet credit needs of the self-employed workforce providing them with simple financial solutions that help them sustain and grow their businesses.