‘Our Only Competition Is Poverty’: How Avanti Finance Aims To Create a ‘Population-Scale’ Digital Microfinance Platform in India
India has long been a hotbed of digital innovation – particularly in the financial inclusion space. Avanti Finance is an emerging innovator in the sector, with a digital lending platform that aims to bring affordable microfinance to even the poorest customers.
Founded with the support of some of India’s most prominent corporate heavyweights, including Ratan Tata and Nandan Nilekani, the company describes its approach as “paperless, presence-less and cashless” – and its ambition as “population-scale.” We caught up with CEO Rahul Gupta to discuss Avanti’s unique model, the challenges and opportunities it faces, and its efforts to deliver frictionless digital loans to low-income customers both efficiently and responsibly.
James Militzer: Tell us about Avanti Finance: Where do you operate, what services do you offer, who are your customers and what’s your social mission?
Rahul Gupta: Avanti Finance was formed with the transformational vision of making financial services affordable and accessible in a timely manner to the tens of millions of households who have been excluded from the formal credit system. India has over 600 million people who are currently unserved or underserved and rely on informal credit. Thus they do not have equal economic opportunity, and it’s hard to break the yoke of poverty. This is the problem we are aiming to solve. We have started with small ticket lending aimed at building sustainable livelihoods for low-income borrowers. Insurance and savings products that are fit and proper for our target segment are also a part of our product roadmap. We will co-create the same with industry experts.
We have built a strong proof of concept across nine states and over 80 districts, primarily in rural locations where access to formal financial services is limited. We operate as a Non-Banking Financial Company and Non-Banking Financial Company: Microfinance Institution. We have adopted a digital-first approach, leveraging India’s digital infrastructure, and would like to contribute meaningfully to democratising credit and usher in the next era of financial inclusion.
JM: How is Avanti similar to and different from a traditional microfinance provider—or a traditional digital lender?
RG: Our only competition is poverty, and our business model is very different from traditional microfinance institutions (MFIs) which are asset heavy and people intensive. It’s also different from other digital lenders, which are primarily urban and peri-urban. In another difference, Avanti closely works with partners who assists us in connecting to the end user in an effective manner, which is essential for serving the bottom of the pyramid. Other institutions rarely operate in this sort of assisted mode.
We are building a collaborative platform with a digital spine that is paperless, presence-less and cashless. This includes our unique lending system that is purpose-built for assisted mode, as a majority of our users do not have smart phones or the ability to onboard themselves digitally. Our platform is used by us, for loans we book directly with our capital. It can also be leveraged by a diverse set of capital providers like banks (for co-lending or using their own capital to lend on their own balance sheets), MFIs, NGOs, credit cooperatives, foundations and philanthropic organisations. Avanti provides access to an expanding user base, offers a robust digital platform for efficient servicing that reduces operating costs and friction at the user level, and provides transparent metrics on deployment, user behaviour and impact. Our services are:
- Presence-less: We have no brick-and-mortar branches. We have partnered with several mission-aligned organisations across India. Our partners have deep community connections, and are well-respected and highly scalable. They help us identify the users, co-create hyperlocal products linked to livelihoods and cash flows, and manage the credit operations on the ground.
- Paperless: Our customers are onboarded by our partners and their agents, using a mobile app on their handheld devices. No paper is involved, and the entire onboarding process is completed on the app within 12-15 minutes, with a combination of identity, biometric and bank account information.
- Cashless: 100% of the loans are disbursed directly to the user’s bank account. The process of digital repayments is more challenging, as rural users rely heavily on cash. Whilst the trend toward a cashless economy is increasing, digitizing people’s cash in the context of a largely cash-based economy will require more robust options for feature phone users and the increased proliferation of smartphones. Where repayments are in cash, our partners manage them. We are passionate about solving for this challenge, and are already working on community-linked solutions that reduce the need for cash and empower users.
JM: Avanti describes its model as “frictionless” —what does that mean from a customer’s standpoint, and why have you taken that approach? Do you have any concerns that making the loan application process *too* easy might lead customers to borrow more than they need?
RG: Avanti’s ambition is to build a population-scale, societal platform that brings together an ecosystem of multiple capital providers, community-linked organisations, end users and technology solution partners to increase financial inclusion. Our digital-first principles will enable frictionless delivery of financial services at affordable rates to those outside of the formal system, and usher in economic prosperity.
The goal is clearly inclusion, however adequate diligence is exercised prior to extending credit. We have a multi-layered assessment process that takes into account the livelihood needs of the borrowers and the increase in income that the loan will support, and we provide repayment schedules linked to cash flows, moratorium periods on interest payments (established by regulators in response to the pandemic), and affordable rates. We want every Avanti loan to be an impact story. Our loan products are therefore extremely flexible, and we have moved away from the standardisation of products that’s become common in the industry, being sensitive to the unique needs of our end users.
JM: I understand Avanti prices its loans at 18-22% – how does this compare to the average rate among microfinance providers and other digital lenders in India? Are you taking any steps to ensure that customers don’t take on unsustainable amounts of debt?
RG: We strongly follow the principles of responsible lending and are very cautious of any over-leveraging of the borrowers. Moreover, our loans are for livelihoods, so they are income-generating and not meant for consumption.
Our goal is to constantly reduce the end interest rate for users by attaining better unit cost economics of our digital delivery system, building significant scale and managing the portfolio efficiently. We benchmark ourselves against best-in-class providers across the industry. Our retail loans are priced at 18%-24% depending on the usage, tenor and cost of delivery.
JM: Talk about your partnership model. What makes it unique, and why is it so central to your work?
RG: Developing financially sustainable communities is one of the key ingredients of our partnership model. Avanti has a mix of partners – NGOs, Business Correspondents, agtech players and co-op banks such as ASSEFA in Tamil Nadu, Jai Kisan in Maharashtra, Sub-K in Uttar Pradesh, SEWA Bank in Gujarat, and several others that support us across the country. We partner with entities that have a deep presence and in-depth knowledge of the communities they operate in. This local knowledge is essential to understanding the product needs, risk and risk mitigation measures for customers who are either totally data-dark or have limited data.
By forming local partnerships with mission-aligned entities that have strong credentials, governance, scale and reach, we draw on relevant knowledge and experience to create products and services specifically for the end-user. As a consequence, our partners and users receive tailor-made financial solutions that enhance their existing livelihood initiatives and can be deployed through the organisation’s community-engagement model.
JM: How is technology changing India’s microfinance industry – are there any trends or developments that are unique to the country?
RG: The Indian microfinance industry is grasping technology as a tool to scale and reach more people faster and more efficiently, and to reduce operating and credit costs. The online onboarding of borrowers, digital disbursements and repayment of credit is changing the playbook for the future. Another trend that we see emerging is collaboration between large banks and rural organisations to co-create products and improve last-mile connectivity in underserved regions. Such initiatives can be amplified through a platform model, which is what we are trying to achieve at Avanti.
Government initiatives like the Jan Dhan-Aadhaar-Mobile trinity (which links the bank accounts, mobile numbers and Aadhaar cards of citizens to enable the direct transfer of subsidies to beneficiaries) and the Unified Payments Interface (a system that facilitates inter-bank transactions on a mobile platform in real time) are helping India leap forward. Digital transformation at a population scale is not easy in a country like India. It is bound to have challenges. Digital financial literacy becomes key in rural markets, to educate the end-user about the importance and ease of digital transactions.
JM: How has your business changed since COVID-19 started? And what are Avanti’s plans and goals for the coming year?
RG: The impact of COVID-19 makes us even more resolute on executing our mission. There is a strong need to rebuild livelihoods, extend credit to migrants who have returned to their villages to start small businesses, and cater to the demand that is emerging synonymous with economic activity. We were quick to extend a moratorium on lending to all our borrowers, and reached out to them to understand how they were faring – and we have now started lending again.
Our view of the future is certainly optimistic, and we have spent the past few months strengthening our platform capabilities, partner relationships and user connections. We are very excited to have finalised a few relationships with marquee financial institutions and foundations, to launch our platform as a service value proposition that opens up multiple pools of affordable capital to our needy borrowers. We are also evaluating growth capital with reputed impact investors, to continue the buildout of a world class platform and team.
JM: What lessons have you learned from India’s tumultuous history with microfinance?
RG: The Indian microfinance industry has battled several crises, but has always bounced back. This reflects the strong resilience of the customers. It’s also being reflected in the current situation, with the steady increase in repayments – especially those associated with rural agricultural and other essential services. However, the COVID-19 crisis will have a deep and long-lasting effect on certain communities and livelihood streams that were destroyed. Financial institutions and lenders will need to be patient and compassionate. Government intervention in a structured manner on an ongoing basis will be required. Digital delivery models will get accelerated. Some amount of consolidation is also likely to happen. Impact investing will hopefully become more mainstream.
Photo courtesy of Avanti Finance.