Designing financial products for “Bharat”

For all of us who have been following the “India Stack” story, we understand the value JAM layers bring to the vision of financial inclusion by drastically reducing the cost of origination, underwriting, servicing and collection. Now a “Rajni” (mentioned in the popular India Stack presentation Slide 39) can avail financial services that were not available earlier.

While there is no denying the fact that this underlying infrastructure is disruptive, I wanted to bring to attention, that for the Bharat market (maids, drivers, the construction site worker, farmers, small shopkeepers, panwala, delivery boys, etc — lets call her Rajni), the definition of loans, saving, investment, insurance is very different, and just the underlying infrastructure would not suffice, but we need something more. I will explain this in the post in some detail. This is a well researched topic, with plenty of published material analysing Bangladesh, South Africa and Kenya markets. I have added lots of references at the end of the post.

Note that Bharat market (Rajni) has very unpredictable, volatile and seasonal incomes and expenditures. Unlike her ‘maalkin’ who we’ll call ‘Rajlakshmi’, who have predictable incomes and expenditures, and so we worry about interest rates, mortgages, SIPs, mutual funds, insurance plans, etc, Bharat market does not think of money like that. That is why, just improving the access of formal finance through JAM and India Stack, does not lead to financial inclusion and adoption. We need to go beyond improving access, to designing financial products tailored to Rajni’s needs.

The key financial activities for most people are borrowing, saving, and insurance. Lets take a closer look at how rich people think about it differently than poor people.


Rajlakshmi borrows from banks or NBFCs using OD, bank loans, credit cards, etc. Rajni cannot borrow from banks because of a) stringent conditions in the form of requirement of salary or collateral or credit history, b) lack of products for small value or short term loans as banks operating economics work with larger ticket size and longer term loans. She has to borrow from their social networks. This means that she maintains good relationships with their shopkeeper, and her landlord, so that she can borrow when in need. In informal lending, your reputation is your credit score. When you are borrowing from Sahukar (the local money lender), the interest rates can be very high (as high as 2–3% weekly). In cases when you are borrowing from a friend, the rate of interest is very low, but the real cost is expectation that the lender could ask Rajni for loan in future and there is this social cost that is being transferred.

Can there be lending products created on top of this existing social behaviour? There have been multiple products like M-Shwari, KCB M-Pesa, Kiva Zip, Branch, etc which have attempted to do this in other developing countries. Links to reports on these are available in references. In the last two decades, micro-finance institutions tried to solve this problem in India. The lack of bank accounts, online payments and offline collection mechanism led to difficulty in matching repayment schedules to household income-flows. Hence Rajni could never completely get out of the informal lender network.


Rajlakshmi puts money in savings account, fixed deposit, stock market investments, SIPs, mutual funds, etc. The affluent save to grow their wealth, and presumably acquire more assets. Rajni does not have access to these products because banks operating costs are high (KYC, processing cost, account management cost, etc) and so they can only entertain large cheque sizes as fees would be a percentage of money invested. Rajni cannot leave her money idle and she wants to put it to “work” like rich people do.

She might purchase a domestic animal (like cow, goat, chicken, etc), as “she can add value on the investment” by taking care of the animal. The animal in most cases is liquid and can be traded for money if she needs money sometime. There are risks of theft and death, but the regular supply of eggs/milk is an added advantage. Rajni wants to work on her investment and create value. This also gives her another source of income which helps them diversify their income sources which is very important.

The other way Rajni save money is chit-funds. While the effective rate of return on chit-funds is lower than most products available via banks, but chit-funds give financial flexibility of borrowing by paying up extra, and provides discipline to spending habits, which is very valuable for Rajni. PFA details in the IFMR report.

The other key trait of Rajni’s savings habit is that she mentally allocates money from different sources for different expenditures. She saves money on animal for school fees, and from saving group for home improvement, etc.


Rajlakshmi buys insurance to avoid financial shocks. This helps her smoothen out spikes in expenditure. Rajni has trust issues with the claims process, and also worries that she will not get anything back in case of no accident/failure. She has identified Money Guard concept which works better for her (details on “Getting and Spending in Central Bangladesh”). She would lend money to a shopkeeper / landlord. They are her MoneyGuard and builds relationship with her. If there is some accident and she needs money, MoneyGuard would give her money back, and might also lend some money. In this case, Rajni has turned an investment (her capital lent to someone in her network) as a form of ‘quasi-insurance’. Can companies design new products to mimic such behaviour?

I do not pretend that I know the exact solutions, and I do not intend to prescribe ideas. The intent is to show the stark difference between financial needs of Rajlakshmi and Rajni, and inspire entrepreneurs to create financial products, distribution platforms and technology enablers, keeping in mind that their use cases are very different. New companies in this area will help create immense value for entrepreneurs, employees and investors, but also provide ikigai (Japanese for “a reason for being”). Lets create great companies together. If you are an entrepreneur leveraging technology and India Stack to disrupt financial services, please give me a shout. I would love to brainstorm.

Thanks to Sahil Kini (Principal at Aspada Investments) and Tanuj Bhojwani (Associate at Bharat Innovations Fund) for reviewing a draft version of the post.

Disclaimer: Views expressed here are my personal reflections and not indicative of the views of my current or previous employers. No part of this post maybe reproduced or quoted without explicit permission.

Relevant reading:

The Poor and Their Money — An essay about financial services for poor people by Stuart Rutherford

Chit Funds as an Innovative Access to Finance for Low-income Households

Getting and Spending in Central Bangladesh: Money Management Patterns in Fifty Low-Income Households

Outcompeting the Lockbox — Linking Savings Groups to the Formal Financial Sector

Finclusion to Fintech — Product Development for Low-Income Markets