‘Our digital model is not proprietary’

Bengaluru-based Avanti Finance is a digital platform that aims to foster financial inclusion. It recently raised $26 million (~195 crore) in debt and equity from Oikocredit, Nomura and the Bill and Melinda Gates Foundation. Other backers include Ratan Tata and Nandan Nilekani and a partnership with the Michael and Susan Dell Foundation.

RAHUL GUPTA, Chief Executive Officer of Avanti Finance, spoke to Raghu Mohan on the approach of the model. Edited excerpts: How do you go about serving the unbanked, or the new-to-credit, given the poor penetration of technology?

You are right, in that a lot of customers are not very high up in their own digital journeys. That’s why we set out to solve the hard problem of changing the nature of credit at the bottom of the pyramid for the next 100 to 120 million households. The first step is to do it digitally, but with an assisted-mode. Unlike in the big cities, where people can just download an app and fill in the details, it doesn’t work that way in rural places. The second leg of the model is a network of community partners to provide access to customers.

And we also needed to have people who understood risk management for customers who are data-dark. As in — how do you encode local knowledge to underwrite them and also activate in the assisted mode? The model is based on collaboration with multiple stakeholders, as compared to a traditional proprietary model. The digital spine we have created has not been created for ourselves — it is also for various specialists to come together for financial inclusion.

Is Avanti a “marketplace” which entities can hook into as a platform for financial inclusion?

The answer is a bit of a yes and no. Our goal is to light up an ecosystem and, having tested this for ourselves with our equity, we are beginning to offer the platform to other financial institutions with their balance sheets coming into play. As we understand how to access these customers, we underwrite the credit and manage the operations through our partners. We have a lot of partners across the country, and are currently present in 15 states serving 120 districts. By the end of this year, we should be in about 20 states serving 150-plus districts. We have also built a successful “proofof-concept” of a digital form of credit delivery to customers who are not digitally savvy through the assisted mode. Third-party capital lending — which will not be on Avanti's balance sheet — provides other institutions interested in financial inclusion the opportunity to leverage the powerful trifecta we have developed. That is hyper-local, community partnerships and the digital spine that we have built.

When you say “not on Avanti’s balance sheet”, does it mean others can come and lend on your platform?

There could be, for example, a bank coming to us and saying, “We want to grow our priority-sector lending, but we have never been able to make sense of the economics for small-ticket loans.” These are loans of ~25,000 or thereabouts. And the bank doesn’t have the risk management to underwrite them. If the customer is more than 60 kilometres away from a branch, the cost structure will not allow servicing a customer.

So, why not collaborate with Avanti to marry your (the bank’s) balance sheet with our access to customers, hyper-local product development that we can do through our partners, and we service the same. We open up the market more because in a country of our size, there’s no single player which is going to solve this problem for 120 million underserved households.

Why did you decide to break away from the joint-liability group (JLG) model?

I don’t think it is a breakaway. If you look at it today, some of our endcustomers come through a group concept, but underwritten on an individual basis. It’s not like JLGS are going to go away overnight, but increasingly, the trend is that it will become more and more of individual credit. As customers turn digitally savvy, become part of the formal financial system, and build their own identities through Aadhaar, they don’t necessarily need to come in through a group construct.

Earlier, the issue was that if there was a lady in the village, she didn’t have any form of identity to say who she was, or any credit history, and that is when the social concept of group lending happens.

What is the status of your plan to raise $150 million in capital?

I don’t know where this $150 million figure came from. It was to be a capital requirement over a period of time. It was never a plan that we were going to raise in a single round! If you see today, we have raised ~195 crore in series-a plus debt. This is part of a larger round of approximately ~300 crore. Apart from the quantum, what has encouraged us are the people behind it — the Bill and Melinda Gates Foundation, Oikocredit, and Nomura. We feel extremely proud and encouraged by the quality of investors who have come forward and believe in Avanti’s story.