Miles to go as financial inclusion has only scratched surface: TRIBE CEO

Tech is helping extend credit to the MSME sector

Sometimes one may feel a journey is coming to an end when, in fact, it may be just beginning. That is how Atreya Rayaprolu, the 43-year-old CEO of TRIBE, which lends to the micro, small, and medium enterprises (MSME) sector, felt when he looked closely at the financial inclusion space in India in 2013-14. 

He could see how far India had come after the micro finance boom of the mid-1990s. But he also realised that financial inclusion had touched only the tip of the iceberg and there was still a long way to go. TRIBE, which is part of the Mumbai-based Aavishkaar group, was set up to fill this gap.

While micro finance was reaching people — 90 per cent of the funds go to women in rural areas — the MSME pace was severely underfunded. Micro finance loans in India are currently in the range of Rs 2 trillion (lent by all micro finance  institutions in India). Though the the MSME market is estimated to be 10 times the size of the micro finance market, currently, its penetration is one-tenth of that. 

Rayaprolu was uniquely placed to spot this gap. By 2013, he had worked closely with a range of micro finance companies such as BASIX, Bandhan, and Equitas to raise funds for their businesses. The companies had all raised several rounds of funding and he’d been deeply associated with the transactions. He was working with Avishkaar’s advisory company Intellecap at the time.

Rayaprolu had closely observed the new digital payments models such as UPI and RuPay and banking correspondent models like The Little World and had some insight into how digitisation was impacting the rural world and driving financial inclusion. His work with the MFIs also took him to the rural hinterland multiple times. All this made him understand that a lot more needed to be done when it came to financial inclusion. 

“It’s one thing to get customers to open back accounts and quite another to get them to do transactions digitally,” explains Rayaprolu. Most of the new bank accounts were nearly dormant and were being used as little more than post boxes, where pension or NREGA funds were deposited and withdrawn. The top-down approach of opening more branches and more accounts alone could not lead to any significant change in consumer behaviour, Rayaprolu felt.

At another level, he could see the changes in consumer behaviour being driven by companies like Flipkart and Amazon. New consumers on these platforms were making purchases digitally and leaving a digital trail that could be accessed by those offering credit. Simultaneously, aggregators operating in the business-to-business (BtoB) segment were also coming up — companies like Storeking, for example, that functioned like an Amazon or a Flipkart for retailers. 

The one missing link was more credit. For a retailer, distributor, manufacturer or even a small service operator, the money lender was often the only option for credit. Credit was available at a very high cost, if at all. This was the main reason that micro stayed micro and couldn’t become “small”.

Finance and technology were the two things that Rayaprolu understood. After getting an engineering degree from IIT-Delhi, he went on to do his MBA from ISB, Hyderabad, and worked for a while with ICICI bank. Thereafter, he joined Intellecap.

His stint with Intellecap gave him an insight into the financial inclusion space in rural India and he realised that leveraging  technology would give better results. But he was not yet certain who his end target customer would be and the exact service that needed to be provided. “The potential to drive inclusion by leveraging technology in a way brick and mortar could not, was visible to me and I could see an ecosystem developing for it,” explains Rayaprolu.

In 2014-15, Rayaprolu seeded Aavishkaar’s operations in East Africa, especially in Kenya, Uganda, and Rwanda. He found that Kenya was a step ahead of India in terms of digital payments on account of M-Pesa, a mobile phone-based money transfer system driven by Vodafone in that country.

Taking into account the various aspects of the changing world of the rural financial space, the Avishkaar group set up TRIBE in 2016 to reach MSMEs, primarily in Tier 2, 3, and 4 towns. (Tier 1 already enjoys reasonable access). 

The intention was to partner with aggregators and offer credit to micro enterprises, with an emphasis on the agri-chain that is starved of credit — typically those with an annual turnover of Rs 5 crore. By using the partnership model and technology to their advantage, TRIBE planned to keep its transaction costs in check. This is one major consideration for MFIs since they offer virtually door-to-door delivery and their transactions costs are very high.

Various studies, including one by Omidyar Network and Boston Consulting Group, have estimated that the unmet credit demand in the MSME segment is Rs 20 trillion. Companies like Capital One and Lending Kart are already offering loans to such enterprises, but their target set is the small and medium enterprises, especially in Tier 1 and Tier 2 towns. 

More recently, some MFIs have started lending to existing clients who have repaid loans in the past. “This is beginning to happen now in the Rs 1-500,000 space,” says Dev Verma, COO of Satin Creditcare, a Delhi-based MFI, adding that they, too, have recently started lending in this space. 

TRIBE intends to focus on enterprises at the bottom of the pyramid — enterprises in Tier 2, 3, and 4 towns that need small loans and typically rely on local money-lenders for their credit needs. As of now, TRIBE’s loan book has disbursed only Rs 100 crore, a drop in an otherwise vast ocean. But if the low penetration, the unmet demand numbers and the experience of the micro finance sector is anything to go by, this journey has a lot of distance to cover.

Tribe in numbers

Rs 42 cr AUM

Rs 51 cr Disbursements

Rs 7 cr Net worth

Rs 10k-20 lakh Ticket size

1,600 No. of cases*

61 Employees*to date (FY19E)