Relatively young in the corporate lifecycle, Harshit has close to 5 years of experience across multiple verticals of the HR function. Graduated in 2017 from XLRI Jamshedpur, Harshit spent his early career with Korn Ferry in Leadership Consulting and Executive Search. Post his stint with Korn Ferry, he was responsible for building the HR function from scratch for an Accel Partner and Tiger Global funded logistics startup – Cogoport, before moving on to Whitehat Jr. for a short stint. His responsibilities at Avail Finance include leading the HR function, managing the entire employee lifecycle.
Despite efforts by the government to bring blue-collared workers under the ambit of the banking system, the lending industry still seems to be skewed against this section. Blue-collar workers include labourers, industrial workers, domestic workers, beauticians, drivers, security guards, and office staff. While they form the larger part of our workforce and have a rising need for loans, the lending industry has major shortcomings in their product offerings for this section, with services neither user-friendly nor in line with the overall demand.
A cumulative lack of steady income, a sufficiently large footprint with credit bureaus, and a healthy bank balance mean that they often fall outside the formal lending parameters of banks and NBFCs. Consequently, they often depend on other sources such as employer loans or informal creditors to borrow money. This is the key market that leading fintechs are now targeting, disrupting the traditional lending beliefs in the process.
Targeting the blue-collars workers
India has over 450 million blue-collar workers. A recent study found that approximately 120 million households in India have a yearly income ranging from ₹2 lakhs to ₹5 lakhs. The average salary range falls between ₹15,000 and ₹30,000, an indicator that they can have a reasonable disposable income and can be good candidates for the lending industry.
The demand for loans is also fairly high in this segment. From two-wheelers to property and higher education loans, the requirements can include both essential as well as aspirational expenses. However, the formal credit system rarely considers them as ideal candidates. This can be counter-productive because it means that the industry loses a major part of the market which has the resources to avail loans. Fintechs are now starting to leverage technology to identify and address the needs of this growing consumer base.
Sources of blue-collar loans
Where do blue-collar workers usually go for loans? Those who have regular employment, often use employer loans to meet their requirements. Many companies have loan facilities like vehicle loans or housing loans. In some cases, there may be employees cooperative societies where they can also get access to employee loans. However, these loans are not always available.
Many blue-collar workers also fall outside the ambit of formal employment, often working as freelancers or in companies that may not even provide them with a regular fixed paycheck. Given these conditions, many of them end up going to money lenders outside the formal credit infrastructure. These lenders often charge an unreasonably high-interest rate that ends up choking the borrower, catching workers in a vicious debt cycle.
The result is that we have a large segment of the population that needs loans and is capable of repayment, but is unable to access them through the regular channels. As a result, they often fail to exploit the opportunities and advantages that are easily available to people with higher incomes. Not only does it harm their prospects, but it can also have a generational impact where the lack of the privilege of one generation limits the opportunities for the coming generations.
Breaking the stereotype
Many fintechs have stepped up to bridge this gap. The key differentiating factor is the availability of technology that has helped them tackle the credit challenges. Coupled with some innovative and bold measures, these fintechs have been largely successful in tapping this massive market with a healthy scope for further expansion. Some of their key levers for growth are:
Data: One of the challenges faced by this income class is the lack of reliable data they can furnish as part of loan surety. With no assets or credit cards, they cannot furnish sufficient proof of their income or spending pattern. Fintechs have resolved this challenge by collecting data from their digital footprint through tools like UPI spend, lifestyle apps, location data, and demographic information.
Partnering with banks: While banks are limited by rigid rules and regulations when it comes to assessing and structuring loans, fintechs can use an alternative model. In many cases, they have stepped in as a bridge between the banks and the borrowers by partnering with banks to disburse and handle the end-to-end management of loans. It’s a win-win situation for all where the banks can widen their ambit to the working class while reducing their risks. Fintechs can reach out to a growing class of consumers with high demand, while the borrowers finally have easy access to the banking structure.
Flexible repayments: One of the challenges in lending to blue-collar workers is repayment. Since many such workers fall under the gig economy, they don’t have a fixed pay date for every month. In addition, many of them may not have the financial means to repay loans if their repayment date falls before their payday. Fintechs have worked around this bottleneck by restructuring repayments according to the worker’s payday. This flexibility ensures that loans are repaid immediately on the availability of their pay, thus reducing the chances of default.
Consolidated services: A significant advantage that fintechs offer across the board is the consolidation of financial services. Lending platforms offer loans that can range from small-ticket loans like buying gold for marriage to more long-term lending like education loans. In addition, some platforms also provide services like insurance or investment advice.
Blue-collar workers form the backbone of our economy. To ensure that the economy goes forward, we need to ensure that they are also included in our formal credit structure. Emerging fintechs with their innovative measures have provided a much-needed bridge to address their credit needs and thereby, help in strengthening the lending infrastructure of the economy as a whole.