Can Startups Help Indias Poorest Escape Loan Sharks?
The Delta variant of the Covid-19 virus has left a trail of human tragedy and economic destruction in India. While cases are consistently decreasing and unemployment rates are slowly recovering, India is still facing a range of structural economic challenges. While more of Indias poorest get access to jobs, they face the reality of the poverty premium, the fact that the poorest often pay the most for essential services such as electricity and access to credit. People queue in a bank in Allahabad, India LightRocket via Getty Images  India is among the five fastest growing economies in the world. As a result, many Indians have benefitted from a growth in jobs. However, even those with jobs often still struggle financially. The need to fund personal emergencies, life events or education drives many Indians into the hands of loan sharks, payday loans and microloans that can become very costly in a short amount of time. Especially during the pandemic, loan sharks have been thriving, offering desperate Indians access to credit with excessive fees and interest. Earlier this year, Google banned fraudulent instant loan apps from its Play Store after a series of suicides and police investigations. However, these apps are only a small subset of exploitative lending products offered to Indias poorest. Europe has seen a mix of increased regulation and innovation to tackle this problem. While payday lending still exists, one the most prominent payday loan providers, Wonga, has gone out of business. There is also a range of alternative financial products for low-wage workers in need for access to finance. Earned wage access solutions such as Wagestream, Earnd, Hastee & Salary Finance have pioneered a new model of instantaneous wage payments, allowing employees to get paid after each shift rather than on their monthly payday. The startups usually utilise a line of credit to fund the early withdrawal of salaries and either charge employees or their employers a fee to fund the cost of credit. As the wage has already been earned, but not paid yet, the cost of credit are usually much lower than what would be offered to the employee directly. The value proposition to employers is increased financial wellbeing of their employees and leads to increased retention, making the company more attractive as an employer. India has seen little innovation in this space so far. However, the earned wage access market is now expanding to India. Refyne is currently the only solution available in the Indian market and has grown massively within a short period of time. The startups recently raised $20.1 in investment from DST Global (Which has previously funded neobank Revolut) and RTP Global. It is also backed by Wagestream funders QED Investors as well as Jigsaw VC & XYZ Capital. Refyne has only been running for a year but has managed to grow into a sizable platform. So far, the company has acquired 100 corporate customers with more than 300.000 employees. Chitresh Sharma, Founder & CEO of Refyne is an experienced entrepreneur, previously leading UK-based Fintech Swipii. Refyne founders Chitresh Sharma and Apoorv Kumar Refyne  Speaking about why he left the UK to launch Refyne in India, Sharma says: India is in a unique situation. It has a vast population, with many of them having no credit scores. This excludes them from accessing traditional lending products at banks and leaves them to loan sharks and payday lenders. To access those loans, people are being charged interest rates as high as 300 - 400%. Refyne says that they surveyed 1000 Indian employees with striking results: 86% of those who had previously used payday loans to close a financial gap would not have taken their loan if they had access to their earned wages. It is s the 21st century: We can order cabs and food at the push of a button, but are still waiting for our wages for 30 or even 45 days. So there is a massive opportunity to fix that problem, especially in India, says Sharma. At the same time, India has a large number of underbanked people. Sharma argues that alternative financial products can close that gap: The trust in banks is actually lower than in employers, this why the model of earned wage access through employers is very well suited for the Indian market. However, Sharma is convinced that there is an even more significant problem to be solved, beyond access to wages. Financial education is not taught in schools. This leads people to make bad financial decisions. We need to educate people about the importance of personal budgeting. Indians are spending increasing amounts on consumption, but wages are not rising equally as fast. Refyne is planning to gradually expand its product offering, including financial education and giving users access to a range of financial services.