"India is home to 150 million provident fund accounts. Of these, 140 million belong to workers who earn Rs.10,000-30,000 monthly. However, they have a hard time getting their loans approved from conventional banks,” says Vikas Kothari, co-founder, PerkFinance.
Sadly, it’s a vicious circle: no loans, no credit score. No credit score, no loans. Clearly, financial services for blue-collar employees is a massive opportunity. The space is under-penetrated, the economy is growing, we are shifting from portly public sector banks to sleek private ones, and the smartphone age is upon us.
Leverage technology and you have the recipe for a piping-hot business model. That is precisely what Oxford-grad and former VC at Lightbox Kothari, fellow Oxfordian Yogesh Keswani (R) and Vivek Kandkur (L), Kothari’s colleague from Infosys plan to do at PerkFinance.
The ten-strong team led by Kothari got to work in April 2018 with a simple motto: make loans available to skilled, blue-collar employees (who get paid at regular intervals). “Our crowd is the people in manufacturing, staffing and security agencies, who have no idea about mutual funds and SIPs. The most they know are FDs and chit funds, where a handful people get together and pool in money,” says Kothari.
They do so by partnering with companies such as Wolves India (recruiters), Enamor (lingerie), Embassy (real estate) and Bimal Maruti (car showroom dealer) with a large blue-collar work-force, and facilitate access to financial services (loans, insurance) through a simple mobile app.
Since these employees don’t have credit scores, the start-up helps them build credibility with lending firms by leveraging the HR data from their employers. The EMIs get deducted directly from the employee’s salaries, which makes repayment hassle-free. It currently works with three NBFCs, KB Financial Company, Apollo Finance and LenDenClub (a P2P lending firm) and will soon bring on board a bank.
The interest rate on loans (decided by the partner financial institution) falls in the 14-22% range, depending on the tenure. PerkFinance adds about 2% to this and offers it to employees of a partner firm. But, why would a company share its HR data? For one, it gets a free service for its employees. Its workers are happy as they can now avail affordable loans. It’s zero cost and zero risk to the company, the service motivates the workforce and could reduce attrition, and the start-up makes their cut on the loans.
PerkFinance raised $900,000 (led by Fosun) in December 2018 within six months of starting operations. Now, it looks to raise $5-7 million in the next three months. Since December, the start-up has gone from serving 20-odd companies to over 50, and is used by about 200,000 employees (6x since end-2018).
Kothari and team are aiming for two million users by 2020. For this, they will focus on firms with large blue-collar workforces such as automotive companies and showrooms, apparel brands, and BPOs. Next in line are hospitals and schools (RVS College, Coimbatore, for instance) where incomes are modest but attrition rates and consequently default rates are low, and employees of the fast-growing gig economy.