How Fintech Startups Are Leveraging Sachet Loans To Drive Financial Inclusion

Way back in the 1980s, well before the glimmer of liberalisation, one determined doctor laid the foundation of an idea that would go on to revolutionise how products were sold in India. 

That man was the late Dr C.K. Rajkumar, founder of Sujatha BioTech and that idea was the humble ‘sachet’, which, even today, contribute to some 60% of all shampoo sales in India. Sachets are essentially single-serve products that are aimed at the mass-market and are one of the best ways to combine convenience and accessibility without affecting the bottom line. 

Sachets are frontline contenders in the concept of unearthing the ‘fortune at the bottom of the pyramid’, a concept by the famed CK Prahlad that advocates for businesses to seek economies of scale by developing novel distribution methods that would democratise products to the deepest trenches of society.

In the present day, while physical sachets no longer hold the same sheen that they once did, the idea of a sachet continues to pique the interests of the 1000s of startups that seek to propel Indian society into the future. One such industry that has taken to the idea greatly is India’s nascent fintech industry, and the product category that it seems to hold the most promise in is loans.

Financial inclusion in India has long been a topic of debate. The lack of formalisation and a relative slump in the velocity of money in rural India means that these places tend to be neglected by institutional financiers. This proved to be the opportunity of a lifetime for Indian startups as nearly three-quarters of the Indian population resides in rural India.

Riding On The Pandemic Tailwind

The pandemic threw a wrench in the lives of many Indians. While those in the formal sector were able to retreat into their homes to weather out the adverse effects of the lockdown, millions of Indians, both young and old, found the ground beneath them giving away. Many had to rely on credit to sustain their livelihood and consequently, small-ticket loans became immensely popular with these crowds. 

There are many reasons why sachet loans are proving to be immensely popular, some of these include:

Quick And Easy Process

Sachet loans generally hover between INR 500 to INR 10,000. Given the relatively small size of these loans, the vetting process along with disbursal is not as heavy as it normally would be for full-fledged loans. 

Furthermore, the impending digitisation of several aspects of the Indian economy along with the ubiquity of mobile data and smartphones has resulted in the widespread acceptance of digital dispensing methods. Being home to the second-largest internet user base in the world, it was only a matter of time before the idea caught on quickly.

Instant Disbursals

India’s robust fintech ecosystem enjoys the patronage of the government as well as the people. The runway success of the UPI accustomed people to instant money transfers while India’s burgeoning fintech ecosystem made it possible for prospective borrowers to access credit from the comfort of their homes.

Completely Digital

Unlike yesteryear credit disbursal practices, modern-day NBFC and neobanks are ‘digital first’ — they are built to offer a highly personalised mobile-first experience that is meant to bring the back to the people. 

As a result, all processes are routed through digital means, and the entire process, from application to verification is entirely digital. This translates to a frictionless credit-availing experience, thereby contributing to faster adoption. 

Enables Building A Credit History For New Borrowers

Unintentionally, the larger digitisation drive in India’s financial industry is proving to be a boon for an entirely new segment of borrowers. 

By tapping into a class of borrowers that were historically ignored and underserved, lenders are undertaking the hard work of building comprehensive credit profiles of first-time borrowers. This fits very well with the open banking model that Indian banks have started to embrace.

Sachet Is Here To Stay

In a report released by CRIF in March 2021, the volume of loans that were disbursed in the personal loan category registered a sharp spike. Concurrently, the size of each loan was trending downward. Given the inflationary crisis that is currently gripping the world, access to institutional credit is only going to tighten and the formalisation of rural India will be inevitably delayed. 

India’s persistent financial inclusion drive will mean that sachet loans will be the sole driver of infusing credit into areas where it is needed the most. The coming years will continue to see a huge boom in sachet loans as individuals from smaller towns and cities seek to advance their causes via small-ticket loans.