In 2017, when Rohit Rathi was looking for a house near his new office and negotiating the security deposit, he was surprised at how quickly the landlord dropped his request after learning that Sachin Tendulkar had invested in his previous startup.
Rohit pondered the incident for a while, then came to the conclusion that trust networks were essential for humans to navigate society. If bank X gave you a loan, bank Y was likely to give you one as well.
However, these trusted networks, especially in formal spaces such as banks and insurance agents, were largely absent when dealing with gig workers and low-income users.
Rohit realized that formal financial institutions largely operated through a “rejection” process, where people who failed to meet strict and fixed standards and requirements were not allowed access to even the most basic services. .
He came up with the idea of a platform that was the antithesis of anything a bank or formal financial institution stood for; a platform aimed at low-income users who had no credit scores, bank statements, or employment contracts.
In March 2020, he, together with Naveen Budda and Badal Malick, founded a fintech platform that caters to financially underserved populations such as gig workers, entrepreneurs, freelancers, entrepreneurs and others.
While a traditional bank would look at a set of fixed parameters to offer services such as loans and set insurance premium rates, KarmaLife’s model is dynamically based. It tracks the journeys of its users, their payment behaviors and several other behavioral parameters and, based on these readings, extends financial services.
KarmaLife borrows from the Indian cultural philosophy of Karmawhich is the law by which good or bad deeds determine an individual’s future, says Rohit Your story.
It meets the financial needs of gig and blue-collar workers and helps them become financially resilient and increase their income by investing in their future.
Why gig workers, in particular?
Gig workers, even though they make up 85% of India’s workforce, have erratic cash flow and any sudden expense can upset their stability. They don’t have access to the financial products that most people have, like credit cards or pre-approved lines of credit from the horde of fintech apps we have on our phones.
The gig economy isn’t the smoothest when it comes to payments, either. There are regular late payments, salary deferrals, random cuts and additions to salaries, etc.
Banks do not want to interact with this user base because it is difficult to guarantee them or assess their level of risk. Financial regulations prevent them from taking more risk than stipulated, and moreover, formal institutions most often have predefined criteria for different types of products and services.
For KarmaLife, these restrictions don’t really matter because the data points it uses to understand and enroll its customers come from their current behavior, not their financial history.
For example, KarmaLife offers Earned Wage Access (EWA) – a financial product that allows people to access a portion of their wages anytime before payday; it’s basically like a little credit in the present, which is based on future income. This reduces the risk KarmaLife takes on its books, while still being able to provide its users with access to quick loans.
A solution like KarmaLife helps this part of society not only access financial products more easily, but also more responsibly.
“We would like to be for the gig segment what a company like Cred aspires to be for the top 5% segment,” says Rohit.
(Design credit: Aditya Ranade, Team YourStory Design)
Products and services
KarmaLife is a comprehensive fintech platform that records its users’ income and expenses, as well as helps them invest.
Some of the products it offers include:
- Access to earned wages
- Installment Loans, where the startup gives users who exhibit strong repayment behaviors access to multi-month installment-linked loans. Borrowers do not have to worry about immediate loan repayments and can instead spread it out over a few days, weeks or even months so that they always have access to cash.
- Liquid digital savings: For those able to save or generate a financial surplus, KarmaLife offers to lock the amount in an investment instrument that does not require any minimum contribution and allows the funds to be liquidated with 24 hours notice.
The loans offered by KarmaLife are purpose-based or “end-use” loans, where the credit facility is extended to users only for specific purposes, such as cell phone purchases, bicycle repairs, purchase of essential items, medical bills, etc.
The startup is currently exploring microinsurance products, such as health and personal accident insurance.
“We realize that finance, for anyone, is only a means to an end, and that ultimately users are best served when their core aspirations are served. Our long-term vision is to become the ‘super app’ of choice for all gig workers to meet all their financial and related business needs throughout their career lifecycle,” says Rohit.
KarmaLife extends its services to users through partnerships with employers and on-demand worker aggregators. The plug-and-play platform integrates with most human resource management systems and doesn’t require too much setup time.
Users are started with short-term and very low-cost credits, which over time increase according to their repayment capacity.
KarmaLife’s customer base includes e-commerce, food delivery platforms, ride-sharing companies, flex-staff companies, and general logistics organizations. It launched its beta version with Flipkart in early 2020 and received positive feedback from the company and users who accessed the platform.
, , and are among its customers.
Revenue model
KarmaLife’s primary business generator is income/salary linked credit and other small, short-term credit products. It allows users to borrow money to cover that short period of time between the end of the month or a salary credit cycle and the day the salary is credited. It also allows users to borrow money for emergencies like medical requirements or car breakdowns.
However, instead of charging a high interest rate on the line of credit, it charges a flat subscription fee, to be paid by the site workers who take advantage of the loan.
(Design credit: Aditya Ranade, Team YourStory Design)
“This stands in stark contrast to interest rate models, which are complicated and cognitively taxing, or transaction-based pricing models, which tend to be ‘smoke and mirrors’ because they charge higher prices for lower value transactions,” says Rohit.
Subscription fees are only charged in the months the credit is used – if a user used the credit in January and February, but paid it back in March, they do not need to pay for the month of March .
To date, the startup claims to have processed more than 500,000 credit transactions and its business has grown 10-fold in the past nine months. Its KYC-compliant users have used 85% of the offered credit limit so far, and its repeat rates are over 80%.
Although it caters to a segment that formal financial institutions typically deem “risky,” KarmaLife says its NPAs are below 0.5%.
The Bengaluru-based startup raised $2.2 million in pre-Series A funding in February this year, from Artha Venture, Netgraph, LV Angel Fund, Singularity Ventures and angel investors. Rohit says the Founders are already in talks for a follow-on Series A round this year.
Future plans and outlook
KarmaLife’s total addressable market is 100 million blue-collar and contract workers in India, it says. In South Asia, Southeast Asia and the Gulf, where he wants to go next, those numbers are higher.
The startup’s ultimate goal is to become a one-stop financial ecosystem platform for gig workers with the addition of retirement, micro-insurance, savings and investment products, among others.
Due to the large number of gig workers on the platform, Rohit envisions the product becoming something akin to a matchmaking website, where he could connect gig workers looking for jobs. work opportunities with employers looking for people with specific profiles and skills.
From 7.7 million people in 2020-21, the gig workforce is expected to grow to 23.5 million by the end of the current decade (2029-2030), according to a report by NITI Ayog.
Fintech solutions like which raised $82 million in funding from Tiger Global earlier this year, and KarmaLife can help drive financial inclusion for this largely underserved population.