2018 BAI Global Innovation Award Winner
Innovation in Societal & Community Impact
RUKULA (PVT) LIMITED – Colombo 05, Sri Lanka
Credit for small consumer durables for the financially excluded in Sri Lanka
“Rukula – including the excluded; one person at a time.”
Using Sri Lanka’s first non-financial attribute based alogorithm, Rukula seeks to help the most financially vulnerable citizens of Sri Lanka obtain small consumer goods. We work with both SME and large-scale retailers to reach out to customers using technology-based processes that achieves a product sale in under 15 minutes, which is notable for the fact that both merchants and customers are not technologically adept and have minimal digital footprints. Although customers are encouraged to keep up with their payments, we acknowledged that these communities would have significant and multiple financial hardships during the course of their credit period. Consequently there are no interest costs or penalties for late payments. We have had customers paying after three years for a six-month loan – we understand.
Micro-finance was created 40 years ago to bring financial inclusion to people at the bottom of the pyramid. Nobody thought making $35 loans was feasible, but Grameen proved it possible. Since that time, micro-finance institutions (MFIs) have provided trillions of dollars in loans, but for the most part that funding is restricted to working capital funding. If you are making food to sell, MFIs will be happy to give you money to buy a cooker. But if you are otherwise employed, and your cooker needs replacing, it is consumption, and MFIs don’t lend for consumption. This is the problem Rukula was created to solve in Sri Lanka: how could we supply household consumer durables to the people who needed them the most? We believe that using non-repayable donor funds is not sustainable, so the key was to ensure that the solution resulted in a sustainable business.
Rukula’s core assumption is that borrowers want to repay. Our core acknowledgement is that these borrowers will suffer multiple financial crises before completing repayment. Using these two simple statements we built Sri Lanka’s first non-financial credit scoring algorithm. We implicitly accept a lack of verifiable income sources. However, we also wanted to make the process of applying for credit to be widely available, transparent and simple as possible. To do this and create a sustainable business meant we had to create a lean and networked model. We do not believe in lending cash – there are plenty of studies in the market which show a negative correlation in alcohol / drugs consumption and income. If you lend cash, you never know how it will be used. On the otherhand, if you supply the product that the borrower needs, and restrict those products through product curation around necessities, you can at limit the misuse of funds.
Given that most of our customers have no digital footprint, our methodology to distribute credit uses both the existing SME retail network in rural areas as well as working with larger national retailers as lead generators. Products that can be bought are only what we consider as necessary to improve the quality of the borrowers lives. We do not lend for luxuries such as jewelry or fashion; we cap the value of the products at US$200 for non-verified income and US$500 for verified income. The borrowers are also capped in terms of repayments per month – no more than 10 percent of declared income is allowed to be repaid. Collection is enabled through the use of e-wallets across all major telco platforms such that we can handle 28,000 customers with just 28 staff members. We educate retailers to use technology, and even though we speak to everyone of our customers, they can leave the retailer with their new purchase within 13 minutes of walking in.
It was believed that the bottom-of-the-pyramid population could not be trusted to repay – this has now been emphatically proved to be false. Yes, people get late, but we have accepted this as part of our model. But over 90 percent will complete their payments within two years.
It was believed that you cannot allow customers to pay late without some form or punishment. We took the reverse thought – we do not charge interest or penalties on late payments. The cost of credit is fixed upfront, no matter when the customer finally repays. If you treat these customers with respect and dignity, they will return this.
It was also believed that if you don’t turn up in front of a customer they will not make payments – this is not true. We do not have a collections team in the field.
We have helped 28,000 people obtain products for their homes. We have helped 50 SME retailers increase business from between 25 and 60 percent, with some opening new locations. We have worked with large retailers to take products to customers in the most remote parts of Sri Lanka.
- IT – created the algorithm, created the systems.
- Operations – created, changed, improved upon our processes.
- Recoveries – analysed our client behaviour, created training scripts to help educate the customers’ understanding on the importance of completing repayments, but at the same time empathizing with the customers’ financial situation.
- Account Managers – built trust amongst both SME and large retailers that we could help them grow their businesses; trained them on our processes.
- SME Retailers – the retailers helped us understand their customer’s needs and specific issues in undertaking credit