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The COVID Pandemic Strengthened the Importance Of Providing Financial Services To the Financially Underserved Even as the middle-income segment also suffered, they at least had some security of savings in their pockets

By Ankush Aggarwal

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COVID lockdowns uncovered the vulnerability of the low-income group like never before. This was a peculiar situation where the segment was impacted by not only the income shocks owing to loss of jobs/lack of job opportunities but also the expense shocks owing to the medical expenses related to COVID.

Even as the middle-income segment also suffered, they at least had some security of savings in their pockets. Also, with access to insurance from employers or on their own, the middle-income groups could survive the shocks. However, those who had access to the above benefits were a tiny minority (sub-15 per cent) in the low-income segment.

The key problem statements for this segment include impact on livelihoods and attending impact on incomes and expenses with very low or no savings; limited access to their financial information in a suitable format; inadequate access to insurance and inability to get suitable and timely treatment; and low financial literacy, language and technology barriers to access financial products and services.


The above-mentioned problem areas were always well-known; COVID aggravated the impact of not having easily accessible organized solutions to those problems.

The solutions could be as simple as:

Access to the financial information

  1. Access to bill amounts, due dates and cash-management guidance to ensure that the bills are paid in time
  2. Ability to monitor their bank balance daily so that they know their cash position before making any discretionary spending decisions
  3. Credit score checks in a simplified format
  4. Access to the information about their social security accounts like employee provident fund and personal provident fund.


Credit can be made available to this segment in a variety of product structures. The two commonly used structures are:

Credit Line Construct

Having access to a small amount of money with the tap of a button during an emergency. This is a credit line construct that helps in mitigating the small expense shocks or even income shocks for a few weeks. Credit line provides this segment with access to a predetermined small amount of money and hence, a sense of security.

Tenured Loan Construct

The tenured loan construct is occasional access to a large sum with minimal documentation. Several lenders had stopped lending to this customer segment during COVID. Many businesses were grappling with their cash constraints and thus, did not have the resources to make salary advances. To solve this, the governments announced multiple long-duration loans and advances directly to the businesses. However, the onward disbursement of these loans to the low-income segment did not happen.

Flexible Repayment Credit

Flexible repayment plans aligned to the segment's cash-flows work well as the cash inflows are sporadic. RBI announced a moratorium on the outstanding loans during COVID; they helped customers to manage their cash flows and credit scores by providing incremental time to make installment payments.


Medical insurance: Medical insurance was a necessity during the pandemic, given the risk of increasing medical expenses.

The insurance products available in the market were expensive for the low-income segment. The decision was a tradeoff between cash conservation for a potential expense shock vs. buying insurance to mitigate the hospitalization risk.

Job loss insurance: Given this segment is most vulnerable to job loss because of the changes in the macro-economic environment, insurance which helps them bridge the expenses between jobs is valuable.

Life insurance: As there are no/low savings, if one dies, at least their family should have access to bridging funds till they come back on track.

Structurally, these insurance products should be low premiums and created with the requirements of this segment in mind.

Quick Job Search/ Job Switch Solutions

This segment specifically saw a major impact on income loss. It was also evident that as one discipline of jobs went down (for example restaurant waiter jobs) the other discipline of jobs went up (for example, e-commerce delivery drivers, hospital staff). Having quick access to job switch portals would help them find another job.

Distribution of these products and services

The answer lies in structuring the sachetised products and their delivery. The traditional brick-n-mortar models of distribution will make the unit economics of these sachetised financial products unviable. Thus, new ways of distribution are necessary.

One way to distribute these products is through smartphone apps with a good user experience. During the pandemic, digital inclusion got accelerated multifold. Also, with the advent of UPI, a large part of this segment is comfortable making transactions online. Just in the low-income segment, the UPI transactions have increased by 45% in the 18 months of COVID.

Thus, a digital-first neo-banking platform built for this segment with the ability to distribute the sachetised micro-financial products will help make the unit economics viable for these products.

The need is to build products and services which are inclusive and aligned to the financially underserved customers. Micro-credit, micro-insurance and other micro-financial products will go a long way in solving the problems of income and expense shocks. Eventually, a stronger bottom of the pyramid will make the whole pyramid stronger.

Ankush Aggarwal

Founder, Avail Finance

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