Start-ups and disruption mostly go hand-in-hand and there is hardly a segment or sector left where start-ups have not marked their entry and caused a disruption in any manner possible.
A Noida-based start-up has now disrupted a segment that has been historically very localised in nature or just limited to a community or a small circle of known individuals.
More importantly, it is trying to bring transparency to an instrument that was always looked upon as risky and opaque.
Founded in the year 2016, The Money Club is a platform that has brought chit funds in a digital avatar as part of its attempts to make saving, investing, and borrowing money more efficient and transparent.
The popularity of the platform founded by Manuraj Jain (an alumnus of IIT Kharagpur and INSEAD, France) and Surajit Ray (IIT Kharagpur) can be gauged from the fact that in July 2023, the platform facilitated 2.8 million transactions, established approximately 1.05 lakh money clubs, and facilitated the rotation of about ₹184 crore in savings. Further, the user base surged to over seven lakh.
"There are around 40 crore lower-middle-class Indians that need on-demand liquidity to ride over contingent crises. That was the trigger for us to launch our venture," says Jain.
The platform claims to address the financial challenges faced by over 40 crore Indians who lack a financial safety net. Using proprietary AI-powered underwriting and behavioural-based matchmaking algorithms, it connects users to money clubs to securely save, invest, and borrow funds while gamifying their financial journey. Given the contours of its product and offering, the start-up’s target audience is the lower middle-class segment that can avail a financial safety net without cumbersome paperwork.
Known in the offline world by various names including ‘Committee’ or ‘Beesi’, the chit fund business has been in existence for many centuries with so-called Rotating Savings and Credit Associations (ROSCAs) present all over the world.
A ROSCA is defined as a group of individuals who come together to form an informal financial institution wherein a common pool of funds is created by regular contributions by the members and based on bids, one member is allowed to withdraw the funds during each meeting of the club or the group.
This assumes significance since some studies suggest that ROSCA as a segment has been growing at 14 per cent in India - 150 to 180 million people were investing in chit funds in the country in 2020 and the segment has been growing at 15 per cent CAGR.
This is how it works.
Agents of the start-up approach potential users across the country and get them registered on the app post the successful completion of the KYC process.
Initially, the user is made a member of a small group of 4-5 members only, and thereafter based on his activities, he is given entry to a larger group.
The size of the group in terms of the fund pool size varies from ₹6,000 to ₹40,000. For bidding, a floor and ceiling price is set by the platform and the start-up has also tied up with two peer-to-peer lending platforms.
"Users are taken through a uniquely crafted gamified journey on the app where they move from small money clubs to bigger money clubs as they keep building a good transaction history on the platform," says Jain. Incidentally, the platform boasts of important features including real-time analysis, cash flow monitoring, risk assessment, and behavioural insights among other things to make the platform safe and secure from an investor and investment point of view.
This also explains why the default rate on the platform is only a little over one per cent.
"The platform's deep-tech algorithms process 20 times more transaction data than any other Fintech to weed out unscrupulous users from the system to make it safe and secure for the remaining disciplined users to keep Money Clubbing at high frequencies," says Jain. In terms of funding, the start-up has raised pre-series A round of funding with investors like LetsVenture, Venture Catalysts, Blume Founders Fund, and Rockstud Capital having put in money in the platform.
The start-up registered total revenues of ₹3.9 crore in FY23 with the current run rate pegged at 3.34 crore – the revenues have grown between 2x and 3x every year. The platform earns by way of commission fees that it charges for its matchmaking process and the technology services. It also charges fees for different levels of KYC.
Going ahead, among other things, the start-up plans to diversify to offer digital gold savings facilities for the far-flung towns of the country.
"Since we are the most scaled tech platform in this space, in the world's largest market, we are uniquely poised to build one of the largest on-demand liquidity platforms in the world," says Jain.
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