COVID19 strikes cash flow lending for small businesses in the country

Many ongoing industry efforts to bring cash flow lending to life for MSMEs are now on hiatus

COVID19 strikes cash flow lending too

At iSPIRT, with our long-cherished dream of democratising credit in this country, we advocated for and built public infrastructure to enable market players to offer cash flow based lending solutions to small businesses. 

Pre-COVID: We argued that small businesses needed this new breed of products because they were unable to access formal credit otherwise.

During-COVID: As we process, accept and adapt to our new reality as a country, we realise small businesses need something much more urgently than cash flow based solutions from the market – they need rescue and stimulus packages from the government to survive the health and economic distress brought on by COVID19. 

Post-COVID: When the lending cycle picks up again in the market (and we will watch it diligently!) we will revive our efforts to bring cash flow based lending products to the market. For now, we are putting these efforts on a hiatus. This is because we think there’s a while for “Post-COVID” to come and many uncertainties are unfolding every day. So for now, we want to wear a “During-COVID” hat for the foreseeable future. 

This is disappointing for many parallel efforts that were underway in the market

Since July last year, after the U.K. Sinha chaired expert committee on MSMEs submitted its report to the RBI, many parallel efforts including Sahay, revamping of TReDS, PSB59, etc. by different market players were underway to bring cash flow lending ideas in this report to life. iSPIRT engaged with market players to design a digital public infrastructure first approach encapsulated in Sahay. The government was supportive of all of these, highlighting the importance of MSMEs within the economy.

Cash Flow Lending – The idea whose time will come

This slow down in the momentum is obviously disheartening for many iSPIRT volunteers and to all the market players we were working with. Months of hard work may not come to life in the next quarter or two. But these same months of hard work were possible only because we saw ourselves as architects with a 10-20 year horizon to solve India’s hard problems.

Cash Flow lending is a powerful idea to democratise credit in our country. It’s time will come, and come soon. Right now, we need to pace ourselves to our new realities and revive the energy again when lending picks up in this country.

About the Author: Meghana is a core volunteer and orchestrating our efforts in Democraticising credit at iSPIRT. She can be reached at [email protected]

When one door closes…

An inspiring effort in response to COVID-19

Last Tuesday, for the first time in recorded history, India pulled the emergency brakes on all of the complex interactions that make up the economy and society of 1.3 Billion Indians.

We’re going to see a lot more cascading effects of bringing almost all economic activity to a sudden and near-complete stop. Some of those effects are already visible and others will reveal themselves over time. One thing that’s easy to predict is that this disaster, like most others, will affect Bharat more than it does India.

However, at iSPIRT, we remain impatient optimists for Bharat. It does not suffice for our volunteers to simply predict the future; we want to help create it. When the lockdown hit, we could immediately see that the country’s messy supply chains would be hard-pressed to disentangle essential services from non-essential ones. On the very first day of the lockdown itself, you may have seen videos or news about the police using their lathis on innocent essential service providers like doctors.

This is undeniably tragic, but at its heart is an information and social trust issue inherent in India. When you distil the problem, it comes down to how does the administration identify those travelling for essential-services vs those who are not. Consider this, Swiggy and Zomato alone – who only work on the last mile of one category of food – claim to have a fleet of close to 500,000. For the entire supply chain, even restricted to essential items only, will require authorisations for millions of people and another few million vehicles.

So today, we’re announcing the release of an open-source tool called, ePass. ePass is a tool to help the administration issue digital lockdown passes. These e-Passes are secure and can be verified when needed. iSPIRT got this solution going from zero to launch in less than 4 days. In the following interview, Tanuj Bhojwani speaks with Sudhanshu Shekhar, who led the effort to build the tool and Kamya Chandra, who helped liaison with the Karnataka administration.

Tanuj Bhojwani: Hey Sudhanshu, let’s start with what e-Pass is?

Sudhanshu Shekar: Sure, so the objective is to make sure that those who are on the road providing essential services or regular citizens seeking them can face minimal friction from the authorities.

We imagine a simple 4-step flow

  1. Individuals, such as you or me, or businesses providing essential services, can apply for a pass.
  2. The administration sees these requests digitally, and can authorise them from the backend, either manually or via automated rules.
  3. People can download their digitally signed passes on their devices
  4. The on-ground personnel, such as the police, can verify the curfew pass is valid by scanning it.

We’ve built tools for each part of that flow.

When we started working with the administration, they gave another great suggestion. If the beat officers could provide pre-authenticated “tokens” – like a gift-code, we could make this process even more convenient for some essential service providers. For example, they could distribute tokens to all the informal businesses in a mandi in one go, helping bring the supply-chain back online that much faster.

Tanuj Bhojwani: And you’ve made this open-source. How can a local administration use this?

Kamya Chandra: Everything is a configuration. The administration will have to decide who the approving authorities are. An admin dashboard allows bulk uploads, approvals, tracking statistics of issued passes, etc. It also allows them to configure timings, the validity of the pass, which identity fields are required, etc.

And finally, they have to instruct their beat officers to download the verification app and use it.

Tanuj Bhojwani: so the local government hosts this themselves?

Sudhanshu Shekar: Yes, the governments need to host this themselves, either directly or through a service provider. As iSPIRT, we have only provided the code and will not be providing any managed services. Even the code is open-sourced for others to use and remix as they see fit.

Tanuj Bhojwani: iSPIRT doesn’t work with the Karnataka administration normally, so how did this all happen? How did the team come together?

Sudhanshu Shekar: Sharad called me at 8 pm Tuesday or Wednesday? Maybe it was 8 in the morning. I’m no longer sure. What’s a day anyway? *laughs*

Kamya Chandra: I want to interrupt here and say I am super impressed by Sudhanshu and the rest of the team. No matter how little sleep they got, they didn’t let it affect their judgement or mood. Their decisions were always geared towards what’s the best that’s needed.

Sudhanshu Shekar: Thank you. We’re all just doing what we can.

But basically, on Monday, as Karnataka started enforcing curfew, we realised that people are going to need curfew passes. We started kicking around the idea on Monday, but there was no team. The next night the PM announced a nation-wide lockdown. We knew this was going to be a problem everywhere.

On Wednesday, the Karnataka administration also got in touch with Sharad asking for a similar solution, and they made it clear they need the solution in two days.

Sharad called and said, “I’m going to ask you about something, and you’re going to want to do it, but be really sure and think about it. This is a hard project and has very tight timelines. Everybody will understand if you say no”.

Sharad was right, I did want to do it, so I said yes and immediately got to work. I reached out to several friends and iSPIRT volunteers for help and a few – namely Mayank, Manish, Vibhav, Mohit and Ashok – agreed to help. It was easy to convince everybody, given the importance of fighting COVID. Manish has a few friends in China and was very aware about the seriousness of this situation. We quickly agreed on the basic product outline and started working. Wednesday was a flurry of activity and we got frequent reviews done with the Administration.

We realised we needed an admin console for the police to manage pass issuance. None of us was really an expert in building front-end applications and therefore, I started making calls trying to find an expert. Through referrals, I managed to reach Vishwajeet at 12 pm. I spoke to him about the project, its importance and the strict timelines. I told him we’d fail without him!

Tanuj Bhojwani: So you called a guy you’ve never met and asked him to deliver a complex task, on a ridiculous deadline for no pay nor any certificate or recognition. How did he respond?

Sudhanshu Shekar: He called his office to take a holiday. Vishwajeet sat down, worked for 15 hours straight, and delivered before time!

Kamya Chandra: *laughs* I want to add that this team, which did not know each other, did sleep shifts – including Vishwajeet, who became a volunteer that afternoon. I remember Sudhanshu taking turns with the devs to sleep at night in 2-hour batches just to keep the engine going. I’d run demos with the administration for feedback in the morning, while they all got a little shut-eye. From afternoon, they’d repeat another day and night of development.

Tanuj Bhojwani: Wow, that’s a lot of effort, and what sounds like very little sleep! What was happening on the police end, Kamya? 

Kamya Chandra: Honestly, I went in with a negative impression of the police and administration – because all you see are videos of people being beaten. However, I was very impressed with the few people I was working with. They were very knowledgeable about the challenges they were going to face operationally. Also, it was obvious they were doing their best. The first call I got from them was at 11.45pm!

They made time for our demos, gave excellent, considered feedback on all of it that has definitely helped the product. For example, we added a quick and easy way to verify the ID alongside the QR, so that it can work even if the beat policeman verifying does not have a smartphone.

All of this was happening by a remote team in lockdown. I was in Delhi talking to officers in Karnataka. Other than Sudhanshu, I’ve never met any of the other volunteers! In every other organisation, this kind of a crisis response doesn’t happen as smoothly even if the team knows each other. Anywhere else, it would have been near impossible if the team didn’t know each other.

Tanuj Bhojwani: Oh! I assumed they were all from Bangalore?

Sudhanshu Shekar: No.

 Mayank is in Bundi, a small town in Rajasthan. Kamya is in Delhi. I’m in Indiranagar, Bangalore. Ashok, our design guy, is in Koramangala and Mohit – I have no idea where he stays – I have never met him *everyone laughs*

Kamya Chandra: Knowing everyone’s location is harder, we still don’t know full names! One of the volunteers who helped us test the security of the product was Sasi Ganesan. I spelt his first and last name wrong in the first email I sent to him! He still helped though. On the 4th day of working together, I needed everyone’s last names, I still only knew Sudhanshu’s and Sasi’s!

Compared to the places I’ve worked before, I was surprised to see Pramod send an email with such savage truths. That’s a great example of how radical candour works, why it is in direct opposition to corporate culture.

Tanuj Bhojwani: *laughs* What were the “savage truths” in this email?

Kamya Chandra: To be fair to Pramod, it was more surprising than savage. Pramod said DO NOT GO LIVE (in bold and underline) until security and related aspects weren’t complete. The contents weren’t particularly shocking, but that he sent it to all of us – including people he barely knew. There was no secrecy or pretending to be bigger than we are. All our failures were also publicly available to a team we’ve never worked with before or met. It’s quite a unique experience.

Sudhanshu Shekar: Yeah, we were planning on going live on Friday, and we knew we needed to do security testing before we went live. Pramod’s email was a good one, and all fair asks about security, usability and data retention. He connected us to another iSPIRT volunteer, Sasi Ganesan for help. Ten hours before the scheduled launch, Sasi wrote back with a list of tasks we must do BEFORE we go live. This Thursday night email doubled our todo list. Thankfully, we were able to pull in Bharat, Sireesha and a few others from Thoughtworks to help close these tasks But at the time it felt brutal, we realised this was going to be a very hard few hours.

Kamya Chandra: Yeah, I think this is around the time Rohit started helping us enhance our UX. To me, this email was a clear indication of the high bar every iSPIRT volunteer must meet. Tight timelines or urgent needs are not enough to excuse sloppiness. I am glad we have senior volunteers such as Pramod to keep the bar high.

Tanuj Bhojwani: But I believe this story has a twist?

Kamya Chandra: Well, we did the demos in time, and everyone seemed very impressed. Unfortunately, the Karnataka administration decided to go with someone else. Their decision to go with someone else was disappointing for us.

However, they are policymakers making scale decisions. They probably had to keep many balls in the air and have redundancy. It’s good they have backup plans for backup plans.

They handled it with grace and were very kind about it. They sent a thank you and a commendation letter to each of our volunteers. One of the senior lady officers asked me – do you only take techies? I do not have a computer science degree, but I want to volunteer!

I told her I was an economist too and that she should definitely volunteer.

Sudhanshu Shekar: For me, the toughest part was when I heard the news that our work won’t be going live on Friday like I had promised all these guys. I was really sad. For about an hour, I tried to fight the decision, but then I realised that I would have to do the difficult thing and break the bad news to a bunch of volunteers who’ve slept less than 6 hours total in the last 72 hours.

What happened next is what surprised me the most about this whole thing.

All of them – every single one – took it so well! They all said something to the effect of working on a solution with other volunteers felt better than not working on one and worrying about the lockdown.

I thought this is the end of the line, but it was they who cheered me up and suggested we should open-source it. I was hoping to tell the volunteers to get some rest. Instead, these guys were so passionate that they worked for a couple more days to complete the documentation, which is why we were able to launch ePass today!

Tanuj Bhojwani: Wow. That’s quite a lot of team-spirit for a team that has never even met! So what happens now that this is open-source? How do you expect it will get traction?

Kamya Chandra: The decision to open-source paid off! Even though Karnataka didn’t take ePass, the officers messaged their batchmates and told them about what the volunteers did.

Sudhanshu Shekar: Now, we have demos scheduled with several other state governments as well as a few national ministries. We think this could be live in at least a couple of places soon.

Tanuj Bhojwani: That sounds like a fairy tale ending. Do you have any advice for anyone who is reading this and wants to volunteer?

Kamya Chandra: I used to work at the World Bank in DC, and we were trying to implement national-level digital systems in many countries. When we had technical challenges there, I was often told to get on a video call with iSPIRT volunteers for guidance and inputs. The more I interacted with them, the more I realised there is magic here to learn from. So I gave up my diplomatic passport and got on a plane to Bangalore!

So my advice is that you should try volunteering even if you’re many, many oceans away!

Sudhanshu Shekar: *laughs* I have a more straightforward test than Kamya’s for those who want to volunteer. These are also the three reasons I volunteer.

First, Societal Impact. You feel useful because you get to work on something that genuinely helps people.

Second, exposure to a wide variety of topics – such a different set of problems – you don’t exactly stick to your lane. Hence, you also meet people with very diverse backgrounds and work experiences. Because my peers are not age-bracketed with me, I feel like there are many lessons that I usually would’ve learned in ten years of my career, I’ve learned already at iSPIRT. 

Third, you draw energy from others’ passion. It’s just amazing to go to work with people like this every day. I’ve realised iSPIRT is a self-selecting group – it’s only the people who seek to find it, find it. It is not easy to be a volunteer, because the environment is open and the volunteers are self-driven, people will clearly be able to see if you can walk the talk. When you have people respected in a system not for who they are, but what they do, it is magical for everyone.

Tanuj Bhojwani: That is very true. Thank you for the chat!

Like Sudhanshu says, Volunteering at iSPIRT is hard and definitely not for everyone. However, if one or more of these reasons resonate with you, you should read the volunteers handbook to learn more about balloon volunteering.

#BlackSwan: Has Corona turned your Vitamin into an Aspirin?

One lens I use to evaluate startup opportunities – and have written about in the past – is, are you offering an Aspirin or a Vitamin? My basic premise is that in order to do business with a startup, one has to overcome a lot of inertia – whether you are consuming and more so if you are a business. One way to overcome the inertia is to literally bribe the customer with an offer or cashback that makes it too good to be true. Another is to offer a zero-risk trial period. In most cases, however, savvy customers are simply asking the question – do I need this? Is it solving a pain point? Or is this a nice to have? In other words, is this an Aspirin (pain killer) or a Vitamin (nice to have).

In many cases, startups flounder because the pain isn’t as bad as founders imagine it to be – and the search of establishing Product Market Fit is really one of identifying which customer will deem my product to be an Aspirin. Hopefully, you find that early and if not you keep iterating until you identify that customer segment, the right positioning of the product, and of course getting the product right. At that point, from a VC funding perspective, the other unanswered questions remain, “is this a large enough customer segment – i.e. is the prize worth winning? Can you get to scale before an incumbent or a copycat can outrun you – in other words, is the pain so strong that nobody will look for alternatives? Is the product differentiated enough – and why will YOU win?

When BlackSwan events like Covid19/Coronavirus occur, entrepreneurs often panic and the first reaction is to slow-down everything, hunker down and wait for “normalcy” to return. While this is typically a prudent thing to do, it’s not always the smartest. BlackSwan events do things for us at 1000x the rate of change than one might’ve anticipated – and often lead to permanent behavioral change. This could mean that a product that seemed like a Vitamin before the event suddenly has become an Aspirin, and better still, is likely to remain an Aspirin for ever.

A few examples in the recent past – demonetization in India that ensured that everyone was made aware of digital payments was an opportunity that Paytm and later the UPI Ecosystem grabbed and India hasn’t looked back. While the cynical ones will point out that cash is back, the reality is that everyone from my milkman to my maid to my mother is now at least willing to accept payments digitally – and as I’ve Tweeted elsewhere my 83-year old #digimom is a PhonePe Aficionado! So people’s behaviors change because they have NO alternative.

Covid19/Coronavirus is an even bigger event than Demonetization because it’s global and has impacted EVERYONE – and its caused a change in behaviour that in many cases is likely to be permanent. Suddenly working from home doesn’t seem esoteric – and many founders I’m speaking with are also pleasantly surprised with the increase in productivity, the higher level of trust and creativity with their teams, the more focused execution, etc. Suddenly telling visitors to wash their hands when they meet you, to do namaste, to do contactless delivery no longer seems rude or inappropriate. Suddenly old economy companies are realizing the benefits of Video Conferencing and not insisting on vendors visiting them – rather they are almost insisting on people NOT visiting them. There are dozens of other changes happening in all facets of what we do and how we interact with others.

If you’re an entrepreneur, what do you do? Do you simply wait it out? Do you watch your competitors morph from the sidelines?

Or do you grab the bull by the horn and say “my time has come“!

Whatever you do, make sure you take time out to try and figure out if some dramatic non-linear change is happening, especially directly or in adjacency to your business – especially one that may do one of two things:

  • dramatically increase your market size
  • dramatically increase your rate of “adoption”

If you sense either opportunity, then you owe it to yourself to put a skunkworks team together and quickly validate that this is indeed the case and then figure out the fastest path to OWN that opportunity. Make sure that whatever you are doing is going to significantly improve life for a LARGE number of customers. My personal view is that if there are a compelling value proposition and an opportunity to permanently change customer behavior, focus on it and not over-optimize on the business model initially – but that’s a call dependent on your business.

In all cases, however, you may never get this golden opportunity to 1000x your business opportunity and rate of growth – step out of your box, out of your comfort zone and think hard, experiment quickly and make magic happen. That’s the life and luxury of being an entrepreneur! Because if you aren’t – perhaps your competitor is – and certainly some other startup is being born! Disrupt yourself – before someone else does!

A few founders I spoke to about this asked me, “This is a truly unfortunate time for the world – will we be seen as trying to take advantage of this situation”? The answer I give them is simply, “The world will reject whatever isn’t addressing a pain point – and addressing a pain point is not just grabbing the opportunity, it’s fulfilling a responsibility”.

This is an unusual time and certainly an unfortunate time – but make it count!

About the Author: Sanjay Swamy is Co-Founder & Managing Partner at Priven Advisors, advisory to Prime Venture Partners, a Seed-Stage VC Fund in Bangalore. Prime invests in Fintech, SaaS, HealthCare, Logistics & Education focused technology startups that are addressing real pain-points in the industry! Sanjay can be followed on Twitter @theswamy

Please note: The article was first published on Sanjay’s personal linkedin profile.