It is good news for the MSME businesses to foray into the rural e-commerce market that has long remained untapped. According to a joint study titled “Digital in India” conducted by the Internet & Mobile Association of India (IAMAI) and research firm Nielsen, the number of internet users in rural areas is 227 million active users that have surpassed the user base of 205 million in tier-1 cities. Moreover, with initiatives like Digital Bharat and Digital Village, the government is enabling the rural population to use digital banking, payment services and providing internet access as a tailwind for rural e-commerce growth. 

The newfound love for e-commerce or online shopping among rural people can be attributed to increasing aspirations. The limited number of brands available in brick-and-mortar shops in smaller cities and towns is what creates the love for branded products, to which e-commerce MSMEs can capitalise by introducing a wide array of products at discounted rates. This gives rural shoppers not just branded products at low prices but also more value in features, and trends thus luring more rural customers to shop online.

Udaan, a Bengaluru-based B2B e-commerce start-up offers an online wholesale market and caters to bulk orders. It is one of India’s biggest wholesale markets and recently completed a Series D funding round worth $280 M backed by Moonstone Capital Partners, Octahedron Capital, Lightspeed Venture Partners, DST Global, GGV Capital, Altimeter Capital, and Tencent Capital. 

5 things done right by Udaan

Evolving business model to meet market demands

Each year, Udaan’s business model was sharpened and has evolved to meet market requirements. This is one of the many things that they did right. 

Udaan’s business model initially took off as an idea that they could somehow bring about a transformation in India’s trade ecosystem. It has always aimed at becoming a full-stack marketplace, logistics, and lending platform for small and medium enterprises. When the SME community in India was growing at an accelerated pace, Udaan capitalised on the high frequency of transactions taking place here and subsequently gained an increase in their revenue along with the growth of the SME ecosystem over the years. 

Strategic Investments in various business arenas

In the span of a single year, Udaan invested more than INR 4000 Cr in a number of business arenas including technology, supply chain, category, credit, people, compliance and more. These efforts were aimed at accelerating and strengthening their capabilities. 

Providing solution to fill gap in a critical market

Rural India is riddled with mom-and-pop Kirana stores. These stores need B2B marketplaces to connect with sellers for stocking up. Businesses of all sizes in B2B especially the neighbourhood grocery stores are being empowered by Udaan’s much-needed supply chain solution. Thus, the start-up has proved to be a saviour for Kirana stores during the pandemic.

Much needed deviation in e-commerce 

Kirana stores contribute to nearly $650 M of the $1 T retail market in India. Udaan rightly capitalised on the huge demand for B2B online retail which is 7.5 times bigger than that of B2C online retail. The secret sauce behind Udaan’s rapid growth has been the fact that they took on the challenge of rural Kirana stores’ stocking problem head-on. 

Deep personal understanding of the problem statement

Last but not the least, Udaan’s stellar success can be attributed to its founders’ own lives which are deeply connected with rural India. The founders have known what it feels like to have your hands tied due to lack of credit access as a small towner or villager. This understanding has been a boon for them along with the fact that they gained hands-on online retailing experience at ‘Flipkart’ prior to Udaan. 

Jai Kisan, a Mumbai-based Fintech start-up recently raised $30 M in a Series A funding round backed by new investors including Mirae Asset, Syngenta Ventures, alongside their existing investors including Blume, Arkam Ventures, NABVentures, Prophetic Ventures, and Better Capital. 

What’s the market like?

The rural financial services market is riddled with commercial banks and lenders with single digital penetration that can’t even attempt to cover the population in millions, mostly comprising of farming communities. The existing players charge exorbitant interest which is not feasible for farmers. The consumers in the rural market neither have a credit score nor a documented credit history. 

The financial services rural market is crucial for the Indian economy and the lack of credit for the Indian farming consumer speaks volumes on the poor state of affairs in the rural and farming ecosystem. 

Jai Kisan received the maiden investment of NABARD’s investment arm.

NABARD, the National Bank for Agriculture & Rural Development was created to oversee agricultural credit in India and is also responsible for supervising rural and co-operative banks. NABARD extends financial support to state governments for the development of agriculture and its allied sectors. It’s also tasked with rural infrastructure development, financing Rural Financial Institutions (RFIs) and MSMEs. NABARD is relevant here because it made its maiden investment to Jain Kisan through its investment arm NABVENTURES Fund I, last year in June. Jai Kisan comes under Rural Financial Institutions (RFIs) and was hence eligible for the investment. 

The Bharat Khata system

The ‘Bharat Khata System’ is Jai Kisan’s brainchild. It’s a unique financing system which facilitates access for cheap financing whether for individuals (mostly farmers) or rural MSMEs. It also solves a crucial problem pertaining to farmer credit. Farmers who manage to avail credit and loans whether from banks or through traditional money lending, fall into the debt trap. Mostly because these financial products are not tailored to the needs of farmers and come with high interest rates. 

The consumers are also unaware of the right usage of credit, and it often gets wasted on non-agricultural pursuits. This leads to further deterioration of the consumer’s ability to payback which finally culminates in endless loan defaults.

The Bharat Khata system fixes this problem by ensuring that the credit or loan availed by the rural consumer is utilised exclusively for agri-inputs, equipment, and will lead to returns. The Bharat Khata system captured $380 M and above in annualised GTV (Gross Transaction Value) run rate across 25000+ storefronts at the end of the March 2021 financial year. 

New approach to disrupt the rural financing industry

The biggest reason for the shortfall of rural credit and lending by traditional financial firms is a narrow perspective. Farmers form a sizeable portion of the rural population, and the biggest mistake done by these firms is to treat them as risky consumers rather than as business owners.

Jai Kisan is changing this perspective and paving the way for other financial institutions and fintech start-ups attempting to serve this sector. By approaching rural farming professionals as business owners, it becomes easier to offer customized financial services to them that serve both parties well. 

This new approach has helped them in disrupting the rural financial industry by differentiating themselves.