GroupFund: Online Chit Fund for Employees, Self-employed & Entrepreneurs

Zachary Zahorka for YourStory.in in conversation with Mr. Sunil Rao, the man behind GroupFund, an innovative chit fund for emerging middle class Indians. Read on to know more! Sunil, tell us a little bit about GroupFund. When did you startup?

I established GroupFund in December of 2010 with a vision to promote transparency, customer service, and accessibility to customers through the aid of the latest technology. Headquartered in Hyderabad, GroupFund operates on an award-winning business model. We were ranked among the top six in the Velocity Business Showcase of TiE-ISB Connect 2010. GroupFund’s primary objective is to offer people an alternate and proven means of saving and borrowing, while extending the benefits of convenience and transparency. Our schemes have been specially designed to cater to the present day needs of the fast-growing population of knowledge workers, self-employed professionals, and Gen-Y entrepreneurs. We became operational in March 2011 at a monthly run rate of Rs 50 lakhs. The month to month growth has been good and we are optimistic in scaling GroupFund to other cities.

Several factors encouraged me to come up with the GroupFund idea including my past experience as the Director of Rao Brothers Chit Fund, my two decades of experience in the financial industry, as well as my entrepreneurial zeal and exposure to IT. For me the idea all came together when I was closely looking at eBay and Amazon and how they changed traditional business. When Amazon started there were large retailers, but Amazon’s convenience, scale, and technology innovations changed the game. Likewise, traditionally auctions have always existed, but eBay democratized auctions through a different channel. When I came up with GroupFund, I was thinking in a similar manner.

With the recession and inflation hitting consumers hard, banks have been wary of offering loans and interest rates have dropped. Consumerism has increased in India with the changing demographics. Traditional chit funds offer a flexible savings/loans instrument, but are mired in practices that are suited to a different segment. Because of this, we felt there was a great opportunity to introduce this centuries old, proven financial instrument while providing technology innovations that ensure transparency, better customer service, better automated underwriting processes, and a trusted brand.

Explain the different types of funds that you provide. How do they work?

We offer unique funds/schemes for employees (working men, women, and couples), self-employed individuals, and budding entrepreneurs. These schemes not only enable customers to plan their finances exceptionally well, but also allow them to do so in the company of like-minded professionals. Broadly speaking, the different types of funds that we currently provide are listed below:

As a non-banking financial company, we function differently from banks. We work on two different business models to give customers options that suit them the best: (1) Online Auctions Group Model, and (2) Commitments Group Model.

How do you differentiate your business from other chit funds?

The target segment focus of other chit funds has always been on small business owners and public sector employees. The average age of an existing chit fund customer is 40-45 years. However, in the last 20 years, the work force demographics in India have changed tremendously. Today, increasing knowledge workers have emerged in urban cities and they are undoubtedly more internet savvy and very well connected through social media. They demand better customer service and easy access to quick funds to fulfill their huge consumption needs for bikes, cars, luxurious items, vacation funds, houses, etc.

Banks are not able to serve this segment due to their unwillingness to take on the huge credit risk involved, and the MFIs are primarily focusing on the rural population of India. Thus, there lies a great opportunity for chit fund groups to address this segment. However, the current chit fund companies are not able to serve this segment to the fullest due to their lack of transparency, poor customer service, absence of robust online registration, verification, and payment processes, and a strong agency force that stands as a barrier between the customer and the company. Moreover, their obsolete systems involve high operational costs, which in turn reduce the overall operational efficiency and sustainability of the business.

• Currently, no company in the chit fund industry has a strong online strategy. However, GroupFund have made an attempt to cater to the needs of the existing workforce in India. We bring the following advantages to our customers, thus distinguishing ourselves from other chit funds:Hassle free registration: Online Sign-Up and Registration process
• Transparent account statements: Easy-to-use application to enable subscriber to check his/her account online
• Transparent disbursals: Online Auctions – Subscribers can bid in auctions online or via SMS and IVRS. This makes the process automated and transparent.
• Lower risk through presence of likeminded savers and borrowers: Group members have tools to network with others in similar profession, start their own funds online, and promote them.
• Direct to Consumer model: No agents are involved
• Complete transparency
• Option to make Online and offline payments

How big is the team at GroupFund What is the team’s background?

Currently, we have a team of 25 people operating in Hyderabad. However, we are looking forward to expanding our team further in the coming months. We will be all set to scale up to other cities in India by next year.

At present, the core team at GroupFund, headed by me, consists of Mr. Surya Monala (GM-Sales), Mrs. Visistha (Team Lead - Inside Sales), and others who have brought rich experience to GroupFund from the financial sector. Previous to my current role as an entrepreneur and Director of RBCF, I worked in the US for 9 years and managed TrendaSource, a software services company. Prior to TrendaSource, I gained wide IT, ITES, sales management, and entrepreneurial experience at Oracle, Motorola, Extraprise, and Gevity. I obtained my Masters in MIS from University of South Florida, Tampa and Bachelors in Mechanical Engineering. The rest of the GroupFund team also has similar experience in the IT, finance, banking, and insurance domains.

However, all our initiatives are backed by a strong support from my father Mr. B Damodhar Rao, MD of RBCF (Rao Brothers Chit Fund Pvt. Ltd) and Priya Milk, who taught me about chit funds, the financial domain, and many other things in life. Additionally, my good friend and serial entrepreneur Mr. Satish Madhira, is on the advisory role at GroupFund. Satish is an Angel investor and technology entrepreneur who has brought rich entrepreneurial talent and IT experience to GroupFund.

How many members are currently taking part in your funds?

At present, we have 250 members taking part in funds of different values of 1 lakh, 5 lakh, and 10 lakh.

Did the team bootstrap, or did you have to raise capital to start-up?

GroupFund is self-funded as of now. However, we are looking to raise enough capital to expand this innovative business model to other Indian metropolitan cities as well.

What are some of the biggest challenges you have encountered so far?

Traditionally financial services require robust security, so it was challenging to develop technology that was secure and trusted. Another major challenge was getting the best team on board that consisted of members who believe in innovation and have rich entrepreneurial talent and a go-getter’s attitude to achieve what seems to be unachievable. Additionally, building a robust platform with the right technology ingredients was a difficult challenge.

What are the biggest risks that funding groups face in today’s environment?

Despite the fact that the future looks bright for many of today’s funding groups, due to stricter control over overhead and asset quality as well as new innovative borrowing tools, they are still facing a number of risks in the current business environment that are completely different from the risks a decade back. We at GroupFund are conscious about these challenges and hence committed to make our model robust enough to manage the following risks:

• Changing demographics - In the present environment of consumerism, the target market segment is mainly comprised of young professionals and entrepreneurs who are keen to receive quick funds at their disposal to fulfill their increasing needs without having to undertake extensive documentation formalities. Having said that, the biggest risk for funding groups is to cater to these rapidly changing work force demographics in India, while ensuring the sustainability of their business model. Therefore, GroupFund targets this new market segment and offers them a transparent networking platform to earn, bid, save, and borrow easily through a foolproof online system backed by prompt customer service.
• Stiff competition from banks for differentiation at the service level– One of the major risks faced by the NBFCs today is the enormous competition from both nationalized and foreign banks. In a liberalized economy like ours, the concept of service differentiation has become almost irrelevant. Financial companies are now attempting to differentiate their offers by making different augmentations in their service level. At GroupFund, our customized schemes for young professionals, augmentations at service level, direct marketing channels, online customer service, and transparency enable us to manage this risk as well.
• Credit Risk - The unwillingness to repay is obviously another risk faced by funding groups. We have a fail-safe system in place for subscriber enrollment verification. Due care is also taken to only accept subscribers who are capable of repaying the borrowed amount and selecting the right guarantors for them.
• Liquidity Risk – Another major risk faced by funding groups today is liquidity risk or the prospect’s inability to meet his or her immediate liabilities. To manage this risk, we are now attempting to mature our online system to incorporate an underwriting engine that will enable us to assess the risks and plan funding more efficiently.

Are there currently any positions that you are hiring for?

Yes, we are currently looking for enthusiastic people, preferably with rich experience in the banking and insurance sector, for senior positions in operations, sales, and in-sales. Most importantly, we are looking for go-getters with entrepreneurial talent and a passion to take initiatives in their respective areas of expertise.

Lastly, do you have any recommendations for budding startups?

Businesses are mainly built on hypothesis, gut feelings, determination, and passion. So, if you have a gut feeling that your business idea has great potential and that your determination can turn it into a success, just go for it! On the other hand, be sure to test your hypothesis and modify your plan based on customer adoption. As fresh entrepreneurs, you must really focus on a model that delivers positive cash flow. Even if you have to sacrifice your long-term vision for some time, I think it is definitely a better play. Connect to the world’s influential bloggers, use online social networks to reach out to people, and network relentlessly. With the great technology of today, all of you are in an amazing position to get hold of that ONE opportunity that might make life easier for people in the future. So, follow your dream, test your assumptions, make necessary changes, and good things will surely happen! Good Luck!

Do visit http://www.groupfund.in/ for further details.