Companies serving low-income households have been leveraging data tools to prove that their customers are reliable, bankable, and yes, worth investing in. A new index of publicly-listed companies in India is proving that this consumer segment is profitable.
The Entrepreneurial Households India index, or EHI, has gained 16.4% annually since January 2017, against 13.6% for the Nifty 50 benchmark of India’s largest companies. EHI is an initiative of EPIC World, a sister company to impact investor Elevar Equity, with support from Morningstar. It is made of 34 financial services companies including microfinance firm Spandana Sphoorty Financial; Muthoot Finance, a lender to gold jewelry businesses; and Ujjivan Small Finance Bank. Companies in the index had a combined market capitalization $115 billion as of Dec. 31, 2024 and a compounded annual revenue growth of 22% over the past five years, versus 12% for the Nifty 50 and 17% for India’s Nifty Financial Services index.
EHI index’s strong performance shows that “this customer segment is vibrant and strong,” Jyotsna Krishnan of Elevar, and co-founder of EPIC World, tells ImpactAlpha.
EPIC World’s goal in developing the index is to foster interest from investors in lower-income households. “There’s not enough writing and data-driven insights that exist on these markets,” says Krishnan.
EPIC World has created a data service, EPIC Intelligence, to collate and analyze data on what it calls “entrepreneurial households” – households that have multiple sources of income and are more economically resilient than individual customers. The company’s ambitious goal is to see 50 companies catering to these customers scale into blue chip companies over the next 20 years.
Spotting the opportunity
Elevar has been investing in companies serving overlooked customers in India and Latin America for more than 15 years. In that time, a major economic shift has transpired in rural India especially, where better physical and digital infrastructure has brought greater affluence to large swaths of rural India. The country has more than halved rural poverty.
There are now around 250 million entrepreneurial households in India transacting up to $10 trillion annually, according to research from EPIC.
One example is Soumyadip Jana, a 28-year-old artisan in the state of West Bengal. Jana followed in his parents’ footsteps to make table mats and other handicraft products using locally grown tall grass. Until a decade ago, his village didn’t have proper roads, and his family’s only mode of transportation was a bicycle, limiting the reach of their business to their local market. They earned about 5,000 to 6,000 rupees per month ($60-$70) a month, Jana tells ImpactAlpha.
When better roads came, and Jana’s family was eventually able to purchase a motorcycle, Jana could travel farther to exhibit their crafts. The family is also able to sell their products online via handicraft marketplace Peepul Tree, an Elevar portfolio company. Jana says he now earns four to five times as much each month. He’s helping about 150 other villagers sell their grass-made crafts as well.
Jana and his family represent the kind of upwardly mobile customers that EPIC World is focusing on. Until recently, it was largely microfinance firms serving such customers, but now the sphere includes healthcare, education, energy and other companies.
“We’re seeing companies on the ground that are excited,” says Krishnan.
Varthana in Bangalore, for example, lends to schools and students from lower-income backgrounds. The company’s model involves setting up micro-branches staffed to handle sales, assess customers’ credit-worthiness and collect loan payments. The company is working on an expansion strategy into rural India, where the density of schools is lower than cities. A challenge is deciding where to set up micro-branches so that its staff can reach the maximum number of villages.
“If we’re able to get a little bit more detailed data on this,” says Varthana’s Steve Hardgrave, “it could help us save money and be more efficient in how we organize operations.”
Varthana is part of a beta test of EPIC Intelligence. EPIC Intelligence is working to support the company with the kind of data it needs, combining information from India’s school system and businesses marked on Google maps, for example, to Varthana zoom in on areas meeting its school density and profile targets.
Hardgrave says he would also like more granular data on village households. “That would improve our ability to assess risk.”
What’s more, EPIC World is looking into how to support fundraising strategies for founders looking to build solutions for entrepreneurial households and aims to connect them to potential investors. Hardgrave said such support would ease the process of raising equity and could potentially lower the cost of their debt, thereby enabling them to lend at lower rates.
Commercial capital
EPIC World and Elevar have their work cut out for them. While a more diverse group of companies are catering to entrepreneurial households, most businesses and investors continue to focus on wealthier demographic segments.
Utpal Isser of SarvaGram, which provides loans and other services to rural households, says most financial services firms operating in rural areas require collateral like machinery or gold in order to lend. Such practices aren’t keeping pace with the developments of the rural economy, says Isser. “What’s happened in the rural ecosystem in the last two decades, it’s unrecognizable.”
SarvaGram, by comparison, accounts for an entire household when underwriting loans to individuals. If a family member can afford an expensive mobile, for example, then SarvaGram assumes they can afford to repay an education or housing loan as well.
SarvaGram raised $67 million in November, led by Peak XV Partners, formerly Sequoia, Elevar Equity and Temasek.
Given the growing aspirations of entrepreneurial households, says Isser, “Big pools of money should find its way to this customer segment, and they should find their way on commercial metrics.”
