Mitesh Tank, a young IT professional from Mumbai, was trawling the Internet one day when he happened to read about ‘India’s first online social lending platform’, Rang De. Set up in 2008, Chennai-based Rang De used the Interet to interface with individual lenders and collected their contributions (which could be as little as Rs100) through online or offline payments.
These were then pooled and channelised to low-income grassroots entrepreneurs as small, affordable, unsecured loans. The cycle was complete when the borrowers repaid the loan in 12-monthly installments.
Tank liked this new approach to philanthropy. A few clicks of the mouse and a credit card transaction later, he became a Rang De
social investor, with Rs4,000 invested in a diversified portfolio: Vegetable vending, tailoring, tea stalls and so on. Rang De encourages and facilitates lender-borrower interaction through field trips and audio-video evaluations so Tank was able to travel to the interiors of Maharashtra some months later to check on the borrowers’ progress.
“I saw that a rise in income here means more than just increased consumption,” says Tank. For example, Kusum Kale, 30, a widow from
Maharashtra, was able to expand her vegetable business because of the loan. She now earns Rs200-300 a day. “As she told me, ‘I no longer send my two underage children to work. They are back in school’.”
Tank is among 1,600-odd individuals and corporate lenders who have extended nearly Rs2 crore through the Rang De platform (till August 2, 2010). “The non-charity model is appealing, and the operational transparency inspires trust,” says Shreekanth, a mechanical engineer, social investor and founder of Rang De’s
Rang De is the brainchild of Ram NK and his wife Smita Ram, who gave up lucrative careers in the UK and returned to India to help alleviate poverty by promoting self-sufficiency among low income individuals.
The venture employs superior technology, active networking on internet forums and a large number of dedicated volunteers to create public awareness and raise money. “Given our operating model, it is the 25-45 age group that responds best to our efforts,” says Smita, co-founder and COO of Rang De.
The mechanics of lending are relatively simple. Borrowers’ profiles are posted on the Rang De website along with a summary of their business plan. The investor can choose whom to lend to, and repayments can be re-invested or withdrawn.
Rang De seeks to serve a demographic strata that usually falls below the radar of traditional banking systems — or “underserved communities and unexplored geographies”, to quote the founders. With neither collateral nor proof of stable income to offer, these entrepreneurs are forced to pay usurious rates to money lenders, or to operate at unprofitable volumes. Rang De intervenes by making capital available and affordable.
Of the 3,871 borrowers who have availed of their loans so far, more than 90% are motivated, aspiring women with a workable business plan. “Though we had no gender priority, it turned out that our borrowers were chiefly women,” says Smita.
While raising money is chiefly the website’s job, borrower identification, credit evaluation, disbursal and follow up are taken up by selected field partners — non-government organisations and microfinance institutions working at the grassroots in various states. The entities must satisfy stringent conditions to qualify as partners, the chief one being that the partner will not charge more than the interest rate specified by Rang De, (8.5% flat rate at present, which works out to around 16% annual percentage rate).
“This is the minimum we must charge to maintain viability,” says Smita. Five per cent of the interest goes to the field partner, two per cent to the social investor (who may waive it if he wishes), and the small fraction left over is retained by Rang De. Only Rs5,000 is lent out in the first cycle, but satisfactory performance makes the borrower eligible for larger loans.
Smita agrees. “We are just scratching the surface — to bring about holistic, long term change, we must involve more people, and provide more than just working capital,” she concedes. While Rang De aims to expand its investor base to 5,000 individuals by end-2010, an increase in verticals is also on the cards.
The modalities of advancing educational loans to the poor are being worked out, as are mentoring programmes that will have experts volunteering to provide training in production and marketing to small entrepreneurs.