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 Net to interface with individual lenders and collected their contributions (which could be as little as Rs 100) 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 Rs 4,000 (US$1=Rs 46.7) 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 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 Rs 200-300 a day. As she told me, 'I no longer send my two underage children to work. They are back in school'."
Tank is among 1600-odd individuals and corporate lenders, who have extended nearly Rs 2 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 Bangalore chapter.
Rang De is the brainchild of Ram N.K. 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 in 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 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 The investor can choose whom to lend to, and repayments can be re-invested or withdrawn.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 per cent are motivated, aspiring women with a workable business plan. "Though we had no gender priority, it did turn 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 per cent flat rate at present, which works out to around 16 per cent 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 Rs 5,000 is lent out in the first cycle, but satisfactory performance makes the borrower eligible for larger loans.
"Rs 5000 may seem a small amount for you people in cities," says Kalpana Dhuldhule, 28, from Shrirampur, Yavatmal, "but it has changed my life." Dhuldhule used to pay out Rs 40 a day, a major chunk of her earnings from tailoring, towards the hiring charges for a sewing machine. Upon learning about the Rang De facility from Sagras, an NGO that operates in the region, she formed a joint liability group with four friends and applied for the loan. As a safeguard against default, Rang De advances money only to Self Help Groups and Joint Liability Groups. The mutual guarantees discourage wilful default. So far, Rang De has enjoyed a repayment rate of 99 per cent.
Dhuldhule bought a second-hand sewing machine with the amount and wisely invested some in a side business in ladies innerwear. Today, she has earned enough to repay much of her loan and she will soon be eligible for the second loan cycle of Rs 7,500, with which she intends to start a tailoring class.
Numerous such stories of success and hope are told on the Rang De website that could cause the staunchest microfinance-sceptics to moderate their stance. The range of activities for which funds are being sought is an indication of the entrepreneurial spirit flourishing at the bottom of the socio-economic pyramid.
Each day, Rang De receives applications from women wanting to set up, stabilise, or expand ubiquitous trades such as tailoring, vegetable selling, catering and weaving. Some want money for offbeat schemes like pattachitra making, palm leaf art, wick making, wooden toy making, wet grinding of idli-dosa batter, jasmine cultivation, glass mosaic making, and so on. Maltibai Majhi from Orissa, for instance, has spotted an opportunity in collecting and selling wood resin, lac and medicinal plants from the nearby forest - she wants to set up a stall in the market for this, and needs just Rs 3,000.
NGO partner Sagras, which operates in Yavatmal, has used the Rang De loans as a means to aid their effort at discouraging flesh trade. Of the 170 women that Sagras has advanced money to, around 20 are former sex workers. "The seed capital and the assurance of regular income gave them the courage to opt for other ways of earning money. I see many of them now selling vegetables, grams and peanuts," says Madhukar Bhange, founder of Sagras.
A pragmatic social worker, Bhange feels that micro-credit is a fairly effective tool for empowering women - increased earning capacity does lead to a rise in social status - but it must be seen in perspective. It is not a panacea for poverty, or for women's upliftment. Indeed, it has been one of the criticisms of microfinance that the poor social status of women, a result of patriarchal systems, may not change even when they begin to contribute to household income.
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.
Rang De has made a call to the more economically fortunate class of India to help change the face of poverty, and it provides a straightforward way to do so.
By arrangement with WFS