Small investments usher in big change

Mitesh Tank, a young IT professional from Mumbai, one day happened to read about ‘India’s first online social lending platform’, Rang De online. Set up in 2008, this Chennai-based  organisation used the Internet to interface with individual lenders and collected their contributions (which could be as little as Rs 100) through online or offline payments. The money was then pooled and channelised to low-income entrepreneurs as small, affordable, unsecured loans. The cycle is completed when the borrowers repay the loan in 12 monthly installments. Rang De also encourages and facilitates lender-borrower interaction by arranging field trips and audio-video evaluations. 

Tank was rather impressed by this new approach to philanthropy. A few clicks and a credit card transaction later, he was a Rang De social investor, with Rs 4,000 invested in a diversified portfolio: vegetable vending, tailoring, tea stalls and so on. “Here, a rise in income 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. “I no longer send my two underage children to work. They are back in school,” says Kusum.
 
Tank is among the 1,600 individuals 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, social investor and founder of Rang De’s Bangalore chapter.  

Rang De is the brainchild of Ram N K and his wife Smita Ram. The couple is keen on promoting self-sufficiency in low-income families. Their venture uses technology, active networking through online forums and a large number of dedicated volunteers to create public awareness and raise money. “Given our operations 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 have been kept simple. Borrowers’ profiles are posted on the Rang De website along with a summary of their business plan. An investor can choose whom to lend the money to, and repayments can be re-invested or withdrawn.  

Rang De seeks to serve a demographic strata that falls below the radar of traditional banking systems. With neither collateral nor a proof of income to offer, these small-scale entrepreneurs are forced to pay usurious rates, or to operate at unprofitable volumes. Rang De intervenes by making capital available and affordable. 

Of the 3,871 borrowers who have availed of loans so far, more than 90 per cent are motivated, aspiring women with a practical business plan. “Though we had no gender priority, it did turn out that our borrowers were chiefly women,” says Smita.   
Borrower identification, credit evaluation, disbursal and follow up are taken up by selected field partners like microfinance institutions 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,  which is 8.5 per cent flat rate at present. 

“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 in the first cycle, but satisfactory performance makes the borrower eligible for larger loans.  “A sum of Rs 5,000 may seem a small amount to city folk,” says Kalpana Dhuldhule (28) from Shrirampur, Yavatmal, “but it has changed my life.” Dhuldhule used to pay Rs 40 a day — a major chunk of her earnings from tailoring — towards hiring of sewing machines.

Upon learning about Rang De, 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. 

Each day, Rang De receives several applications from women wanting to set up, stabilise, or expand 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. 

Dhuldhle bought a second-hand sewing machine with the amount and wisely invested some of it in a side business. Today, she has earned enough to repay much of her loan and she will soon be eligible for a second loan cycle of Rs 7500, with which she intends to start a tailoring class. 

NGO partner Sagras, which operates in Yavatmal, has used Rang De loans as a means to aid their effort to discourage flesh trade. Of the 170 women that Sagras has advanced money to, 20 are former sex workers. “The seed capital and the assurance of a regular income gave them the courage to choose 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, Madhukar feels that micro-credit is a fairly effective tool for empowering women. Smita agrees. “We are only scratching the surface. To bring about holistic, long- term change, we must involve more people and provide more than just working capital,” she says.

While the organisation aims to expand its investor base to 5,000 individuals by the end of the year, 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.