In part I of our interaction, founders Ramakrishna and Smita Ramakrishna of Rang De talked about the process of paying borrowers, managing default in payments, loan repayment rate and the technology used in their system. In part II of our interaction, they talk about the credibility and image building with social investors, regulations, competition, challenges and the roadmap for Rang De.
Credibility and Image building with Urban social investors
MediaNama: Why do you think the urban investors lend to your portfolio of borrowers? Do you think your rate of returns is interesting enough for the urban population to invest in your portfolio of borrowers?
Rang De: The monthly rate of returns is 2% and the principal is not guaranteed. Investment is a notional term. We call it an investment because it gives them a nominal financial return along with tangible social return. Most of the social investors who invest are not people who care about the 2% or 3% rate of return. After investing in a social cause, they soon realize that they can actually track and get a repayment of their loan with interest. Some of them even reinvest the principal and/or the returns without expecting to get their money back because they see something good coming out of it.
MediaNama: Have you seen any change in perception of the urban population over the last 4 years towards your platform?
Rang De: When we arrived in the first year, people told us that it was great to have us around. However, the challenge that we have always been facing is the need for continuous engagement. We still need to crack this problem. We have managed it only to a certain extent. There continues to be a trust deficit. People tend to have questions like who are the people running Rang De, what is their background etc because we tell them that we are doing good to people around and at the same time, we ask them for their credit card details.
We will soon be integrating with Ghar Pe for collecting the money from homes. We are still working on growing this platform inorganically. We want to find the answer to the question – how can we make this go viral? We have still not reached the point of answering that question. We are planning to do it through offline engagements and also online community features that can go viral. Some of these features like connecting Rang De account with your Facebook account are in the pipeline.
MediaNama: How do you manage to build credibility with respect to lending online? What are the measures using technology that you have put in place to ensure transparency of your system?
Rang De: We publish our accounts after timely audits. We want to show people that we have very high standards of transparency so that they can trust us. We have SSL certificate so that we can encrypt all our transactions to ensure trust. Our investors are also welcome to join us on field trips. We have noticed that people give back to the activities/businesses in their home states. Some of them even go on holidays and meet some of these borrowers. This really clicks with people because they get to meet the people they lend to. We arrange these trips for them because this is the ultimate thing for building trust beyond a few clicks.
MediaNama: How do you market your platform to the urban population?
Rang De: We largely market through word of mouth. We are also quite active on social media. The media has also covered us fairly well. We also have volunteer networks connected with us. Our volunteer chapters meet every month and spread the word about Rang De. We also attend events, college fests, marathon etc to let people know about Rang De. Our UK and US chapters are important to us now that we are opening to foreigners. We are also opening in Singapore. We have 3 brand ambassadors – Waheeda Rehman, Raghu Dixit and Nagesh Kukunoor. Raghu Dixit is also an investor. In fact, he also had an interesting concert for us in Pusad, Maharashtra for our borrowers there.
MediaNama: How would do you define your competition? How do you compete/collaborate with banks?
Rang De: We have no competition with banks as such because banks have their own mandate. If you look at the self help groups supported by banks, you will realize that banks are not able to support them to a great extent. The bank manager decides if a group/person is good enough to get credit which is limiting. Banks are designed in a way that their risk appetite is not rewarded. The system hasn’t been designed to deliver. Banks open at 10Am and close at 3PM. The economic segment we reach out to, need to work during this time and hence cannot go to the bank and apply for a loan that they might not get.
Regulations in India for peer to peer lending platform
MediaNama: What are the government/banking regulations in India that you need to comply with?
Rang De: Ours is a nascent sector so there are no regulations that are designed for a peer-to-peer platform like us. But we have made sure that we don’t violate any laws of the land. The micro-finance bill has not been passed yet but we have complied with all regulations in the bill. We comply with traditional non-profit regulations as well. It was a conscious decision to go the non-profit way. If we go the profit way, we would have to help the communities and at the same time keep up with our commitment to the investors. We thought that we would be forced to be more loyal to investors than communities which sadly was the case during the micro-finance crisis in Andhra Pradesh.
MediaNama: What can/cannot you do compared to similar international platforms after complying with these regulations?
Rang De: There is not much of a difference. RBI is a bit strong on foreign exchange etc. If we get foreign money, we don’t plan to repatriate it. It will stay within the country so the RBI regulations on foreign exchange also will not be a worry. We also don’t see it as a mandate for us to go outside the country. There is enough demand in India that need to be met. We don’t plan to go out of the country.
Challenges and Roadmap for the future
MediaNama: What are the key challenges that you face with respect to funding, technology etc? What needs to be done to address them?
Rang De: With respect to funding, we clearly need to build new, creative ways to reach out to people at zero cost. We also have those challenges that a tech/internet company would face. We have the same entry barriers like getting attention, acquisition etc. We still need to evolve viral marketing strategies. If we don’t manage to evolve a viral marketing strategy then there would be no way to grow inorganically. The growth will be painfully slow. We have fantastic visibility with borrowers because of the trust built over time through our partners. We need to now raise funds. We are doing it through CSR donations from corporate companies, opening our platform to foreigners, HNIs, moving Rang De to more geographies. We are in the last stages of registering Rang De as a non-profit in the US. We will then be able to raise capital in the US and use it as outreach capital in the Bay area etc although these funds will also still be focused on borrowers in India and not abroad.
MediaNama: You have been around for a while. Have you grown as fast as you would have liked to or expected to? What has changed for Rang De during this time?
Rang De: It is a tough question. The last five years has taught us a lot of lessons. We wanted to be twice the number we are now. We could have done that if we had not done some costly mistakes. They were all technological mistakes. Technology was a huge challenge as when we wanted to scale. When we started off, we didn’t use a framework that was 2.0 friendly. We faced an opportunity cost that we had to bear. We didn’t look at ourselves as a tech startup. Instead we looked at ourselves as a social startup in the technology space. These are two different things. We saw technology as an enabler and not as the core of our startup. This meant we didn’t have an in-house technology team. Instead we outsourced our technology. On hindsight, we think we should have looked at ourselves as a technology startup. Had we done that, we would have seen much more traction, more people joining us in the early days.
MediaNama: Have you considered a Kickstarter kind of model? Do Indian regulations allow it?
Rang De: I think that’s our roadmap. This year, we want to really start the Kickstarter model in a limited way, limiting it to Rang De’s partners like NGOs with projects like waste management, healthcare project etc. The partners will put up the project on the platform and raise funds for it. Once we see how it works, along with the learnings, we will open it to others. It is easy to say that we have a platform built but we also we need to get a team that is responsive enough like a Reddit. We don’t have a team like that yet but we will get there soon. We are getting a complete revamp on January 26, 2013. In another month’s time, people visiting our website will also be able to read the static content in multiple languages.
MediaNama: What about your scaling plans? Why haven’t you scaled yet?
Rang De: We have been a bit cautious with scale at the field level. Having said that, we are talking about two scales – one at the field level and the other one is with the number of social investors. Each one has its own challenges. At field level, there was the backlash of microfinance crisis that also hit us. We were cautious. With respect to social investors, we could have got 40,000 in the place of 4,000 but why didn’t that happen? It did not happen due to all the reasons that I had mentioned earlier like lack of good website, the lack of technology startup status, 2.0 design, our servers weren’t working, we had to get into damage control. We really needed to get specialist help. We also had negative viral quotient. If we hadn’t made these costly mistakes, we would have been in the 10,000 range very easily.
We had initially outsourced our technology which was a big mistake. We should have set up an in-house team with consultants. That’s when I started coding again. We had other coders in the team who like me who didn’t want to code. Even they joined in. All of us started coding. We have pushed our social investors number to an extent. We did a campaign during World Cup to raise funds. We’ve done it in bits but we have to crack it to push the number to the next level. The secret sauce has not been found yet. But from this Sankranti to the next, we want to take the number to 40,000.