Started in 2008 by Ramakrishna and Smita Ramakrishna, Rang De is a peer to peer micro-credit lending platform for micro-ventures and businesses in rural parts of India, allowing individuals to make a social investments.
It currently has 18000 borrowers from 13 different states in India, and 4700 Indians who are social investors, of which 500 are Indians living in 24 different countries. Rang De has loaned over 11 crores in the last 5 years, funding over 250 unique activities ranging from agriculture, livestock, dairy, petty shops to tailoring and even bird cage making.
On January 26, 2013, this platform will be opened to foreigners as well. In Part 1 of our interaction with Ramakrishna, Co-Founder & CEO, Rang De and Smita Ramakrishna, Co-Founder & Managing Trustee, Rang De, they share about the process of paying borrowers, managing default in payments, loan repayment rate and the technology used in their system.
Working of Rang De’s online microcredit platfrom
MediaNama: How long does it take for a lending process to start and when does the cash reach the borrowers?
Rang De: Our Service Level Agreement (SLA) with all our borrowers is 35 days which means we guarantee them their money within 35 days. On the 27th day of every month, we take stock of the situation and track all the funds received during the month and by the 30th day of the month, the money is transferred to our borrowers. Sometimes, we receive the loan earlier than expected from the investors. In those times, we transfer the loan amount by the 25th of the month to the borrowers.
MediaNama: What do you do when you do not receive enough funding during a particular month?
Rang De: Apart from individual investments, we also have corporates giving us donations as a part of their CSR, which is not disbursed immediately to borrowers. We use these funds for bridging the monthly deficit.
MediaNama: How do the borrowers access the cash?
Rang De: We partner with community based organisations who in turn work with self help or joint liability groups and even co-operatives. These community based organisations are full fledged organisations. We do thorough check of these organisations before they become our partners. Their due diligence is to connect investors (through Rang De) with entrepreneurs who need funds for businesses in the rural parts of India.
MediaNama: How many borrowers have so far successfully repaid their loans? What is the loan repayment success rate on Rang De?
Rang De: Our loan repayment rate is 98%. 1% of our payments are delayed and 1% of the borrowers do not repay the loans.
MediaNama: How do you track the loans and repayments?
Rang De: We have a schedule that all our partners are required to follow. Their responsibility is to go to the field, collect the money, deposit it and update the system once the repayments have been collected.
MediaNama: How do you manage the loan repayment in case of a loss incurred by a business/microventure?
Rang De: We treat these cases in two ways. One is that there could be a default of repayment due to a genuine reason like death, floods etc that they don’t have control over. In case of default of repayment due to a genuine reason then we disclose all the details to the investor. 0.5% of all our loans go into a contingency fund. We pay the investors from this fund on pro-rata basis during these unforeseen situations. The other reason could be a process violation. For instance, when an NGO has made a wrong choice while selecting borrowers or violation by partners, or even bad choice by us. In these cases, there is breach in trust by our partner and so we take the responsibility for it.
MediaNama: How frequently do lenders come back to donate more?
Rang De: 40% of the money in a month that we disburse are reinvestments. In other words, less than 1% of the investors take their money out. Many people have also opted for auto-invest to reinvest.
MediaNama: What is your response rate as compared to an offline micro-credit system?
Rang De: One of the things fundamental to this comparison is the way we operate and the way banks operate. In the offline model, the institution is responsible for raising the money and disbursal whereas we only raise money and work with partners who disburse the money for us.
Second, our system is more effective because we regulate the interest rate at 15.3% APR which we believe to be lowest in the world (but we need to really verify). Our interest rates are lower than the Grameen Bank in Bangladesh. The goal that we set out with when we started out, was to raise philanthropic debt capital through online channels and also be able to break even and sustain in the long run. Also, the fact that we receive debt capital and not grant capital attracts many to invest. In case of the offline system, the focus has entirely been on micro-finance with the aim to scale. In that sense, we are a little different.
We are happy even if we are able to reach just 400 households. We are happy to give micro-credit in places where the traditional system finds it unattractive to set up operation. We act as financial partners and provide capital at a low cost. We also insist that the borrowers give the low cost benefit to the end community.
MediaNama: How is the money lent for education spent? Are they also businesses focused education with returns or non-profit organisations?
Rang De: Our structure remains the same even for education. We work with organisations with feet on the ground. The same communities with business enterprises also have children. It is for the education needs of these children that we give loans. These children go to small budget private schools spending about Rs.2000 or 3000 a year. These schools are like tuition centres but the quality of education is fantastic. Therefore parents prefer sending their children to private schools rather than sending them to government schools.
We also do vocational education loans. In Hubli, we worked with a foundation where students who can’t get jobs, go to finishing schools to do job oriented programs. We provide them with loans which they repay after they complete their course and get a job. Over time, we want to also provide higher education loans to meritorious students who drop out. In fact, last month we gave our first such loan. The topper of the batch in a college dropped out because she couldn’t pay her second year fees. We have signed an MOU with her college to share information about her academic performance. We have still not built the technology to support our higher education loans.
Role of Technology
MediaNama: Is there any technology that aids in disbursal and repayment of funds?
Rang De: There is internet at the level of partner organisation but the borrowers receive the funds as cash. We have built a web based platform that all our partners use. This platform’s architecture is like that of a core banking software. We had it built by consultants who had worked on Pinnacle for Infosys. Apart from the website that the investors use, there is no technology that the investors or borrowers have access to, but we have now built an android app that will be able to track the repayment of loans. Our android app has two critical functions capturing of disbursal of the loan and repayment of the loan. The field officers will soon carry an android phone with this app with which they will also be able take photographs of the borrowers. This could then be sent to the investors. We also have another app being built which is to be released on February 14, 2013. This app can be used to replicate the website on mobile.
MediaNama: Do you think giving your rural borrowers access to better banking technology could aid your model better?
Rang De: Ours is a traditional micro-credit model. Savings based banking models like that of Gram Tarang and others is one type of financial model whereas our credit based model includes both disbursing and collection of cash. Technology similar to companies like Gram Tarang could work for us but it would cost us more. Perhaps eventually we would have to do it and we might do it but not right now. With technologies that are being built, the cost could crash. For all you know, with time, you could use an android phone to implement the same technology. At that point, we would love to do it. We want to of course make our entire process paperless at our partner’s end.
However, apart from the digital divide, the bigger challenge actually has been to get good human resource. We have managed to bridge the digital divide to some extent but good HR is always a challenge in the non-profit sector especially in the remote areas. Initially, our partners did not have the right people to use and manage our web based platform at their end. Although implementing technology has been our responsibility, over time our partners have also come out of the mindset of keeping everything on paper. Though we would like to give tablets to our partners for their field work, there are still challenges like power cuts etc. That need to be addressed.