According to the World Bank, approximately 20 percent of India’s population is poor. This totals 270 million people. These low-income individuals often lack credit or banking history and are considered too risky to finance by traditional lenders, like banks.
Rang De is a peer-to-peer microlending platform that works to increase low-income Indians’ access to capital. So far, Rang De has disbursed 57,096 microloans in India.
How Rang De Facilitates Peer-to-Peer Microloans in India
Low-income individuals are often unable to access capital from major lenders. Often, this underserved population turns to independent lenders who charge extremely high-interest rates for small loan amounts. Microloans from qualifying lending institutions are an alternative to predatory lenders. Rang De keeps interest rates low, between six and 10 percent.
Loans are financed by social investors, who choose a borrower through the platform and contribute in multiples of Rs.100. So far, 12,443 social investors have helped finance microloans in India.
Interest is used to pay back investors and to fund Rang De’s internal expenses; two percent of interest payments go to each. The rest of the interest payment funds rural partners who conduct literacy training sessions and collect borrower statistics.
Rang De’s Success So Far
Social investors can choose to finance a wide range of borrowers, from entrepreneurs to students to farmers. One example is Pooja Devi, a tailor who secured a loan of RS.10000.
Devi’s husband works at a factory and earns only Rs.7000 per month, too little to pay for their housing. Devi holds a Master of Arts degree but lives in a village with few work opportunities. As a new mother, finding suitable work while looking after her infant has proven impossible.
Devi accessed a Rang De loan to purchase a sewing machine for her at-home tailoring business. Her business is about four months old and she currently earns only Rs.1000 per month but plans to grow her client base. Tailoring at home gives Devi the flexibility needed to look after her infant while providing an additional stream of income for her family.
Ensuring Continued Success for Rang De
Rang De’s cofounder, Smita Ramakrishna, says that Rang De purposely keeps initiatives small so individual lenders receive more assistance. In addition to facilitating microloans in India, Rang De also focuses on increasing the financial literacy of borrowers. “For every sector we work with, we actually design the loan product to make sure that it works for them,” said Ramakrishna.
The majority of Rang De’s microloans in India, 93.25 percent, go to women. To further support this group, Rang De launched a new initiative targeted at women called Swabhimaan. Swabhimaan provides online loan applications and credit scoring. Self-serve kiosks set up around villages serve as portals to the online services. Women will be able to access same-day loans from Rang De with more ease and autonomy thanks to the kiosks.
To tackle skepticism in target borrower communities, Rang De publishes interest rates publicly on its website. The nonprofit also regularly updates social investors and hosts in-person meetings with both investors and borrowers.
Rang De’s hands-on approach and transparent business practices have led to a consistently high loan repayment rate of 93 percent. Ultimately, Rang De’s cofounders believe the innovative initiatives implemented through Rang De will “go a long way in making poverty history in India.”
– Katherine Parks