Financial inclusion is an issue that has lately begun getting attention from the government and all of us with a social conscience. The Reserve Bank of India (RBI) committee on Financial inclusion headed by Dr C Rangarajan, former Governor of the RBI has made a slew of recommendations in this regard. The fifth edition of Startup Saturday Mumbai had a great talk by Ramakrishna, co-founder of RangDe, a not-for-profit organisation that has set up a Peer to Peer (P2P) lending platform for the financial disadvantaged and the socially conscious.
Ramakrishna and his wife Smita’s social venture RangDe is all set to revolutionize the way we see social capital in India today. Its model is simple – “make your charity money add more social capital”.
At Startup Saturday Mumbai, Ram outlined his vision about the venture as “the day when all people in this world stop feeling money as an impediment to their success, we will quit (and perhaps start something else)!”
RangDe’s model is unique and hitherto untried anywhere in the world. They offer micro-loans (between 5k and 15k) at a paltry 8.5% to the borrower. This is a major differential from the traditional micro-lending rates which are as high as 24-40% p.a. They also do not charge any percentage of interest spread as their fee. Their revenue model is that of a traditional (if I could use this word) Web 2.0 company – Ads!
Ram has had a against-all-odds kind of entrepreneurial journey. It was interesting to hear how he eventually acquired the technical and creative assistance and even the legal help. Those are long stories I can write about some other time perhaps. If you ever come to know he’s around at a conference, do ask him to narrate how he went about getting the technical and creative partners for his project.
The most interesting bit is what happened when he tried to find why there were no p2p lending platforms in India. He said that he knew Kiva could not enter India due to a regulatory snag. Once they had got people to work on their platform and creatives, Smita went about calling at least 20 renowned CA/Legal firms. And 19 of them said no, this is illegal to operate this business in India. The one, who said yes, was far too costly to hire.
So, they decided to shut shop and send regrets to everyone whom they ever contacted for RangDe. Among these 1000s of people, was Nachiket Mor, the heir in making of ICICI Bank’s Kamath, who left corporate career to head ICICI Foundation. Within 10 minutes of sending an email, Smita got a call from his executive assistant. Mor said that this model is actually within RBI guidelines and showed huge interest in their concept. They spoke for an hour and fixed up a meeting in Chennai.
After the courtesy call that lasted more than 2 hours with ICICI Foundation’s top executives, Mor asked how much of a funding were they looking for? Ram said he doesn’t have the exact number, promised to send a detailed analysis soon enough and left. They were below the building waiting for a taxi when one of the senior executives just called up and said “If you haven’t gone far, please come back”. When they returned, Mor said, “we will take care of the funding, you please go ahead with your business and launch it in time!”
It is interesting to look at the proposition of RangDe for a lender. They offer a paltry 3.5% p.a. to them for a 50-week loan, just equal to the savings interest rate. They just want their lenders to invest only the sum of money that lies fallow in their sundry savings accounts. What this does to the lender is that he is able to contribute to a social cause, monitor the impact, without actually doing a charity. With an option of re-lending the amount paid back, this allows the user to constantly engage in social transformation with an ever increasing magnitude.
Another 5% goes into the distribution costs of the system where an offline partner actually seeks to engage a set of borrowers (all women) who need this money to start a small business of their own. Since the interest rate is so low (8.5%), it further increases the capacity of the borrower to repay. As it is, the repayment rates are as much as 98-100% for micro-finance in India.
So far, they have got a lot of recognition in the media. Several mainstream publications have run stories on them. In fact, RangDe is one of the two NGOs going to represent India in a Web2.0 conference at Stanford in the first week of October.