A crowdfunding website for microcredit, rangde.org posted Jothi's profile in their ‘borrowers' section in February 2009. Within a month, a private investor came forward to help her on the site and lent her Rs 5,000. With this loan, Jothi was able to purchase charcoal and iron rods in bulk. This investment ensured regular supply of raw material, leading to more financial stability. And she repaid her loan with an interest of 8.5% by March 2010.
Crowd funding — sometimes called crowd financing or crowd sourced capital — describes the collective cooperation, attention and trust by people who network and pool their money together, usually via the Internet, to support efforts initiated by other people or organisations. Crowdfunding occurs for any variety of purposes, from disaster relief to citizen journalism to artists seeking support from fans, to political campaigns.
Jothi is one of Rangde's success crowdfunding stories. Websites like rangde.org, dhanax.com and arthaplatform.com are trying to build interest in the microcredit space and are reaching out to investors — be it regular professionals or high net worth individuals (HNIs) — online.
"We try to go where microfinance institutions (MFIs) don't — the absolute bottom at the bottom of the pyramid," says Ramakrishna N K, co-founder and CEO of Rangde. "We don't want people to donate, but to invest. Our borrowers are mostly first-timers. And our repayments have rarely defaulted — we have had a success rate of 99%."
These websites employ crowdfunding techniques, informing and encouraging common people online to act as investors in microfinance schemes aimed at the small borrowers. It leads to much larger awareness and participation and helps in covering the previously untapped geographies and communities. In crowdfunding platforms like these, all an investor has to do is pledge a sum of money online to a borrower whose business plan inspires some confidence in him. There is a waiting period where the borrower puts the money to use and sees their profits soar. Once that happens, they start repaying the borrower in monthly instalments. Jothi staggered her repayment of Rs 108.50 every week over a period of one year.
While Chennai-based Rangde lends mainly to women in rural areas, Bangalore-based Dhanax reaches out to self-help groups (SHGs) and asks investors to make a minimum investment of Rs 10,000. And these sites are seeing brisk business. Rangde, for instance, sees contributions of Rs 15 lakh in every month. Dhanax has over 1,000 lenders on their site.
The inspiration for these sites comes from international sites like kiva.org, which has created a global platform for lenders across 199 countries. The total value of all loans made through Kiva currently stands at over $143 million. Over the years, Kiva has managed to bring retail investors, HNIs, charity funds, NGOs and MFIs to help entrepreneurs and SHGs at the bottom of socio-economic ladder.
Since literacy levels and Internet penetration are low in this segment, particularly in India, these sites have field partners like Gram Utthan, Hope Foundation and Association for Sustainable Community Development (ASSCOD) and also dip into databases of NGOs like Saadhan. These partners have good understanding of local conditions and so are able to assess the creditworthiness of each candidate and monitor the progress. This helps build trust in investors who know exactly where their money is being used.
The sites also arrange for investors to contact the borrowers to check on the progress of the business, suggest ideas and discuss future plans.
The size of the microcredit market in India is estimated to be Rs 2,00,000 crore. But its still not an option that wealth managers recommend. "This market is still nascent and were waiting for greater growth and more players before we think of recommending it to our clients," says Daya Paul, partner of Nile Financial Planners, a Bangalore-based wealth management firm. As of now, wealth managers recommend this as an option only for HNIs.
It is probably this trend that has led arthaplatform.com to adopt a by-invite only approach. Started by an independent initiative supported by Rianta Capital, an investment advisory to a family trust based in London, arthaplatform.com will kick off in July.
"We are restricting ourselves to VC firms and HNIs who will be focused investors in the social entrepreneurship space in the long run," says Neeraj Doshi, who heads Artha Sustainable Development Initiative. "Networking for this will happen both online and offline."
For those who are looking to contribute beyond investing, volunteering time and efforts with these organisations is another route. While Dhanax is largely Karnataka-based, Rangde has chapters in most major metros that have people from all walks of life — from IAS officers to entrepreneurs to professionals — volunteering to further their cause.
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