Saturday, March 27, 2010

Microfinance and RangDe

This post is about “Microfinance” and my association with, a non-profit microfinance organization in India. I am a volunteer with the organization. The views presented in this article are entirely mine and do not represent the views of the organization or of its members.

What is Microfinance ?
Microfinance is the practice of providing loans to microentrepreneurs(owners of small time business) to help them setup/run their business. These entrepreneurs typically find it difficult to obtain the same loans from big financial institutions such as banks. This is because banks typically require a collateral or surety on which the loan is provided. This becomes a bottleneck for the microentrepreneurs who then go to the local money lenders(who charge exorbitant rates) to borrow loans. Another factor to be considered here is that since these are very small loan amounts banks find the overhead very high for a very small transaction. This is where microfinance helps provide low cost loans to entrepreneurs who need not shell out a major portion of their earnings as interest for the loans. I believe the average loan amount in India ranges between 5000 and 7000. You can read more about microfinance at .

Are all microfinance institutions non-profit institutions ?
No.I volunteer for , a non-profit institution. The whole objective of microfinance is to provide low cost loans to borrowers. An organization that doesn’t seek to gain profit from the venture can provide loans to borrowers at a much lesser rate.

About RangDe
Loan collection and Disbursal
As I mentioned previously, RangDe is a non-profit organization. It is an online platform to connect investors (you and me) with borrowers. Investors have an option of choosing the borrower at the time of investment. Typically more than one investor loans to a borrower. Say, I see that a milk businessman wants Rs 5000 to buy a cow, I would loan say Rs300 and another investor would loan some more and so on till the entire amount is collected. The total loan is then provided to field partners (NGOs) who provide the loans to borrowers. Borrowers use the money to establish/grow their business. It is important to remember that this would be unsecured loan.

Borrowers repay the loan in parts over a period of time. The exact details are available at . So eventually the investor receives the entire loan amount with 2% interest.

Operating Principle
RangDe provides ensures that loans are provided to groups of borrowers. The advantage of this approach is that this ensures collective responsibility. Even if one member of the group defaults on the repayment , the others in the group would pitch in to ensure that the credibility of the group is not lost. This approach also fosters a spirit of competition among borrowers who would with all sincerity use their business acumen to grow their business.

Microfinance has the power to transfer rural India and would ensure the much talked about inclusive growth. People who can run a good business in villages and towns would no longer have to travel to cities for a livelihood. This in turn would help reduce the overcrowding in cities.

Another important factor to note is that microfinance has greatly helped women lead better lives. Most microfinance institutions would admit that women dominate their borrower base and women are also less likely to default in their repayment. While a man might spend his money in a village liquor store, a woman would save money to send her child to the village school.

You can learn more about RangDe by visiting the Official RangDe blog at

Wednesday, March 24, 2010

Controversy surrounding the BSP rally.

Most of us are aware of the controversy surrounding BSP leader Mayawati’s public display of wealth during the recent BSP rally in Uttar Pradesh. For those of you who don’t know, the BSP members recently celebrated the 25 year anniversary of the founding of their party and the birthday of founder Kanshi Ram. Roughly 200 Crore was spent for the event. During the event , UP chief minister and BSP’s tallest leader Mayawati was presented with a garland of 1000 Rupee notes. The value of the garland is estimated at 21 Lakhs. The question on everyone’s mind is – “Was this required and was it appropriate at a time when the Stage government citing paucity of funds even refused to compensate the families of those who died in a recent stampede”

Most political parties have condemned the incident and some have even gone to the extent of seeking a CBI enquiry to investigate the source of funding for the garland and for the event. All these parties have placed themselves on a moral high ground and members seem to indicate that they have a clean slate. I don’t buy the argument that only people who display their wealth have looted the country and the others haven’t. Everyone(well almost) is corrupt. Mayawati’s supporters were quick to retort that at least their leader does not hide her wealth unlike others who rob the country after dusk.

My argument is that at a time when the participation of the people in our democracy is at an all time low and when people have begun to give up on politicians because of the amount of corruption, Mayawati’s brazen display of wealth further strengthens their belief that Indian polity cannot improve. We need people to believe that our political system can improve. Such incidents undo any progress made by citizen groups to get people to vote. We must remember that corrupt politicians are elected by good citizens who choose not to vote. If we want our system to improve, we must make sure that participation in the electoral process improves. An argument that such a display of wealth by Mayawati inspires members of her community is flawed and mocks the intelligence of our people.

The irony is that Mayawati has done a fabulous job of improving the law and order situation in Uttar Pradesh. She has an amazing political acumen and as woman belonging to a community that has been oppressed for ages, has fought against all odds to reach her current position. She must not squander it all away. Uttar Pradesh is certainly the most important state for political parties in India. The state has given us the maximum number of prime ministers and it is very likely that UP’s current political leaders would in the near future play a greater role in Delhi. If Mayawati plans to play an important role at the center, she cannot afford to indulge in petty politics such as asking the police force to see if the beehive at the rally was part of a political conspiracy against her party!
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