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
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