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BANGALORE -- Amidst the regulatory upheaval and scramble for fresh capital that defines India's microfinance sector, a new breed of micro lenders are quietly challenging the conventional norms of the industry with an internet-based funding model and low-cost loans.

By charging significantly lower interest rates made possible through crowd sourcing or a peer-to-peer approach of raising money from socially conscious individuals, these fledgling ventures are aiming to reach communities where traditional microfinance has failed to make an impact while also providing a return to investors.

"Our operating costs are half of traditional microfinance companies, because we are not dependent on banks for capital and do not have a brick and mortar structure," said Rangan Varadan, founder and chief executive of MicroGraam, one such startup that lends money to rural entrepreneurs at interest rates ranging between 10 per cent and 15 per cent as compared to traditional microfinance rates of 24 per cent to 36 per cent.

The Bangalore-based venture has a current outstanding loan portfolio of Rs 1.35 crore with a repayment rate of over 90 per cent. Varadan quit as the head of banking and capital markets at software services major Infosys Technologies to launch MicroGraam in 2010 by using his personal savings. Once he had the basic capital in place, Varadan launched his website that solicits funds from anyone interested in participating in the micro-lending venture. He has through this method raised capital of up to Rs 2 crore from a large network of individual investors.

Since then MicroGraam has been lending very small loans ranging in size from Rs 5,000 to up to Rs 30,000 to rural entrepreneurs. It has disbursed a total of Rs 2.02 crore across Karnataka, Maharashtra, West Bengal and Tamil Nadu.

While the microfinance sector in India took its early steps with the help of grants from global philanthropic foundation such as the Michael and Susan Dell Foundation and marquee investors such as Vinod Khosla, the peer-to-peer model based on internet and social media networking is creating a wholly different pool of capital, the socially conscious small investor.

Rang De, another micro lending venture headquartered in Bangalore, was launched by the husband and wife duo Ramakrishna NK and Smita Ram. They started with an initial pool of seed capital of Rs 5 lakh in 2008 and subsequently received Rs 1.6 crore from ICICI Foundation in two tranches.

The Rang De website, which opened for business in 2008, pioneered the concept of peer-to-peer lending using the internet in India. The venture has raised 8 crore through this method so far. Using this pool of capital, Rang De has disbursed an equal amount at interest rates not exceeding 15.3 per cent. Its outstanding loan portfolio currently stands at Rs 2.2 crore. In order to ensure prompt recovery of loans the venture uses a network of 22 non-government organisations to vet loan claimants.

In July last year, another crowd-sourcing platform Milaap received a go-ahead from the Reserve Bank of India to source small loans from investors abroad, a development that has come as a massive boost for the startup. "There has been strong interest from the Indian diaspora," said Anoj Viswanathan, co-founder and president, Milaap. The platform has raised up to $ 260,000 using the online capital sourcing model.
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Publication:Pakistan & Gulf Economist
Date:Jul 22, 2012

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