Rang De is India’s first social peer to peer lending platform that enables individuals to invest in other individuals from low income households, expanding access to low-cost credit for fundamental needs like livelihood and education.
The two key differences between Rang De and traditional microfinance institutions are: 1) Rang De’s focus on lowering interest rates by leveraging P2P (Peer to Peer) fundraising model, and 2) The choice architecture offered to Rang De investees - they can choose exactly when and how much they would like to borrow.
Rang De charges an interest rate of 18% out of which 9% is given to the impact partners, 9% is given to the social investors.
Microcredit refers to small size loans that are collateral free, and are lent to low income households to meet their working capital/consumption needs. Typically, the loan size varies from INR 1,000 to INR 50,000. These loans are usually utilized for income generation activities. The investee then repays the loans according to a pre-set repayment plan.
Microcredit provides the much-needed access to the credit required by low-income households in Indian villages, semi-urban and urban areas. It releases them from the clutches of exploitative money lenders and provides them a fair opportunity to grow.
An example: Malabai Laxman Mujmule, a differently abled individual, runs a grocery shop in her locality. She took over the store after her father passed away; she procures goods and attends to the store. She realized that her earnings would increase if she offered new items for sale, but lacked the spare funds required for such an expansion. So, she applied to Rang De for a loan. After successfully utilising her loan and expanding her inventory, her earnings have increased. She now earns around INR 7,000 per month and is able to save half of that amount becoming, financially independent and more easily able to take care of her elderly mother. Like Malabai, there are thousands of people across India who are working hard towards financial independence. Fair microcredit provides the means to achieve this independence.
Traditionally, microfinance institutions borrow capital from banks at a fixed rate of interest and the MFI then adds the cost of servicing the loan before disbursing it to the investee. The interest paid by the investees of a microfinance institution is a lot more than the interest paid by a Rang De investee.
An MFI is a Microfinance Institution. Most MFIs are non-governmental organisations registered as trusts, NBFCs or societies. Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed that traditionally lack access to banking and related services. More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.’’ Those who promote microfinance generally believe that such access will help poor people find their way out of poverty.
A micro venture in Rang De’s context refers to a community-owned/managed enterprise that is engaged in a business activity. A micro-venture aims to solve the problem of market access and achieve economies of scale through collectivisation and by providing small-scale producers access to a common platform for marketing and essential services.
Microventures have helped weavers find markets, farmers learn new techniques and get input services at below market rates. By fostering cooperation and collaboration among community members, and introducing a business-oriented approach to livelihood activities, microventures promote community development in a sustainable manner.
Traditionally, microventures can get loans from banks and other microfinance institutions, but at high rates of interest and at terms that are not always suitable for the organisation. While they offer stable wages to their members, they take on the risk of selling their wares (produce, woven products, food products, etc) which makes it difficult for them to achieve sustainability.