Social Investing in India & Rang De

@RangDe twitter

I have almost stopped watching television, simply because I inevitably land up with the news channels and the non-stop coverage on CORONA is too harsh for my nerves. And I am not a vigorous consumer of OTT content. Today, while lackadaisically skipping through channels, I stumbled upon on NDTV exclusive show on their collaboration with "Rang De" for helping farmers in crisis. The content or rather, the initiative seemed interesting and I decided to pay attention. Well, its been 7 hours now since i watched the program, and I am still searching for something similar that has been done in India. I cannot say that my search has been uber exhaustive, but at the same time, I cannot help but put my thoughts to words on what Rang De strives to achieve and the whole "contributing to help" scenario in India.

"Rang De"

The concept of microfinance dawned upon me in a more lucid way during my classes at ISB. While the learning was somewhat marred by the sudden onset of the Covid crisis, the course on microfinance happened to be the only course I had taken that related to the field of social development. I am no expert on the subject, but I guess I would not be too off if i describe microfinance as the "way to make small amounts of money available to people who need them, via non-traditional source of credit". Here, we are not primarily speaking of our education loans, the gargantuan housing loans, auto loans or personal loans. Most of us, reading this article, are but too well " banked" to ever felt the need for microfinance. Microfinance is a rather, humble line of business, with the actual motto to fulfill humble credit needs for humbler people.... People who form the vast margins our society...people in our neglected hinterlands....people who have deservedly remained unbanked. There is yet another higher goal that this kind of activity looks to achieve- provide these hitherto unbanked people with a credit history so that they can graduate to the higher banking institutions.

Rang De started off in 2008 as a not-for - profit organization looking to provide targeted fulfillment of credit needs of under-financed people like artisans, farmers, etc.,the source of the credit being pooled funds from individuals. The rates of interest for borrowers were kept low keeping in mind the affordability aspect. The organization appealed to the well-meaning hearts of well - off people, yet not becoming a full - fledged donation-based NGO. It's core proposition was to provide a better and non-exploitative means of micro-credit for such people, while still nursing a business-like model. At this stage, one would be tempted to ask how Rang De differs from other MFIs that operate with similar agendas. Well, this firm ensured that they operated through micro-level connections to every needy borrower, and not through group-level engagement as in common with most MFIs. the funds were transferred directly to borrower's account (after due diligence), with no involvement of any mid-level group like (cooperatives, SHGs, etc.) and most interestingly, any investor could trace his investment. What the latter means is that you, as a social investor (one who invests in a social enterprise), would know all through where and how your investments were being utilized. The actual rates of interest were also flexible, being decided by investor in discussion with borrower.

As it grew bigger, in 2019, Rang De got itself a NBFC license as a P2P lending platform. Today, it can no more operate on grants / donations as it has been made into pvt. limited company. It gathers some revenue from processing fees but acknowledges in a practice that the same cannot be its main source of revenue. That would basically defeat its intentions to remain a cheap source of credit, only adding further burden to the impoverished borrower. Instead, it has moved on to a membership model- the investor is required to pay a meager 999 INR to become a privileged "Believer" in Rang De's cause. It does not mean that everyone needs to be member to invest. One can still become a social investor in their platform for free, but curated investment would require one to be a member. Members would have the option of choosing specific areas and borrowers (who would benefit from their funds) from Rang De's list, and thus, stand a better chance of getting better returns. Staying in touch with the borrowers and tracking their investment were also perks that came with being a member.

The above model seems unique yet fascinating. It manages to monetize the difference existing between truly motivated social investor and a casual investor. yet through all this, by keeping lending rates within reach, it ensures that the activity never becomes a case of "investment with a sole intention of profit reaping". The annual membership fees, meanwhile, shall help Rang De sustain its business and grow to affect more lives in Indian villages.

The Rang De - NDTV Initiative

@RangDe twitter

The Covid crisis has hit all sections of the society hard. We have seen deeply disturbing coverage on how migrant laborers have been affected and how startups are laying off employees. The GoI has announced a fiscal stimulus package, but how and when that translates into positive momentum for the economy remains to be seen. In all this cacaphony, the plight of the farmers has remained below sheets. After all with whatever Operation Green is supposed to achieve, not much shall help in providing immediate relief to the farmer. It is crucial to remember that a fiscal stimulus is supposed to bear fruit in the long run; the former cannot be relief mechanism.

The movement of agricultural produce from the first point in the supply chain has been severely affected due to the unplanned lockdown imposition. There have been reports of hundreds of quintals of crops of various kinds being simply dumped, as the rural farmers could neither manage to sell nor store. With the kind of bootstrapping venture Indian agriculture really is, most farming households do not have much savings to fall back on.  Now with the proceeds from rabi harvests gone, the farmer faces serious sustenance issues. Without funds to roll back into farming, the next season of kharif farming is also under threat. To save them from reneging back to abysmal poverty, one needs to provide them with credit support so that they can appropriately farm in the upcoming season. 

Rang de and NDTV have come together to provide quick micro-credit for the COVID hit marginal farmers. They are using their existing network of investors-partners-borrowers to provide interest free loans. The rest of the model remains the same. This is a great initiative to ensure that the well-intended funds truly reach the intended beneficiary, without hassles of processing fees. loan applications, etc. The unique model of Rang De makes sure that the investor remains informed about every penny that is being lent out from his funds.

How is it different?

Apart from the very obvious fact that social investing is still premature in India, the transparency of this P2P lending process makes it unique. We must understand that this is not an organization out there to grow like an Amazon or make profits like an YES bank. The core intention is to enable philanthropic minded individuals help their needy brethren, not through one way donations but via loans. The very fact that these loans are traceable and repayable ensures that the funds are utilized efficiently. The ills of Moral Hazard associated with free funds is thus eliminated. Much as I hate to say this, yet not even a semblance of similar transparency though is present in much touted govt. managed relief funds. Many of us and more donate in such funds meaning well and understandably so, yet those being donations, information on the expenditure form these funds are not easily available. 

A humble appeal to all readers to go visit the webpage and share knowledge on the same. To invest or not to invest is a totally individual choice though.

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Disclaimer: This is not a sponsored write up and I have not been contacted by either RangDe or NDTV. This is just a product of inspiration from watching the episode.