MicroGraam, an online marketplace that connects people, companies and institutions with micro entrepreneurs, is set to expand the scope of micro-equity as an parallel tool along with the largely prevalent micro-credit. The company which relies heavily on crowd-sourcing route of funding various people in the rural areas is looking at many socially-minded individuals and organisations to expand the base of micro-equity.
Rangan Varadan, CEO, MicroGraam told Business Standard that they introduced micro-venture investment models where the repayment is in the form of revenue sharing, rather than interest. “Recently, this product enabled local entrepreneurs to set up ‘water shops’ which provides safe drinking water in rural areas. The tenure will be for three years and from the second year the repayment of principal and profit share will kick in,” Varadan detailed.
According to him, there is growing interest from various socially minded working professionals who are looking to invest in the product and get a reasonable rate of return.
In addition to expanding this product base, MicroGraam has also innovated on a guaranteed repayment loan where investors are guaranteed repayment regardless of default by borrowers. “This product helps give first-time investors’ confidence in the model, encouraging trial. These loans are backed by first and second default guarantees provided by high net worth investors,” he added.The company, relying on peer-to-peer lending model has during the past nearly 3 years arranged a total of nearly 1,200 loan accounts amounting to around Rs 1.8 crore in states including Tamil Nadu, Karnataka, West Bengal, and Maharashtra.
MicroGraam helps connect people in villages to those in urban centers through the use of mobile and internet technologies to enable easier exchange of funds and interactions.
“Specifically, we enable urban professionals to find, select and provide microcredit to underprivileged borrowers in rural India at terms that reflect the purpose of a loan - resulting in a larger impact on the borrower’s life. For example, the repayment calendar for a rural student’s loan reflects the time needed for the student to complete study and get a job. Similarly, a micro-entrepreneur who may buy a cow will have a repayment schedule that will enable sharing in the profits derived from milk sales over a 2-3 year period. Essentially we have created a micro-finance social network where the lenders act like micro-venture capitalists and can negotiate terms of a micro-loan on a case-by-case basis,” he noted.
According to him, MicroGraam has been able to cap interest rates payable by borrowers at 18 per cent, significantly below the 26-36 per cent charged by MFIs.
For education loans, they have been able to offer the loans at 9.5 per cent to students, an interest rate that until recently was available only to salaried urban professionals.