In 2010, when Rangan Varadan, a finance professional and a former consultant with Infosys in their banking and capital market business started MicroGraam, a micro-lending company, the concept of crowd-funding using online platform was quite nascent. There was just one more online crowd funding platform ‘Rang De’ that had started two years before MicroGraam. With the rise of internet user base in the country and success of online commerce, Varadan says he is expecting much faster growth here on, as the model has proven successful and the initial hesitation of the lenders to do online transactions is something of the past.
In an interview with Bibhu Ranjan Mishra, Varadan says apart from individual investors, he is now seeing interest by wealth advisory firms and financial institutions to invest in MicroGraam and expecting the loan portfolio to grow to Rs 50 crore next year, as compared to Rs 12 crore in the past year. Edited excerpts:
How different is MicroGraam from the traditional micro-finance companies?
Since we predominantly raise funds through crowdsourcing, technology plays a major role in our operation. We connect with the people who want to invest primarily through our portal. Since our goal is to offer affordable micro-credit, the use of technology platform has also helped us to cut down the operations cost. I can strongly say that the operation costs of a brick and mortal microfinance is about 12 per cent. We have straightway cut it to 6.5 to seven per cent and are even confident of further cutting it down to 3.5 to four per cent. Though we predominantly do micro-credit as defined by RBI (Rs 50,000 or below), we also work with small entrepreneurs who are not serviced by the traditional financial institutions. So, our goal is to drive financial inclusion in a broader sense.
With almost five years by now, how successful MicroGraam has been in its mission?
Crowdsourcing of funding, as a concept, is still very nascent in India, even though things have started improving of late. Five years ago, when we started MicroGraam it was very early days. There was only once company — Rang De. They started around two years before us banking on the same crow-funding concept. But today, I can certainly see that a comfort level has developed among the investors. Besides, instead of raising a large sum from couple of people, crowd-sourcing enables us to raise smaller amount from a number of them, thus minimising the risk factor.
Besides, they even have a social objective in mind while investing and still get a return equivalent of market rate, something like 7.5 to eight per cent.
Are there people who put money using your platform for non-profit?
Absolutely. That’s the beauty of our model. If you come to our site, you can choose an interest rate. Either you can choose maximum interest rate of 7.5-8 per cent depending on the kind of projects or you can say that an interest rate of three per cent is enough as long as the money is getting invested in a particular sector or area. There are some who may want only the principal amount back, not interest. So, rather than we saying that this is the social impact and this is the monetary impact, we let the person who is investing chose that and that makes a big difference.
What changes have you noticed in microfinance segment after the SKS debacle?
The growth of this segment somewhat slowed down after that incident. However, fortunately for us, we were not in Andhra Pradesh at that time. Not that we did not want to go there, but we were confined to Karnataka and then Tamil Nadu as those were still early days for us. Now, we are lending in Andhra Pradesh also, but that is mostly in border areas like Anantpur and Kadiri. But the SKS example has proven that micro-lenders need to establish a strong connect with the people who are availing credit through grass-root level partners.
What is the next stage for MicroGraam?
Like any other organisation, we want to scale up. So far we have not done any serious marketing initiative to create awareness about ourselves that we plan to start doing now. Our goal is to touch Rs 50 crore in funding, which we are hopeful of achieving by next year. But the signals that we are getting from the market are quite encouraging. Now, we are also tying up with some of the wealth advisory firms that are offering this investment as an option to their clients. We are also seeing interest by some financial institutions who want to invest.