• Social Entrepreneur

After working for over 20 years in financial services, Rangan Varadan found himself veering away from the corporate world towards social development. When Varadan, Co-founder, MicroGraam, met serial entrepreneur Sekar Sarukkai from Silicon Valley, there was a meeting of minds. “I wanted to address the need of the un-banked segment—where anyone can invest in any venture,” says Sarukkai, Co-founder MicroGraam.

So, MicroGraam was launched in April 2010 with a simple goal—to enable people to invest in other people and do it in a manner where borrowers pay the lowest rate with the ultimate vision of micro-venture creation.

US-based organization Kiva’s peer-to-peer lending platform piqued Varadan’s interest. “We worked on this from both the borrower and investor’s side,” he says. In addition, MicroGraam was looking to improve the microfinance way of working which charges a high rate of interest to borrowers due to operational costs. “We wanted to ensure a borrower is charged not more than 15 percent,” explains Varadan. This, he hoped, would lower the overall cost to people.

Partnering with NGOs was the way forward. The logic was simple—to sell any product to rural India, the cost is high; therefore sharing the distribution channel was important.  NGOs being the best channel for micro-credit, MicroGraam came up with a process to identify NGOs who are ranked across governance, areas of social impact, micro credit experience and management. “Our emphasis is on governance; whether it’s a one-man show or has good board/trustees,” says Varadan.

MicroGraam visits the field two-three times a month to understand the impact NGOs and bonding borrowers have with field staff. “We rank lending opportunities on a scale that is published on our site. We have a 100 percent repayment rate,” explains Sarukkai.

NGO Junglescapes, working on implementing ecology-based alternate livelihood options for forest dwelling communities, partnered with them in October 2010 for its eco-chulha project in Bandipur, Karnataka. The NGO trained two local village youth to fabricate and install the chulhas, so it becomes an alternate livelihood option for the community, generating a monthly income of about Rs.2,500 for fabricators. In November 2010, MicroGraam disbursed a working capital social loan of Rs.10,000 to both fabricators, repayable in 18 months. “The loan was disbursed in two weeks and the entrepreneurs have installed 40 chulhas since,” says Ramesh Venkataraman, Founder, Junglescapes.

For buyers, the NGO is encouraging women SHGs to secure loans and buy chulhas, each costing Rs.1,200 (Rs.600 of which is given as a subsidy by Junglescapes). Venkataraman says the main reason for choosing them over an MFI was low interest rates, 7 percent in this case.

MicroGraam’s work also extends to creating new market linkages for rural enterprises, the biggest challenge for them till date. It has tied up with some craft companies to find markets, including an online portal. It also liaisons with design students from premier institutes looking to work with rural micro-enterprises by adding contemporary designs to local crafts to better sale prospects. “We want to bring micro-ventures, market linkages, and micro-credit together,” states Varadan.

On the side of micro-venture, MicroGraam has two pilots, one being a dairy. An SHG in Kolar has bought 10 cows on a loan of Rs.3 lakh given by a social investor. The milk will be sold to cooperatives. NGO plays an important role here in terms of monitoring the enterprise, looking at accounts and overall management. The dairy business, Varadan feels, is capable of giving even 20 percent returns, if done right. MicroGraam’s idea is to encourage a venture and bring in a micro VC who will share in the P&L. “We don’t want to restrict ourselves to borrowing, but want to bring in equity at a micro level,” mentions Varadan.

The challenges here lie in identifying social investors since the concept is still nascent in India and the perceived risk is high as it comes sans guarantees. “Initially, Infosys was my captive audience and then we found more social investors through road shows,” says Varadan. The bigger hurdle was local politics, especially during election time, where rural folk get swayed by politicians and stop paying back loans. The social entrepreneurs had the tough task of educating investors on the segment’s pitfalls. “Investors have to look at this as a separate asset class where there is an absolute return and then a social return,” points Varadan.

A good three to five percent can be discounted as risk premium here, the duo says. “The regulatory climate for foreign peer to peer investments is also a challenge,” adds Sarukkai. Nevertheless, the entrepreneurs see the new generation of employees as future social investors. So far, 50 percent of investors have been known contacts. “We want unknown people to believe in us and invest,” he emphasizes. It is also tapping the student community at IIM, Bengaluru, for potential investors.

MicroGraam’s latest products are on the education side and it has partnered with EduBridge in Mumbai and Vidya Poshak in Dharwad. The latter, a graduate finishing school, trains students from disadvantaged backgrounds in presentation, English and other soft skills required to secure a job. MicroGraam gives out loans to students taking up the three month program (course fee costs Rs.15,000) to be repaid once a student secures a job. So far, Vidya Poshak has received a loan of Rs.4.65 lakh for 30 students and is expecting next loan of Rs.3.75 lakh for 25 students of the March 2011 batch.

“MicroGraam provides loans at 8.5 percent interest, which is low when compared to other institutions,” says Venkatesh N, VP (Education and Training), Vidya Poshak. “In case of government banks, Vidya Poshak keeps 50 percent of loan as a security deposit and the interest rate is 10 percent, while with MFIs, it’s over 18 percent. Students have to give 10 percent as group deposit with original marksheets,” Venkatesh explains.

From a long term perspective, the social enterprise is strengthening its board. It is also launching chapters of MicroGraam in different organizations as part of their CSR arms as well as a marketing initiative for itself.

COST-WISE
Revenues: Rs.90,000 (April to Dec 2010)
Expected to break even by: March 2012
Amount of micro-credit disbursed till date: Rs.45 lakh
No. of micro entrepreneurs impacted across SHGs: 228 across 40-45 SHGs

©Entrepreneur February 2011

Tags:
Junglescapes, micro-venture, microfinance, MicroGraam, peer-to-peer lending, Ramesh Venkataraman, Rangan Varadan, Sekar Sarukkai, SHG, VC