Helping Hand. Lending for a social cause

Have you for long wanted to help underprivileged women in ways other than direct donations? There’s now a hassle-free way in which you can lend to such causes, and even earn a small return. Wondering how?

Online peer-to-peer (PTP) funding platforms, for a fee, allow you to lend money to individuals at the bottom of the pyramid, at lower interest rates than they would get from banks. Besides helping the needy, you can also earn a nominal interest on the money you lend through these platforms, even if you don’t donate large sums.

PTP lending platforms seek to bring together lenders and borrowers. Prominent among such platforms in India are rangde.org , milaap.org , kiva.org and faircent.com . Portals such as rangde, milaap and kiva raise money for specific objectives such as poverty alleviation, sanitation and women empowerment. Others such as faircent identify themselves as largely for-profit lending platforms.

Those seeking a loan for their business or other personal reasons can sign up with these portals, specifying the reason for which they require funding and the amount they require.

How to get going Both lenders and borrowers who wish to use the services of these platforms have to fulfil Know Your Customer (KYC) norms as required by the RBI and SEBI.

As part of the sign-up process, these portals conduct preliminary due diligence, such as background verification of the borrowers, assessment of their financial condition and their repayment ability.

This is either done by PTP companies directly or through other third-party agencies. For instance, rangde.org , a leading social PTP platform, has signed up with third-party agency S3IDF to evaluate the borrowers’ repayment capability.

How do they reach out to borrowers? Most PTP platforms have enrolled NGOs and cooperatives as field partners to help them identify individuals who require financial support.

For instance, rangde works closely with organisations such as SEVA (Manipur), Hasirudala (Bengaluru) and Sagras (Maharashtra) to reach out to the socially backward people who do not have access to organised credit from banks.

How does one go about lending using these platforms? Once you sign up with, say milaap or rangde , you can choose the individual and the cause you wish to lend for.

These platforms have filters that help you select borrowers who fulfil criterion such as purpose of taking the loan, the amount and their location.

The portals also have a brief profile of the individual, detailing the family background, business, purpose for which the loan is sought, the amount, tenure, interest rate and the loan amount mobilised till date.

Fixing interest rates Some portals, such as rangde.org, have a fixed interest rate for lenders, which varies with the purpose of the loan. However, others such as faircent.com allow you to indicate the desired return on the money you lend through their portal.

On rangde , if you want to lend to a micro venture, you will be paid an annual interest of 4.5 per cent. The borrower is charged a flat 9.5 per cent. Of this, 4.5 per cent goes to the lender, 2 per cent each to rangde and its field partner, and the balance 1 per cent is kept in the contingency fund.

This fund may be used to meet obligations in select cases of default. For faircent , the interest ranges from 12 per cent to 36 per cent, based on the risk assessment.

Risks aplenty As you can see from the above, the fee charged by the portals as well as the third-party agency can be quite high. Besides, though field partners and PTP portals conduct due diligence before listing the borrowers, the risk that they may not repay the loan remains with you.

So, do these platforms cover the risk of default? Only partly. On rangde , for instance, if the borrower is unable to repay the loan due to any ‘act of nature’, then the loan is written off. However, in the event of wilful default, the field partner is obliged to repay the lender.

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