By Shonali Advani

There is probably a minute fraction of people who start their day wondering how to do good. While most of us look at increasing our materialistic assets, there's a group of people who are trying to increase the world's goodness quotient. To that end, three men have got together and formed Milaap, a peer-to-peer micro-lending platform.

A serviceable problem
Launched by Anoj Viswanathan (24), Mayukh Choudhury (29) and Sourabh Sharma (30) in June 2010, the social enterprise is a result of their collective experience in two sectors: development and technology.

Viswanathan, who worked with SKS Microfinance from August 2008, was part of a team that looked into services that can be provided to the working poor beyond micro-credit. He was a first-hand witness to the impact of a $10 solar lantern, sold on credit, to the tribal poor in Odisha.

d.light Design, Choudhury's former employer, sold these lanterns to SKS. "People need other services. There are players on the ground doing this, but all had constraints raising money," says Viswanathan, who is the Co-Founder, Partnerships, Milaap.

Opportunity to lend
The trio saw two major problems with the microfinance model. It lacked complete focus with regard to end utilization of loans and it created proprietors, not entrepreneurs.

"Loans were focused on sustenance, not on entrepreneurs creating jobs in an open community," Viswanathan says. There was a gap and it was in this gap that they found a demand for outcome-based lending-loans given for a specific purpose and which monitors the progress of the same. Further, children of microfinance borrowers didn't carry ambitions of working in the same field as their parents, despite not having secured college education.

"Vocational training and skill development was a challenge," explains Choudhury, Co-Founder, Lending Strategy, Milaap, despite training institutes sprouting up.

At this juncture, the trio realized that education, water, sanitation, and vocational training, as sectors, are a good lending opportunity.

Sharma, Viswanathan's senior from National University of Singapore (NUS), had sold his startup MicroAppli to OnMobile Global and was looking at technology-based linkages for financial inclusion. When Viswanathan discussed crowd-sourcing with Sharma, the two pieces fit together.

The entrepreneurs saw huge potential in bringing together areas of demand with a retail lender base. So Sharma, Co-Founder, Business Development, who is also responsible for raising capital, raised the first round, S$5,000-S$8,000 (Rs. 2-3 lakh) in Singapore for a three-month pilot in Maharashtra with Sakhi Retail. This was done to disburse loans of Rs. 10,000-15,000 to 15 women in the retail chain's micro franchisee network who sold household products."The challenge was capital for an inventory," cites Choudhury.

Crowd-sourcing model
The success was heartening. Seven of the 15 women ventured on their own and increased inventory value to Rs. 70,000. Based on this, Milaap designed its business model. Its target audience is rural and semi-urban working poor with a monthly household income ranging from '6,000-Rs. 12,000.

Loan money is sourced from retail lenders who need to sign-up and create an account on the web platform-www.milaap.org, besides High Networth Individuals (HNIs) and social funds. The uniqueness of the model lies in the fact that lenders can loan as little as '1,000 and choose a borrower of their choice.

"Rs. 1,000 can be one-tenth of a loan required to build a toilet in a household. This puts the entire concept of philanthropic lending in a different perspective," points out Viswanathan. To secure borrowers, it has field partners-organizations working on the ground and strongly connected to the community.

"They have processes in place to appraise borrowers. We decided not to reinvent the wheel but focus on lending," he says.

Like Tamil Nadu-based Gramalaya Microfin Foundation, that partnered in October 2012, and has raised Rs. 10 lakh for 100 borrowers repayable over 18 months. "We pay 6 percent per loan to Milaap as compared to the 14.75 percent commercial banks charge us," points out Geeta Jagan, CEO, Gramalaya Microfin Foundation as the reason for partnership.

"Milaap documents borrower details on the platform well," Jagan adds. The founders were sure they wanted to stay away from a charity model and so built one where 100 percent of money goes to the
end borrower.

Milaap transfers the entire capital collected that goes to field partners who disburse it to borrowers. In turn, the borrower repays the loan over 12-24 months and is charged 12-18 percent diminishing rate of interest.

"Partnerships keep costs low as they are able to leverage on the existing mechanism. Direct microfinance is a capital intensive business and needs people on the ground," reiterates Srikrishna Ramamoorthy, Partner, Unitus Seed Fund that invested in Milaap in January 2012.

Tight-lipped on amounts, he says their typical investment range lies anywhere between $50,000 and $100,000 ('40-55 lakh).

However, he feels adding more partners will be a challenge as they scale up and will require tighter norms and internal controls.

The fine print
Given the infancy of the concept, the trio behind Milaap realized they couldn't have partners rely on retail capital alone. So Milaap commits to funding a certain number of borrowers and uses the corpus raised from HNIs and social funds for this. "We are a fund-raising organization and don't want to expose our partners to variability of retail funds,"
states Viswanathan.

Retail lenders don't earn interest but rewards, a decision taken after experimenting with the former. They saw earning 3-5 percent on '1,000 did not generate much traction. "Lenders can earn redeemable points on e-commerce sites and secure tangible rewards," he affirms.

Every month, credits are made to a lender's account and they can cash out or recycle capital to re-lend elsewhere. HNIs, however, earn 1-3 percent as interest, a conscious choice given that they seek to increase their pool. However, 19 of the 25 HNIs in Milaap's network choose not to charge interest. The firm earns approximately seven percent of interest charged to borrowers and the balance goes to
field partners.

Spreading the good word
However, to give more, they have to get more. So, Milaap has been toying around gifts with marketing campaigns to attract more lenders, and currently bears the cost of that too.

It also works with payroll programs of corporates where as low as Rs. 500 can be deducted from employees' salaries every month. Additionally, it has tied up with e-commerce companies PayTM.in, Kidloo.com, and Bond47.com where buyers can opt to add Rs. 50 to Rs. 100 at check-out
towards Milaap. "There's lot more they can do to increase retail lending. The campaigns are working quite well," says Meena Ganesh, Co-Founder, TutorVista; CEO, Pearson Education Services and Advisor, Milaap. However, Ramamoorthy of Unitus Seed Fund anticipates some amount of uncertainty with crowd-sourcing given that it's an unproven model. "It's difficult to say how many people will lend on the platform on a long-term basis," he says, even though for now it has had high conversions. Seventy percent of traffic on Milaap's platform has turned lenders. The founders are in the midst of securing Series A funding which they plan to invest in technology, marketing and processes and to introduce new features.

"There are no precedents to this and so, there's no secret sauce to acquire lenders," says Viswanathan.
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