Swabhimaan — Financial Services At The Doorstep of Rural India

March 13, 2017
By Rang De Team

We sat down for a chat with Rohit Parakh, who is part of Rang De Swabhimaan, a project that was launched on March 8, 2017 in Yeshwantpura, in Kolar district, Karnataka. Swabhimaan is the first step in a journey that will allow thousands of borrowers in villages across India to directly gain access to financial literacy and microcredit at their doorsteps.

Here are a few excerpts from the interview.

Rohit at the Yeshwantpura village prior to the launch of Swabhimaan

What is the Swabhimaan and how is it different from the current Rang De model?

Currently, we source capital from people on the internet and disburse it at affordable rates through field partners — these are other NGOs, cooperative societies, organisations etc. While this model works, there are a few challenges. People who are not associated with a self-help group (a group of women who band together and are collectively given credit) are excluded from the financial system. We want to reach out to the sections of the population who are truly excluded.

What we are trying to achieve with Rang De Swabhimaan is to allow individuals to seek loans at low interest rates. The money will directly be transferred to their bank accounts.

This hasn’t happened anywhere before.

How is the Swabhimaan project going to be implemented?

We will begin by providing financial literacy based on the ability of the applicant and her needs. The idea is to educate her about various financial products and help her make the choice in choosing appropriate services. We hope to influence financial behaviour over time, including over-indebtedness, interest rates and multiple loans. In villages, we are tying the financial literacy program with a reward. If a rural villager wants to take up a Rang De loan, she will have to undergo a financial literacy course. Eventually, we hope an environment is created whereby people can make an informed choice between various financial service providers.

Rang De has been conducting financial literacy training in Yeshwantpura. The first batch of women who completed the financial training module in the village.

Almaaz Taj (right) is one of the first borrowers from Yeshwantpura to avail a Swabhimaan loan

We will also be continuously adding more literacy material to it as well. For instance, we could someday provide literacy on healthcare programmes through Swabhimaan Kendras. We will be looking to partner with more organizations (government and others) for the same too.

What is the difference between a crowdsourced loan that we will disburse through this initiative and the loans disbursed by other organisations?

Apart from the extremely low interest rates that we offer on www.rangde.org, the fundamental problem that we have seen is the fact that most loans that are provided are not customised to the person’s needs. For instance, if a woman wants to borrow a small amount of Rs 2500 or 3000 to meet the daily expenses of the family because her MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) payments are delayed, there is nothing available fulfilling her need.

She cannot go to her SHG because the only loan she can avail amounts to between Rs 10,000–15,000. She ends up going to a moneylender and is offered the loan at an exorbitant rate and stays trapped in a cycle of debt and poverty.

Rang De Swabhimaan will give this woman a flexible microloan product — in terms of principal amount, the tenure, the rate of repayment etc.

Isn’t this a radical break from the self-help group model? Why would we want to do that?

Definitely. The SHG model has been prevalent for close to 50 years now the world over and for a shorter duration in India. The model works great in getting people, especially women, to come together but we are not blind to its problems.

What the SHGs are essentially doing is lending to a group and being part of a group and the social trust involved ensures that the members do not default. If you look at it closely, there is a coercive element to the loans being made through SHGs.

We ask people from low-income families to join a SHG if they want to avail a loan but not people from the middle-class backgrounds like me and you. It is a form of economic apartheid, the way we treat borrowers from low-income families.

We want to try out an alternative model where the individual borrower has the opportunity to make a choice for herself. We are talking about people being motivated enough to make individual savings and building up an individual credit history. That said, our current model of working with SHGs will work continue on a parallel track.

Rang De Swabhimaan will help individual borrowers build a credit history and borrow independent of Self-Help Groups (SHGs)

You mentioned that the borrowers are from low-income families without a credit history. How do we plan on assessing credit worthiness if we won’t have an intermediary like a field partner?

The reality is that a lot of people have bank accounts but the accounts are not being used as there are little (if any) transactions taking place there. Most form of monetary assistance right now is being done through cash so we can’t know for sure what a person’s financial capability is.

In many ways, the loans we provide directly into the bank accounts will build the credit history of borrowers.

In the future, we will take data that already exists — MGNREGA data in the form of job cards, basic income and expenditure data, and we will feed all of this into a machine learning platform.

Our aim is to reach out to sections of rural India out of the purview of the financial system. There is an element of greater risk. One of the reasons our repayment rates are so high is because our field partners brought in their social collateral — our borrowers were diligent because they wanted to repay the trust placed in them by our field partners.

We are hoping to inculcate that in the individual. Other financial service providers will be able to use the data that we generate and any irregular payment can affect their credit worthiness. It is in the interest of the borrower to repay in time if they want a loan in the future and we will help them understand that.

Could you clarify how the system will work at the grassroots? What if the borrower is unable to give the data we require of them?

The financial literacy trainer will be spending a lot of time building awareness among villagers. We are also looking to appoint a Rang De Mitra– an ex-ASHA worker or a retired government school teacher, for instance — in the village to work on the ground. Initially, the core members of Rang De will be present to identify borrowers and ensure that the systems function properly. Over time, we are looking to evolve a system where the Mitras will be able to function independently at the grassroots.

Where is this project being piloted?

Rang De Swabhimaan was launched Yeshwantpura village in Kolar district. This is a very interesting village because it is right on the border between Karnataka, Tamil Nadu and Andhra Pradesh. The people here are conversant in four languages — Kannada, Tamil, Hindi and Urdu. It is a diverse village with multiple ethnicities, religions and people from varying economic backgrounds. It fits the bill in terms of a varied population size.

Rang De Swabhimaan is being piloted in Yeshwantpur village in Kolar district, Karnataka.

That said, there are also multiple challenges — the groundwater has a high presence of fluorine. There are a lot of livelihood challenges. A majority of the people are daily wage labourers working on other people’s farms. There is also a high presence of MFIs in the villages and a majority of the people are already indebted through the MFIs. Two national banks also have a nominal presence in the village and its relative proximity to Bengaluru is a bonus.

This is a great opportunity for us to test our financial literacy program to try and affect a behavioural shift in the way people avail loans and other products.

Are the villagers aware of Rang De Swabhimaan?

The villagers think of us as loan providers, some are aware of the financial literacy module that is being implemented; some villagers asked us about the interest rates we were offering so word has now spread that we are offering single-digit APR. So I would say there is some awareness but things will be much clearer once we establish a presence.

Rang De is primarily a digital platform and Rang De Swabhimaan is also entirely digital. How will it work in an area possibly devoid of the requisite infrastructure (computers, Internet access etc)?

We are installing something called a bioscope in the village which is a modern, digital version of the traditional bioscope that were used to watch movies. The Rang De bioscope will become the forum where an individual will undergo training in financial literacy, individual assessment and apply for loans etc. Initially, people might need some training with using the machine and a lot depends on the things we are testing but we feel that it will be intuitive.

All materials will be made available in local languages as well.

Do you think villagers in India are ready for this?

There is no better time in which we could be doing this. With the presence of India stack, we can leverage Aadhaar to deliver digital services to people as well as carry out digital verification through eKYC. The conditions are just right. We have been very lucky in our timing as our project coincides with the push for a Digital India.

Rang De Swabhimaan was launched in Yeshwantpura village in Kolar district, Karnataka, on International Women’s Day. Swabhimaan aims to increase the accessibility to financial services in rural India through a combination of digital technology, social development principles and financial literacy training.