Technology for the Greater Good

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Enabling a Livelihood

Improving the economic prospects of villagers in India is the goal of MicroGraam, a project that taps mobile and Internet technologies to enable urban professionals to find, select and provide microcredit to underprivileged borrowers in rural India.

MicroGraam co-founder Sekhar Sarukkai notes that the concept of microfinance isn't new. But as he and co-founder Rangan Varadan saw it, it could be improved.

"A few years ago, Rangan went back to India to run the banking and finance practice for Infosys, and he saw that microfinance was a great model, but borrowers were struggling," he recalls. "They had to start repaying the next month after they borrowed the money," he explains. But it could take several months before a newly launched venture paid enough to begin repaying the original loan.

The two men decided to apply the principles of venture capital to the microfinance market. Rather than having borrowers start to pay back their loans immediately, lenders would begin to receive payments -- plus an agreed-upon amount of interest -- when the new venture became more solvent.

The model required transparency between lender and borrower, which MicroGraam addressed by developing a marketplace platform using open-source technology, including integration with online payment gateways. A key feature of the system is that micro-fund transfer costs are less than 0.5%, compared to the industry-standard 5%.

"Complete transparency is one of the most important ways technology can help these low-cost transactions. But you need to do it in a very low-cost manner," Sarukkai notes. "Open source helps a lot. This is a fully open-source application."

MicroGraam lenders can search through a database that includes descriptions of borrowers, photographs, and information about the purpose of and terms of the loan. Lenders also receive updates about the progress of the businesses they fund. In addition, the system provides scheduled reminders to MicroGraam's nongovernmental organization (NGO) partners that administer the loans on the company's behalf.

"MicroGraam doesn't have any field offices, so we go to select NGOs who are already working in villages and partner with them so we don't have any overhead on our end," explains Sarukkai. "It's the NGOs that go and collect the money, so it's very important for us to have visibility into that."

What has become equally important is providing transparency to the borrowers. This is done via SMS technology.

"Borrowers are very interested in visibility into their progress, and almost all of these people have phones, because they are very low cost," he explains.

In the past two years, MicroGraam has facilitated 836 loans totaling about $230,000. The repayment rate is 98%. A woman in the province of Trichy in India, who borrowed 1,500 rupees (about $50) to buy a mixer to grind flour, is typical of MicroGraam's borrowers, who are mostly women.

"She started making batter and selling the batter to others in the slum," Sarukkai says. "You could think it's not a big deal, but by selling batter she was able to share in profits. It took her a year and a half, but now she gets more than 1,000 rupees a month from selling batter."

"It's amazing how $100 can change lives so substantially."

Copyright © 2012 IDG Communications, Inc.

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