NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, October 3, 2012

It doesn’t look like Primiya Bai Rout, a vegetable cultivator in Salebhata village of Odisha, belongs in cyberspace. Yet, there she is, with a profile that nestles right next to Niharika Padia’s from New York. It is an unlikely pairing, but what has made it possible is a loan of Rs 400, given by Padia to Rout, so she can finance her vegetable business, thanks to Rangde — an online platform that enables people like Niharika to choose borrowers like Rout from a list of microloan seekers in the most remote corners of India.

This is the new face of microfinance — e-microlending — that hinges on a peer-to-peer (P2P) model. The company that has made this possible, is Kiva, the world’s largest peer-to-peer lending platform, based in San Francisco, USA, that only a month or so ago announced its entry into the Indian market. Famous for the $25 loan (one can lend as little as $25 to a person of his or her choice anywhere in the world), Kiva has around 800,000 individual lenders, who have funded $340 million in loans for 840,000 borrowers in about 63 countries. In fact, Kiva is the inspiration behind all domestic P2P lending companies, such as Milaap, Rangde and MicroGram.

In a typical P2P model, a website publishes a list of loan seekers. A prospective lender chooses the borrower of his or her choice, makes payments through an online platform and gets monthly or quarterly payments on the loan, either with or without profit. The website facilitating this is run either on donations or fees charged to lenders and borrowers. Business models are varied.