Would you change a life every day if you could? The thought of doing something for the greater good often crosses our minds. For many of us, the good intention remains an item on our to-do checklist. But changing lives is literally just a click away. Milaap is the brainchild of three young men who got together in June 2010 to create an online crowdsourcing platform that helps people across the world to lend to the working poor in India. Anoj Vishwanathan, 25, met Sourabh Sharma, 31, both graduates from the National University of Singapore, when he interned at Sharma’s startup Microappli in 2006.
In 2008, Vishwanathan took a sabbatical to work with SKS Microfinance and while on a project to provide solar lanterns on credit in Odisha villages, met Mayukh Choudhury, 30, an IIM Lucknow graduate working with solar lantern maker D.lightdesign. Having seen the difference small loans make in the lives of those at the bottom of the pyramid, Vishwanathan spoke with Sharma and Choudhury about starting something that would improve the lives of India’s poor. Their united effort led to the creation of Milaap (Hindi for unity).
Being the change
How does Milaap work? The company drew its inspiration from Kiva, a non-profit organisation in the US, which built the world’s first online lending platform connecting entrepreneurs to lenders across the world. “We saw what a game-changer being online could be and everything is moving to online in India. We have changed the way we travel and shop, so we feel the same principle would extend to giving as well,” says Sourabh Sharma, co-founder and CEO, Milaap. So essentially, what it does is bring together deserving, cash-strapped borrowers with lenders from across the world.
Milaap partners with non-governmental organisations (NGOs) and microfinance institutions (MFIs) who work at the grassroot level, to select borrowers and create customised loans based on their repayment capacity. These field partners have a good understanding of the borrower’s needs and background and, hence, are able to assess their repayment capabilities better. Currently, it works with 18 field partners across 11 states, including Karnataka, West Bengal, Maharashtra, Rajasthan, Odisha, Tamil Nadu and Mizoram. “We felt that rather than start yet another organisation, it was better to augment the efforts of existing NGOs and MFIs and focus on solving their three main problems: raising capital, using technology to leverage all the borrower data that they already had and gaining better visibility for their work,” says Vishwanathan, co-founder and president, Milaap.
The loans go towards key areas such as sanitation, vocational training, energy, helping entrepreneurs and drinking water. And they help people such as Tamilarasi, who had to rush to the fields near her house in Manparai, Trichy (Tamil Nadu) before sunrise to relieve herself since there was no toilet in her house. With a ₹10,000 loan, she finally built a toilet in 2012. “Thanks to Milaap, I have a safer and cleaner environment for my children and me,” says the middle-aged housewife.
You can lend as little as ₹1,000 to the borrowers and receive full repayment once the loan tenure, which usually ranges from 12 to 36 months, is completed. “While creating social impact is definitely one of our primary goals, our long-term goal is to reinvent Indians’ thinking about giving. We want to make it an everyday habit so individuals can participate in creating social impact,” says Sharma.
So far, the enterprise has raised ₹5.1 crore through 4,559 loans from around 10,000 individual lenders, impacting 26,877 lives across 11 states. But that’s only about 30% of the total funding — the bulk of it (₹3.5 crore) comes from institutional lenders and social funding. And, unlike retail lenders (mostly from Singapore, India, the US and Canada), institutional lenders get a 3-4% return on their loan.
Borrower stories are uploaded on Milaap’s website with the loan amount required for the stated outcome. A lender simply registers on the site, picks whichever cause he chooses and transfers the amount to Milaap. All loans have a display life of 30 days and if the loan amount is not raised by then, Milaap covers the remaining amount from its corpus, and transfers the full amount to the borrower. It has raised a corpus of around ₹60 lakh from institutional investors and social funds such as Unltd India and Joy Holdings to make up for any such shortfalls.
Since it began operations in 2010, Milaap has seen no defaults on its loans and the founders believe that’s because there are multiple checks in the system. “We ensure loans granted are outcome-based rather than need-based, and monitor the progress so that the stated outcome is achieved,” says Vishwanathan. Cash transfers, too, are avoided. For instance, for vocational training loans, instead of paying cash to students, Milaap makes out a cheque to the institute in the student’s name. Similarly, it pays suppliers who provide raw materials or machines on behalf of the entrepreneur rather than giving cash to the borrower. It also helps that the organisation works with reputed partners with proven track records.
Partners in progress
Some of Milaap’s main partners work across Karnataka, Tamil Nadu and West Bengal. One is Grameen Financial Services, for a vocational educational initiative started in April 2011. ‘Gravity’ funds training for high school and college students in skills such as accounts management, sales communication, customer service and team management; they are expected to repay Milaap the loan once they start working. So far, close to 600 students have benefited from the programme, with almost all finding jobs in retail chains, rural BPOs, MFIs and manufacturing facilities with an average monthly salary of ₹5,500.
Another partner is Industree Crafts Foundation (ICF), which manages self-help groups (SHG) for artisans in which, over a 50-day training programme, they are taught to design and transform natural, eco-friendly materials into home decor products. The artisans can then sell their products to ICF, which in turn partners with urban retailers to display and sell these crafts. Milaap offers bridge loans to these artisans, which they repay once the government reimburses their training fee or from their increased income.
Rajalakshmi Palanivel of Bengaluru did just that. She was part of an SHG that supplies garments to retail chain Mother Earth. A ₹50,000 loan from Milaap in 2012 helped her buy more machinery. Funding also helped the SHG increase headcount from 15-20 to 35, and add an additional production unit, helping meet higher production targets. “Not only has the higher income made me self-sufficient, I can give my son the best possible education, something I missed out on,” says Palanivel, who couldn’t pursue her education since she lost her parents early in life.
So far, Industree and Grameen Microfinance Foundation have got over ₹1.4 crore through Milaap. Another ₹1.03 crore has been disbursed through Gramalya Urban & Rural Development Initiatives (Guardian), which works in the drinking water and sanitation space. “Since we started working with Milaap, we have had easier access to funds and we have been able to reach out to more borrowers,” says Geetha Jegan, CEO, Gramalaya Microfin Foundation.
While the entire sum offered by lenders is transferred to the borrower, Milaap charges its field partners a 5% fee on all loans disbursed through them, to cover its operating costs. The field partners, in turn, charge interest from end-borrowers to cover their cost of selecting borrowers, monitoring progress and collecting repayments. While the interest on some loans can be as high as 24%, the average interest and fee charged is about 8.5%. Milaap ensures that all fees are disclosed upfront to borrowers and charges are in line with market rates.
Investors seem excited by the Milaap model. “We are excited by the social impact and believe Milaap will significantly scale their operations, given the limitless opportunities in this space,” says Jayesh Parekh, managing partner, Jungle Ventures, who has also personally invested in Milaap. Recently, the startup raised $1.1 million in a second round of funding from a clutch of investors, including early stage investment firm Jungle Ventures, Singapore-based family office Lionrock Capital, and Unitus Seed fund. Between August 2010 and January 2012, it raised $250,000 in seed funding from First Light Ventures, Unitus Seed Fund, Vijay Sekhar Sharma of One97 and Rajiv Madhok, founder of Oorja. It’s still a long way from breaking even, though. “The concept is still new and will take some time,” concedes Sharma.
Still, there’s plenty of scope to increase Milaap’s scale of operations — currently, just two states, Tamil Nadu and Maharashtra, account for 40% of the borrowings. In the next year, Milaap plans to enter the Philippines. “It is a country that understands microfinance well,” says Sharma.
Scaling up also means increasing the lender base, and in the next 18 months, Milaap wants that number to go up to 100,000. “That is the tipping point from where the pace of acquiring lenders should gather momentum,” says Sharma. Ambitious? Yes. Impossible? No. While it could take Milaap some time to get to that number, it has already shown 10,000-odd people how they can change lives on a daily basis with just one click. Now that we know it’s so easy, there’s no reason why more people shouldn’t reach for the mouse.