Innovative Finance Models for #buildingbackbetter

Many micro-businesses in India faced acute cash flow issues during pandemic. Almost 35% of microenterprises (All India Manufacturers' Organisation Survey, 2020) were projected to close, majorly owing to the lack of working credit to keep their business running. The impact was amplified for rural enterprises, where access to credit has historically been difficult owing to lack of proper infrastructure and connectivity. For India to build back better post pandemic, it is important to tackle the systemic gaps that were exposed in the last two years such as access to credit and ease of doing business in rural areas.

To tackle this, Development Alternatives focuses on decentralized and innovative modes of financing, which empowers communities by having more options and at the same time more control over their financial resources. Models which not only help in better allocation of finances but also help harness solidarity within the community. In line with this objective, DA has been developing innovative finance prototypes and leveraging partners for the same, especially in Bundelkhand.

One such initiative is the Micro-Credit Facility prototype. In Bundelkhand, DA leveraged the existing Self Help Group federations to innovate a revolving credit fund, which can cater to the financial needs of micro-entrepreneurs. The federations including Sahayogini Mahila Mandal, Sankalp Swashakti Mahila Mandal, and Sakhi Saheli Tejaswini Mahasangh have linked 101 enterprises to the micro-credit facility and mobilised INR 23.57 lakhs of capital in a period of 18 months. They have been catering to micro-loans with ticket size of INR 50,000 with annual interest rate of ~12%. Its semi-formal status (requiring only bare minimum KYC) and doorstep service delivery model, has made it lucrative for entrepreneurs, and easy to access especially for women entrepreneurs. Even during the lockdowns, the micro-credit facilities showed solidarity with the entrepreneurs and provided a 3-month moratorium period, easing the financial woes of entrepreneurs.

Another innovative financial model based on fundamentals of social solidarity, which DA has implemented in Bundelkhand, is the peer to peer financing through digital platforms. DA partnered with RangDe.in (www.RangDe.in) to access low interest rate and easy to avail micro-loans for existing micro-entrepreneurs, struggling to restart post COVID. This innovative peer - to - peer lending model thrives on crowd-funding from social investors and implementation is taken care of by local agencies. In Bundelkhand till now, loans worth INR 70,000 have been disbursed through this model and more than INR 1 million worth of loan applications are in the processing stage.

These models are fundamentally based on the core framework of DA's work on entrepreneurship, focusing on innovation and efficient delivery within community. This is validated in the form of robust financial instruments and enabling easy access to the underbanked individuals. The robustness is fundamentally strengthened through proper assessment and due diligence. With similar community based and technology driven innovations in finance, especially for rural entrepreneurs, DA aims to not only expand financial inclusivity, but also bolster the local rural economies as resilient and self- sufficient, ready to tackle any uncertain macro-economic downfalls. ■

Dhruv Joshi
djoshi@devalt.org

Debasis Ray
dray@devalt.org