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DHANAX - MAKE A DIFFERENCE

Ever wondered what ‘good banking’ is all about. Why the banks which have defined the banking industry for over decades are crumbling most easily. And why the mortgage banks are leading the financial mess the world finds it in. Actor Bob Hope once said famously ‘banks give loans to people who can prove they do not need it’. The bankers are obsessed with ‘secured’ lending. They look for security in terms of collateral or in terms of stable income proofs etc. All these big banks offer loans to people who they find have good credit history, are in a good looking profession, live in a good looking locality and things like that. And when they feel they need to be ’secured’ further they ask for collaterals mostly in the form of mortgages. What yield their approach has resulted in is for everyone to see. And then you see a bank like ‘Grameen Bank’ in Bangladesh and wonder whether banking industry has got it wrong completely. Grameen Bank of Bangladesh founded by that revolutionary Noble Prize winning thinker ‘Muhammad Yunus’ is an anti-bank in a lot of ways. It does everything that a bank should do and yet its approach to lending defies everything that is missing in the approach of all big banks.

Let’s look at what they don’t have in terms of :

  • Customer Segment : They don’t have a credit history, don’t have particularly attractive jobs and the places they live in are anything but good looking.
  • Collaterals/Mortgages : None at all
  • Sophisticated high tech risk management tools : I am not sure if they have them but I am sure even if they do have them they don’t need it.

    And they are able to manage repayment rates of close to 98%. So, how are they able to do it? Let’s look at what they have :
  • Customer Segment : These are low income people who have no access to banks but a desire to work hard. Whatever credit they are able to avail of they put it to good use and combine it with their time and hard work. They form themselves into groups known as Self Help Groups and take loans under joint liability.
  • Collaterals/Mortgages : Since they take loans under joint liability, it means that if one member of a group defaults, the others need to pay up. So peer pressure acts as effective collateral. These groups are homogenous groups based on location, profession etc. Now unless they have a genuine reason, they will not default. You can run away from a bank but you can not run away from your peers for small amounts of loans.
  • Risk Management Tools : Often the credit amount is derived based on two factors, their repayment capacity and the purpose of the loan. As long as the loan amounts are small (repayable) and purpose is not consumptive, the chances of defaults are very less.

This system of finance is known as Microfinance. Its not just about availing small amounts of credit but also about saving together in a group and working together towards the goal of financial self sufficiency. It has changed lives of many people and increased the income levels of people who avail of micro credit. Micro Finance is today very popular in emerging nations.

In India, there are a lot of large organizations engaged in Micro Finance that are doing well. Their rate of growth is exponential and they are making changes in the lives of many people. The government and financial institutions like RBI and NABARD have realized the importance of this mechanism and agree that Self Help Groups and Microfinance will be able to achieve what banks have not. But can you as an investor participate in this story?

Shashi Rekha, a middle aged woman residing in Bangalore wanted a loan of 10,000 to buy capital for her saree business. She had approached moneylenders but they had quoted a very high interest rate. Abhishek*, a techie turned entrepreneur had some cash which he had invested in mutual funds and shares which was earning him very low returns . A company called DhanaX provided a platform for both of them and now Abhishek earns a return of 14% on his money and Shashi Rekha and her group members have used the 3 lakh loan to expand their business. DhanaX has field officers who search and evaluate woman self help groups who are in need of loans. These woman self help groups are group of 15-20 woman who live in the same locality and have known each other for a while. They are all working woman involved in activities like vegetable vending, cow rearing, saree business etc but have no access to formal credit. They come together and take loan which is utilized for income generation purposes. The groups are registered and have a joint liability agreement between them.

DhanaX then looks out for private individuals to lend to these groups. The loans are generally for 6 to 12 months and the lenders are paid back in equated monthly installments and earn an interest of 14% on their loan. DhanaX charges a service fee of 5% to the borrowers. The Field officer visits the group thrice a month to ensure that the money is utilized for the stated purpose. The repayments are collected in the form of post dated cheques which DhanaX keeps with itself and deposits on the repayment dates every month in the lenders’ account.

DhanaX guarantees your principal amount back.

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