I just made my first loan guarantee on United Prosperity to see how the platform works. I had previously mentioned Bhalchander ("Bala") Vishwanath, CEO, and this project in an earlier post. United Prosperity officially lauched on May 28th and I am excited to see the responses they will receive. They have guarantors from all over the world now. Below is a brief description of my experience in using the website.
First, I reviewed the listing of the entrepreneurs on the site. There are six women entrepreneurs. One sells gunny bags to merchants and needs a loan to expand her work. Another woman owns a grocery shop and requires a loan to expand her store. I narrowed my choices to two women:
* Gita Devi sells vegetables in the market and she would like to start her own vegetable and grocery shop near her home. She currently earns Rs. 3000 per month selling vegetables alongside her husband at the market.
* Sunita Devi supports her family by stitching clothes, as her husband is no longer alive. She does the stitching work at her home. She has applied for a microloan to rent space, furnish it with goods and purchase a sewing machine. She hopes to increase her income and meet the growing financial needs of her children.
It was a difficult decision and I could have supported both of them but I thought, if I had to choose one, how would I choose and what would my criteria be?
With the limited data on hand, I liked the fact that Gita currently sells vegetables with her husband and has experience doing this. I just had to assume that she would know where to source the freshiest vegetables and could properly price the products. She also has young children and she could use the profits to help them. Gita had requested a loan for $1,052.63. A guarantee of $578.95 was needed and the repayment term was 18 months. 61% of the guarantee has been raised so far.
The second entrepreneur, Sunita, is without a husband and supporting the family by herself. Sunita also has children and could use the proceeds to help them too. From a need-based point of view, Sunita probably needed the loan more since she is the single bread-winner in the family. Sunita had requested a loan for $877.19. A guarantee of $484.46 was needed and the repayment term was 18 months. 51% of the guarantee has been raised so far.
It is too difficult to evaluate the two entrepreneurs and their repayment and business successes based on the little that we know about them, how they work, their background, business model, ethics, etc. What was interesting is that all these women work in groups and they understand the concept of the Joint Liability Group. That is, in case any member is unable to repay the microloan, the others will pay on behalf of the member whose loan is delinquent. This reinforces the need to ensure repayment of the loan.
United Prosperity works with Ajiwika, an MFI working in the state of Jharkhand, where all these women are from. According to Bala, the founder of United Prosperity: Ajiwika is operating in one of India’s poorest regions where over 80% of potential clients are un-served and where only a few MFIs operate. From my interactions with Ajiwika over the last one year I have been impressed by their commitment to social goals and their willingness to put the needs of the poor entrepreneurs first. The site also lists the interest rate, delinquency rate, default rate, and the credit risk of the MFI.
I clicked on the 'guarantee loan' icon and was directed to Paypal. From there, I entered the amount of guarantee and before checking out, I had the option to make a 10% gift of the loan guarantee amount to support United Prosperity's work (of course, I did). After approving the transaction, I was immediately emailed two receipts. The first receipt was the loan guarantee amount (not tax deductible) and the second was for the charitable contribution to United Prosperity's operational support.
Now, I wait and hope that the entrepreneur does not default on the loan she receives from Ajiwika and Ajiwika does not default on the loan it received from the bank. If both of those things happened, then I would lose the funds I had guaranteed. I can monitor the repayment progress from my account page so I hope the entrepreneur will be successful.
When the entire loan to the bank is repaid, United Prosperity’s guarantee to the bank is freed up. The amount I had guaranteed also gets freed up and I can use it to support another entrepreneur or have it refunded to my PayPal account. In all, it was a simple exercise and I am rooting for my entrepreneur to be the first one to receive 100% of the loan guarantee she needs.
You can follow United Prosperity's progress on twitter @unitedprosper
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