Strat.

Change 24: 1–14 (2015)

Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/jsc.1994 RESEARCH ARTICLE

The Strategic Challenges of a Social Innovation:

The Case of Rang De in Crowdfunding1
Arvind Ashta
Burgundy School of Business, Dijon, France
Djamchid Assadi
Burgundy School of Business, Dijon, France
Nadiya Marakkath
Tata Institute of Social Sciences, Mumbai, India

Crowdfunding sites in developing

countries need to work on
changing culture and social
structures to foster a ‘giving’
culture.
Crowdfunding sites must find an
appropriate legal status to be able
to conduct their business.
Online lending platforms need to
make a decision on the
subsidization expected from
lenders.
Online lending platforms need to
be transparent on their interest
rate and lending practices to the
microfinance institutions.
A crowdfunding site in a developing country like India faces strategic challenges
due to both supply-side and demand barriers in the social lending market.
Web 2.0 technology gave birth to a breakthrough social innovation in microfi-
nance. It considerably reduced the transaction costs of collecting and distributing
funds to poor micro-entrepreneurs. At the same time, it introduced a planetary
dimension to microfinance where developed-country retail investors could now
participate. Though this innovative proposition seemed to be promising, particu-
larly in countries with massive unsatisfied banking needs such as India, it did not
unleash all the expected new driving forces within the sector owing to unprece-
dented strategic challenges for actors.
We explore the challenging strategic questions that an organization faces
through the evolution of an old sector (social group lending) to a high-technology-
based stage (peer-to-peer (P2P) social lending on the Internet). This article also
explores the concept of social innovation, which enjoys increasing interest from
researchers, professionals, and the public (Beckett, 2012; Davies and Koza, 2001;
Descubes et al., 2013; Dunphy et al., 1995).
We first present the four challenging questions that actors in the solidarity
sector and, as an example in our study, in the business of lending money to the
poor, have to face. Secondly, we explain the model of online P2P social lending,
a particular type of crowdfunding, which exemplifies social innovation in the
sector of microfinance. We describe the emergence of the Web 2.0-based social
lending websites as a high-tech avatar of a sector that originally addressed the low
level of the pyramid. Finally, we consider the special Indian case of Rang De
(which means ‘adding color’ in Hindi) to consider all the above questions.

1
JEL classification codes: D14, G2, L22, L31, L86, O16, O31, O35.

Copyright © 2015 John Wiley & Sons, Ltd. Strategic Change

Strategic Change: Briefings in Entrepreneurial Finance DOI: 10.1002/jsc.1994
2 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath
Challenges of financing a high-growth sector
A large number of special-issue articles in this journal have
made the reader aware of many questions in microfinance
(Dowla, 2012; Hannam and Cheng, 2012; Milana and
Ashta, 2012). The sector is very profitable (Daher and Le
Saout, 2013), although crises occur in some countries
from time to time (Constantinou and Ashta, 2011).
Appendix 1 provides an idea of the magnitude of this
sector in India. Six of the largest microfinance institutions
(MFIs) have more than a million clients each.
The amazing growth of this highly profitable sector
needs to be properly financed and managed if that growth
is to be sustainable (Ashta, 2008; Higgins, 1977). Typi-
cally, microfinance institutions may be financed by dona-
tions, deposits, equity, or borrowing instruments.
Since donations are subject to fads, microfinance
institutions search for other means to be sustainable. Most
institutions have found that donor funds are limited and,
in order to grow fast, they have tended to change their
status from non-governmental organizations (NGOs) to
for-profits. Appendix 2 shows that in India, eight out of
the top ten institutions are now non-banking financial
institutions, of which five have changed to this legal status
from a not-for-profit society status. The ethical challenge
posed by this transformation is that the mission changes
and donations, as well as volunteer work, are not rewarded.
Usually, only banks and cooperatives have access to
deposits. Since banks were not initially lending to the
poor, only cooperatives were considered to be a relevant
microfinance model. Collecting their own deposits allowed
cooperatives to be self-financed and go into rural areas
(Périlleux, 2013). The cooperative model needs good gov-
ernance if it is to succeed in microfinance (Allemand
et al., 2013). In India, the cooperative sector is quite small
and therefore most MFIs do not have access to deposits.
Banks provide two-thirds of the microfinance to self-help
groups.
A third possibility is equity, initially through one’s
own profits, then through private placements and later
through public offerings. Financing from investment
Copyright © 2015 John Wiley & Sons, Ltd.
funds seems to have worked quite well in view of the
stellar performance of the sector (Daher and Le Saout,
2013), and even if returns are low but the MFI is targeting
women (Mersland and Urgeghe, 2013). However, IPOs
have created societal debate (Ashta and Hudon, 2012;
Rosenberg, 2007). This is because the public does not
realize that this double-bottom-line sector is extremely
profitable till it sees the initial public offerings (IPOs)
being priced at many times the book value and being
oversubscribed. In India, the IPO of SKS led to a lot of
soul-searching (Ashta and Hudon, 2012), attribution of
blame to microfinance for borrower suicides (Ashta et al.,
2011), and the Andhra Pradesh legislator passing an ordi-
nance which catalyzed a crisis in the sector (Mader, 2013).
While much of the debate has been on the high profits of
the MFIs, other practices such as high interest rates being
charged to customers and coercive loan-recovery practices
are being brought to light.
Finally, most investment funds and banks finance this
sector through loans. This includes both soft loans from
public investment funds (and at times from private ones),
as well as market or near-market loans from private invest-
ment funds (CGAP, 2008; Goodman, 2006). This too
may create problems if MFIs get over-leveraged. However,
the industry has been more worried that there will not be
enough funds coming from the large public and private
investment funds, and therefore it is hoping that retail
investors will start taking an interest. Indeed, these retail
investors have started crowdfunding microfinance with
initiatives such as Kiva in the USA, Babyloan in France,
and Rang De in India.
For this particular type of crowdfunding to be suc-
cessful in the long run, it will need to learn from and
address the challenges that the microfinance sector has
faced. These challenges concern not only actors within the
microfinance sector but also in the entire solidarity sector.
(1) Should MFIs be incorporated like any other conven-
tional firm by appealing to profit-seeking investors? (2)
Are poverty relief and profit belief compatible? That is, is
profit seeking, as an evident and necessary element of a
Strategic Change
DOI: 10.1002/jsc
 Strategic Challenges of a Social Innovation
market economy, pertinent for a sector whose primary
objective is to eradicate poverty? (3) Are MFIs responsible
for poor borrowers’ thorough understanding of all fees?
(4) Are subsidies ethical, knowing their impacts on non-
subsidized private competitors?
The first challenge is therefore to decide the appropri-
ate legal status and governance. The second challenge is
to balance the double bottom line through appropriate
interest rates and social practices. The third challenge
relates to transparency. The fourth challenge is not to
crowd out the market. The discussion in our case study
will focus on each of these challenges.
Online lending models
Business, as almost all other living actors, attaches to its
habits and does not like changes that imply revising
current practices. However, when a handful of early
movers turn a breakthrough technology into a competi-
tive advantage, the remaining competitors wake up and
endeavor to catch up. This is what happened with the Web
2.0 tools on the Internet, which finally changed all the
business sectors without exception. These technologies
provide software and data directly, instead of needing to
download them; in particular, they facilitate linkage by
connecting people through social networking. Social net-
works are a powerful instrument for diffusing technologi-
cal innovation (Davies and Koza, 2001). Businesses could
not ignore the considerable shift of power from suppliers
to clients and stakeholders. eBay and Skype were pioneers
and among the most famous companies to adopt the Web
2.0 technologies; they adapted their business models to
this emerging reality.
One of the most important strategic changes in the
microfinance sector took place with the introduction of
the Web 2.0 technologies. This gave birth to online P2P
social lending. In recent years, since 2005, we have seen
the development of online lending models. The P2P social
lending websites are mainly characterized by their status
(lucrative or not-for-profit) and intermediation mode.
Copyright © 2015 John Wiley & Sons, Ltd.
3
One stream of online lending models is commercial.
This includes Zopa, which started in 2005, Prosper and
Lending club, and a host of other newcomers. All these
websites are domestic operators since they do not want to
entertain problems of international law. When these web-
sites expand to another country, they start a new company.
So, you can have Zopa UK, Zopa Italy, Zopa Japan, for
example. The websites post a borrower’s profile on the
Internet, indicating why he or she requires the loan. This
personalization of the money supply chain attracts a
certain segment of lenders. The interest rates are set
through auction mechanisms (Ashta & Assadi, 2011;
Johnson et al., 2010). Their initial promise was to lower
interest rates to borrowers and increase returns to lenders
compared with what commercial banks were promising.
However, often these rates could be higher than commer-
cial lending rates because either the risk of the borrower
is not known (because he or she has no credit history) or
it is too high and the banks are not willing to lend to them
at any rate. All these companies are run on a for-profit
basis. They bring all small lenders and borrowers together,
not necessarily poor borrowers.
As opposed to this commercial lending model, there
are other online lending sites specialized in lending to the
poor. The first of these, Kiva, also started in 2005. It was
followed by Microplace and MyC4, who had distinctive
product offerings, and more recently by Rang De, DhanaX,
Babyloan, and Wokai, who all follow the Kiva lines but
with minor differences, as is explained below and can be
seen in Appendix 3.
The basic Kiva intermediary model, illustrated in
Figure 1, is that small lenders lend to Kiva; Kiva lends to
MFIs; and these MFIs then lend to poor people. Since
poor borrowers do not have computers and are often
illiterate, an additional intermediary is added, which is
usually the MFI. So, instead of poor borrowers posting
up their profiles, the MFIs do the posting for them. Thus,
a certain category of social lenders, who want to help poor
people but not through donations, are attracted to send
funds through these websites. The model also permits
Strategic Change
DOI: 10.1002/jsc
4 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath

Field Partner
Lenders Kiva Entrepreneur
MFI

The lender chooses who

The MFI distributes funds to
to lend to, but routes the
individual borrowers or to
funds through KIVA
groups of borrowers

Figure 1. KIVA: Movement of funds.

Microplace

Lenders
Security Field Partner Entrepreneur
Issuers MFI

The lender buys bonds of

The security issuers distribute
social funds but indicates
funds to identified MFIs
which MFI these should be
directed to

Figure 2. Microplace: Movement of funds.

MFIs to use Kiva as a financing agency. The Kiva model
thus provides a service to small lenders who want to par-
ticipate directly in the microfinance movement. In the
Kiva model, there is no interest given by Kiva to the lender
and no interest charged by Kiva to the MFI. However, the
MFI charges normal interest rates to the poor borrower
vis-à-vis the MFI rates. By its legal structure, Kiva remains
a not-for-profit organization.
In any case, thanks to endorsements from figures such
as Bill Clinton and Oprah Winfrey, Kiva has become very
popular and a household name. Kiva and the online
microfinance movement are accredited with democratiz-
ing access to the microfinance movement for small savers.
The immense brand equity of Kiva creates a virtuous
circle, attracting corporate sponsors who want to share in
the ‘corporate social responsibility’ image building, and
this in turn pays a substantial part of Kiva’s operating
expenses.
The Microplace model, illustrated in Figure 2, is a bit
different because Microplace is really a for-profit broker
of other security issuers of microfinance investment bonds.
These security issuers lend to MFIs, just as Kiva does.
However, they use Microplace as an agent to get investors
to buy their bonds.
MyC4, a for-profit firm, has distinguished its product
offering from Kiva by indicating that it’s at the upper end
of the microfinance market and the lower end of the small
business financing market, mostly in Africa.
Babyloan is a Kiva clone, operating in France, and its
basic language is French, thus offering it a protected niche
from Kiva. However, unlike Kiva, Babyloan is a for-profit
company.

Copyright © 2015 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc
 Strategic Challenges of a Social Innovation
As can be seen from the brief descriptions above, the
online micro-lending marketplace is a mix of for-profit
and not-for-profit models, depending on the ideology of
their founders. In addition to online lending, other online
microfinance players are entering the market.
Wokai, another not-for-profit, was also directed at a
specific market of US residents aiming funds for microfi-
nance in China. However, it was funded by donors rather
than lenders. The donors got a one-time tax advantage
and although Wokai could recirculate the money to other
borrowers once the first borrowers pay back, the donors
did not get their money back.
United Prosperity is a not-for-profit which takes funds
from residents in the developed world and then uses these
to provide guarantees to banks for loans that the banks’
correspondents in India give to poor borrowers. This
permits the Indian banks to multiply the total amount
lent to borrowers.
Many of these models use blogs and rich site summary
(RSS) feeds to personalize and lock in the users. Constant
reports on the progress of the borrowers also add to the
humanization process.
Besides the status, the intermediation mode, or more
precisely the mode of supply chain management (SCM),
also plays a determining role in the P2P social lending
struggles. It is made up of the funds and information flows
between suppliers (institutions, investors, individuals) and
the P2P social lending website on the one side; and the
latter along with its field partners and final micro-
entrepreneurs on the other side. A few sectors might be
able to showcase, as P2P social lending does, the solid
linkage which exists between the supply side and the
demand side.
The strategic importance of SCM resides in the fact
that it almost simultaneously creates information flows of
shifts in supply and demand. When a micro-entrepreneur
requests a loan in one continent and a lender or borrower
in another considers it, the link becomes a breaking point
in the business of P2P social lending. Different models of
securing these SCM links are formed.
Copyright © 2015 John Wiley & Sons, Ltd.
5
Rang De: Online micro-lending in India
To analyze all the above strategic questions (legal status,
balancing a double bottom line and transparency), we use
a case study approach. As a research method, case studies
focus on particular points to help understand complex
real-life aspects or add new insights to what is already
familiar (Patton, 1987). Case studies, based on a qualita-
tive approach, are used to scrutinize a limited number of
situations or phenomena within their real-life context, to
discover and explore foundations and relationships (Yin,
1994).
Thus, case study research generally poses questions
which begin with ‘how’ or ‘why’ (Anderson, 1993) for
exploratory, descriptive, and explanatory purposes (Yin,
1994). To answer these questions, the selection of exem-
plary and typical cases is crucial. Case data is generally
qualitative, but it may also be quantitative.
To investigate the case of social innovation as a
response to the challenging questions within a sector, we
considered the case of Rang De within the P2P social
online lending model. P2P social lending websites, and in
our case Rang De, are social innovations.
Social innovation is generally defined on supply and/
or demand perspective sides (Mulgan et al., 2007; Trifilova
et al., 2012). Innovation can be considered as social when
its impact is communal or it impacts clients’ work prac-
tices, such as open-source software (Beckett, 2012; Lead-
beater, 2005). It can also be social when the demand for
it is societal, like microcredit. Some authors associate a
particular cause with social innovation on the demand side
for solving societal problems: sustainable development of
local communities (Fink et al., 2010), education and
health, sustainable finance (Mumford, 2002), reducing
violence against women (Allen et al., 2013), or assisting
homeless individuals. The capacity of a society to innovate
is dependent on its culture and social structures (Dunphy
et al., 1995).
Rang De showcases a societal supply because lenders
are many, coming from different horizons. The demand
is also societal and social. It is societal because many
Strategic Change
DOI: 10.1002/jsc
6 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath
borrowers — but also field MFIs — are involved in loan
processes. It is also social because the ultimate objective is
to eradicate poverty.
The case of Rang De is also peculiar and a reliable
example of replication in the method of case studies
because none of the P2P social lending models that we
studied previously operated in India (since the Indian
government did not allow foreigners to lend directly to
Indian borrowers, including MFIs). That is why we con-
sidered the special case of Rang De, which could adapt to
the particular environment of India.
Smita Ramakrishna and N.K Ramakrishna (a wife
and husband team) initiated Rang De in January 2008,
in their early thirties, to knock out poverty and add color
to the lives of millions of Indians. The not-for-profit trust
Rang De started the business of online micro-lending in
Tamil Nadu (Chennai based), seeking to link small lenders
with poor borrowers.
The founders of Rang De discovered, to their advan-
tage, a protected domestic market of over a billion people.
At least 30 million of this market had access to the Inter-
net and were potential lenders, since Internet access was
strongly correlated with buying power and education.
Alternatively, we could say that seeing the government
blockage on the inflow of funds, Rang De decided to enter
and help the poor.
Thus, from an operating model perspective, Rang De
is seen to have copied the basic Kiva lending model in
India, a country whose foreign exchange laws do not allow
Kiva to enter the market. However, Rang De has accom-
plished specific changes to Kiva’s strategic model in order
to adapt to the requirements of the Indian market, such
as the obligation to attract funds only from Indian citi-
zens, living in India or abroad.
Discussion of the Rang De case study
The Rang De case study, and correspondence with the
founders, provides pertinent insights on the previously
mentioned challenging questions.
Copyright © 2015 John Wiley & Sons, Ltd.
The challenge of legal status in the solidarity sector
To deal with the first strategic challenge, that of the legal
status of an organization in the solidarity sector, the Rang
De founders, Smita and N.K. Ramakrishna, decided to
stick with the not-for-profit route, mainly because, as they
state, the mission of helping the poor and the message it
conveyed to society was more important for them.2 In
addition, they believed that if they were to use market-
based incentives to finance the poor and include them in
the market, as advocated by C.K. Prahalad’s bottom-of-
the-pyramid model (Prahalad, 2006), perhaps they would
need to wait many years.
For this first challenge, they decided to be a trust. The
Rang De website is now an escrow agent. An escrow
account is an account established by a broker for the
purpose of holding funds on behalf of the broker’s prin-
cipal or some other person until the consummation or
termination of a transaction.
Since Rand De is an escrow agent, legally speaking,
it’s the social investor who lends the money to the bor-
rower directly and neither Rang De nor the field partner
is liable for non-repayment by the borrower.
While Rang De follows the model of an Escrow agent,
at the grassroots level, the money is being lent to
members of joint liability groups and self help groups.
In both cases the group leaders sign as a co-applicant
on the application form thus forming a group
guarantee model. However, we do not guarantee the
money because there could be cases of natural calamity
and disasters, in which case there is no recourse.3
The success of microfinance is based on repayment
rates, which are at about 98% thanks to group lending
and other incentive-based contracts. However, this is not
2
The emails of N.K. Ram capture this in a footnote: ‘Let’s
knock out poverty in India. Become a social investor today!
Log on to RangDe.Org.’
3
N.K. Ram, co-founder of Rang De, private correspondence
with us, quoted with permission.
Strategic Change
DOI: 10.1002/jsc
 Strategic Challenges of a Social Innovation
strictly comparable with the lower rates or reimbursement
of bank loans because banks take collateral, while MFIs
usually do not. Therefore, if a bank is not paid back, it
can recover most of the balance outstanding. However, if
an MFI is not paid back, it loses the unpaid balance unless
the group pays for the defaulter.
For the moment, there is no evidence of Rang De
shifting its mission from NGO to for-profit, although
they are preparing themselves for a switch from Trust to
Section 25 Company form. They feel, from a governance
and funding perspective, that this would be the best form
for them.
The challenge of fixing interest rates for loans
addressed to the poor
Answering the second strategic challenge, that of the level
of interest rates to be charged to the poor, requires a pre-
liminary comparison with the level of interest rates in the
conventional economy.
Interest rates on deposits vary with the level of infla-
tion in India. They have been as high as 10–13% in the
1990s for long-term deposits of 5 years, but had come
down to about 6% by 2005–6.4 In 2009, they were at
about 6–7.5% for deposits over 1 year and this moved up
to 8–9% in early 2010 in keeping with higher inflation
rates of 8–10% in 2009, up from about 6% in the preced-
ing year. Even in 2013 rates continue in the same range.
The bank rate in India is 8.75% as of 2013. Commercial
bank prime lending rates to bigger businesses are at around
14.45% as of 2013.5
Interest rates in microfinance in India have generally
varied from 11% to 30%, depending on the social or
profit mission of the MFI (see Appendix 4 for the top 10
4
RBI statistics till 2006, rbidocs.rbi.org.in/rdocs/Publications/
PDFs/69099.pdf
5
RBI, http://www.rbi.org.in/scripts/BS_NSDPDisplay.aspx,
consulted on February 7, 2010. See also http://
www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Basic&P
ARAM1=2/5/2010 and click on Cash Reserve Ratio and
Interest Rates.
Copyright © 2015 John Wiley & Sons, Ltd.
7
MFIs). But when the crisis hit the sector, there were alle-
gations of MFIs having hidden costs which added up to
50% and above.
As an intermediary, like any other P2P social lending
on the Internet, Rang De might decide between two types
of interest rate at the two ends of its supply chain; one for
investors/lenders, the other for borrowers.
In the basic Kiva model, there is no interest given to
the lender. Even Babyloan, which is a French for-profit
P2P social lending website, does not provide interest
income to lenders. However, both host countries of these
two websites are near-zero-inflation countries. In India,
there has been persistent inflation and consequently Rang
De needed to take this specificity into account instead of
blindly following the Kiva model.
Therefore, Rang De offers some interest income to
its online social investors/lenders who want to get a
minimum return to keep up with inflation, but would
essentially like to help poor people in a responsible manner
by giving loans rather than donations. Rang De’s website
indicates the following information on its interest rate
policy:
The borrower pays an interest rate of 8.5% flat p.a.
(16% APR). The breakup of the 8.5% flat p.a. (16%
APR) interest is as follows: 5% is for the field partner;
2% (3.5% APR) is the financial return for the social
investor; 1% is for Rang De to cover its operational
costs; and 0.5% goes to a contingency fund that is
maintained by Rang De to repay social investors in
case a borrower dies or defaults on a loan.6
The challenge of transparency
The third strategic challenge is about the transparency of
costs and fees of microfinance loans. Often, banks and
lending organizations like to understate their loan terms
by using a flat rate on the initial amount lent and ignoring
6
RangDe.org/faq.htm#50, consulted on October 28, 2009.
Strategic Change
DOI: 10.1002/jsc
8 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath
repayments. What this means is that repayments do not
lead to lower interest payments. Therefore, effectively the
borrower is paying a higher interest rate and governments
often impose a transparency regulation or ‘truth in
lending,’ which requires lenders to disclose the annual
percentage rate or the effective annual rate.
Some lenders and intermediaries nevertheless manage
to use other ways to raise interest rates such as asking for
a cash deposit of, say, 10% of the loan amount, so that
the loan disbursed is only 90% of the stated amount.
Appendix 4 indicates which of the top ten MFIs indicate
flat rates on their websites. They also indicate the equiva-
lent by a declining balance method. However, some of
them include a processing fee or a cash deposit and do
not account for these in the effective annual rate
calculation.
Rang De seems to be particularly vigilant on the
transparency question and prefers to indicate the annual
percentage rate (APR). The APR is a method of finding
interest rates by using a simple interest rate. The effective
annual rate (EAR) uses compounding to find the exact
interest rate. The methods should give the same result on
a loan of exactly 1 year. Finance students would under-
stand that EARs are more exact but rarely used in disclo-
sures since not everybody understands them.
Rang De is transparent also on its annual report and
financial report being available online. Anyone can check
how it is doing. However, being an escrow agent, Rang
De’s financial report does not seem to provide any idea of
the movement of funds. Nevertheless, information from
Rang De’s annual report for 2012–13 fills up this void
and indicates that in this period, about 25,000 entrepre-
neurs were funded USD 3 million of loans (Appendix 5).
This means that the average loan size is about USD 120,
comparable with what we would expect from Indian
MFIs. The annual report also indicates that Rang De is
no longer operating in its home state but has expanded
to 12 states, including north-east states, with 42 MFIs as
field partners. 595 loans have been distributed through
the average MFI for about USD 71,000.
Copyright © 2015 John Wiley & Sons, Ltd.
On the supply side, about 5472 lenders have invested
through Rang De, with total funds raised amounting to
about USD 3 million. However, these numbers are not
yet very impressive when compared with Kiva’s 297,000
entrepreneurs financed since inception in 2005.
To some extent, Rang De has been able to achieve
visibility on its website. One way to look at website visibil-
ity is in terms of Alexa ranking. Rang De ranks 12,012 in
India and 101,136 in the world (as of December 2013).
Kiva remains the most visible leader in the microfinance
sector with a global ranking of 10,820 and a US ranking
of 4676, way ahead of Grameen and other large brick-
and-mortar initiatives.
Further recommendations
It is evident that online lending firms must realize that
their business model is leading to changes in practice of
donors and lenders. They may need to do field research
on what an anonymous impersonal online loan means
compared with giving a check to a human being.
Crowdfunding firms, in general, have to understand
that Web 2.0 is about networking and that they need to
tap the networks of their lenders to get even more funding.
They can do this by forming groups on sites such as Face-
book and LinkedIn.
In developing countries, people are used to fending
for themselves and for their kinsmen, from whom they
expect a like return. Crowdfunding firms wishing to create
a culture of donors and subsidized lenders will require
work on the social structure of the country as a whole.
Kotter (1995) draws on the experience of different
companies who have failed and then identifies the most
common reasons for failure: (1) a dispossessed sense of
urgency and too much complacency to drive people from
their comfort zones; (2) absence of a powerful, guiding,
and sustainable coalition amongst all constituents; (3)
lack of clear vision (or presenting a complicated and vague
vision); (4) failing to communicate the vision effectively
to all constituents; (5) not removing obstacles from the
Strategic Change
DOI: 10.1002/jsc
 Strategic Challenges of a Social Innovation
new vision and powerful resisting individuals; (6) defi-
ciency of planning for short-term wins and gains to
produce more adherence of people; (7) declaring victory
too soon with the first performance and thus not achiev-
ing the overall goals; (8) neglecting to anchor changes in
the corporate culture and create new social norms and
values consistent with changes.
There are evidently many different ways of making
mistakes in change efforts. Even successful strategic
changes witness confusion and surprises. However, any
organization attempting to change strategically might
consider Kotter’s model in order to avoid committing
‘common mistakes.’
Concluding remarks
Through this research, we have explored how a social
innovation can respond to the strategic changes of a sector
which has evolved from its traditional phase to a high-
tech, supported one. We have also explored the strategic
challenges that organizations in the solidarity sector have
to deal with.
From this perspective, we have studied the field of
microcredit which has evolved not only from sporadic
regional practices to a worldwide movement, but also
from remote villages to the borderless cyberspace of the
Internet. We have focused on the case of the P2P social
lending website Rang De, which targets India exclusively.
Through the research, we have obtained some insights.
Rang De has not been confronted with huge profits
and the temptation to switch from a not-for-profit gover-
nance model to a for-profit status. Yet, it is operating in
an environment where such strategic governance ques-
tions are perpetually being raised; consequently, Rang De
Copyright © 2015 John Wiley & Sons, Ltd.
9
might provide different answers to the question of legal
status in the future.
Rang De’s strategy is still limited to taking below-
market interest-rate loans from lenders and providing
below-market interest-rate loans to poor borrowers
through its field partners. This strategy may appeal to a
certain section of lenders but that may not be enough.
On the strategic question of pricing transparency too,
Rang De has chosen to indicate its APR clearly. This may
raise reticence from lenders on the need to provide cheap
loans if the ultimate borrower is still paying fairly high
rates.
For Rang De, scaling up needs a huge increase in both
infrastructure and operating costs. It is caught between
constraints on the borrowing side and on the lending side.
On the borrowing side, they need to be able to quickly
find and evaluate borrowers. On the lending side, the
concept of social lending has not yet caught on in India,
where people have always hankered for more, owing to a
legacy of poverty. Therefore, it will take some time for the
common Joe to start giving, since he himself has not got
enough. Further, family and friends come first, another
cultural legacy of social interdependence in poor coun-
tries. These relationships do not need a website. Then,
there is a strong need to leave something for future genera-
tions of offspring and their descendants. The culture of
not spoiling children by giving them too much has not
yet come in. Therefore, social lending is limited to the
very upper middle classes or lower rich classes: usually
highly educated individuals. This is not the case with Kiva
and Babyloan, who appeal to lower middle-class lenders
in developed countries to lend directly and make a differ-
ence in people’s lives.
Strategic Change
DOI: 10.1002/jsc
10 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath

Appendix 1: Top 10 Indian MFIs in MIX database

Appendix 3: Early crowd-lending models within the microfinance industry around the time when Rang De was entering the market

http://www.unitedprosperity.org
as of September 30, 2013

http://www.microplace.com

http://www.DhanaX.com
http://www.RangDe.org

http://www.bayloan.org
MFI Average Gross loan Number

http://www.myc4.com

http://www.wokai.org
loan portfolio of active

http://www.kiva.org
balance borrowers
per
borrower

Website
Bandhan 148 711,345,571 4,804,053
Spandana 178 415,200,690 2,327,882
SKDRDP 149 409,725,046 2,741,814
SHARE 138 291,648,606 2,113,869

Intermediary to small business lending

Ujjivan 186 211,186,437 1,136,113
Equitas 128 207,869,793 1,622,794
Janalakshmi 228 191,464,193 841,509
Financial
Services
Pvt. Ltd
AML 171 164,322,314 962,552

Intermediary to MFI

Intermediary to MFI
Intermediary to MFI
Intermediary to MFI
Intermediary to MFI
SCNL 188 117,514,137 623,500

Guarantor to bank
Cashpor MC 143 86,793,416 605,209
Note: As we have used the quarterly data submitted to MIXMarket,

Investment
the figures may differ for the year end.
Model

Appendix 2: Legal status of some of the top

Indian MFIs
Non-profit

Non-profit

Non-profit
Non-profit
For profit
For profit

For profit
For profit
status
Legal

MFI Present status Former status

Bandhan NBFC since 2007 Society before

Spandana NBFC since 2005 Society before
Coverage

SKDRDP Trust since Trust since

Global
Global
Global

Global
China
India
India

India
inception inception
SHARE NBFC since 2000 Society before
Ujjivan NBFC since 2004 NBFC since 2004
Equitas NBFC since 2007 NBFC since 2007
which started

Janalakshmi NBFC for investors NBFC for investors

USA/China
Country in

USA/ India

Financial as a for-profit as a for-profit

Denmark

Services operating operating

France
India
India
USA
USA

Pvt. Ltd company and a company and a

Section 25 Section 25
not-for-profit not-for-profit
holding holding company
May 2007

May 2009
Nov 2005
Oct 2007

Feb 2008
Jan 2008

Jan 2009
Jul 2008

company for for social services

Launch

social services since 2003

date

since 2003
AML NBFC since 2002 NBFC since 2002
SCNL NBFC since 1990 NBFC since 1990
Prosperity

Cashpor Section 25 co. Section 25 co. since

Microplace

Babyloan
Rang De

MC since 1997 1997

DhanaX

United
MyC4

Wokai
Kiva

Source: Their websites.

Copyright © 2015 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc
 Strategic Challenges of a Social Innovation 11

Appendix 4: Interest rates charged by different large MFIs in India (October 2009, prior to crisis)

Interest rate on Effective annual Source

flat basis rate/declining
balance

SKS 12.5–15% flat 25.6–30.2% http://www.sksindia.com/products.htm

Spandana Not disclosed
SHARE 23.6% http://www.sharemicrofin.com/resouces.html
Bandhan 12.50% flat + 1% 23.56% + + http://www.bandhanmf.com/faqs.html
processing + 10%
deposit
Asmitha 12.50–15.00% 23.60–28.13% http://www.asmithamicrofin.com/inside/product/ptable.html
SKDRDP 11–11.25% http://www.skdrdpindia.org/Systems.htm
BASIX 15%, 18%, 21%, 69.89.31.196/∼basixind/images/BasixAR2009Final.pdf
24% and a 10% p. 66
cash deposit
Grama Not disclosed
Vidiyal
BISWA 20% http://www.biswa.org/en/index.php?option=com_docman&
task=cat_view&gid=45&Itemid=65, Annual report
2008, p. 17
Equitas 27.5–28.5% equitas.in/ProFea_LoanProductsSummary.html
Note: As of 2013 they all are capped at 26% by the Malegam Committee Report appointed by the Reserve Bank of India as there were allega-
tions of hidden costs and high interest rates above 50%.

Appendix 5: Rang De’s partner profile and borrowers (as of November 2013)

Name Status Number Loans Loans Loans Defaults Delayed Repayment

of Disbursed Repaid Outstanding Repayments Rate
Borrowers USD USD USD

Andhra Pradesh
Hope IRDS Inactive 470 39 167 31 132 8 035 79.5%
Roshan Vikas Inactive 108 13 883 13 883 100.0%
Bihar
JJKK Active 913 101 150 66 640 34 510 587 99.1%
CDOT Active 182 18 500 14 957 3 543 100.0%
Gujarat
Prayas Inactive 372 31 000 31 000 100.0%
Jharkhand
Udyogini Active 75 11 383 10 383 1 000 100.0%
Support Inactive 75 6 250 5 417 833 833 86.7%
Gravico Inactive 1 028 89 367 60 879 28 404 83 26 807 69.4%
Karnataka
GMASS Inactive 20 1 667 1 667 100.0%
ICF Inactive 135 33 750 32 125 1 625 1 625 95.2%
Gramothan Inactive 10 833 833 100.0%
Foundation
Safe Hands Active 12 16 967 8 483 8 483 100.0%

Continued

Copyright © 2015 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc
12 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath

Appendix 5: continued

Name Status Number Loans Loans Loans Defaults Delayed Repayment

of Disbursed Repaid Outstanding Repayments Rate
Borrowers USD USD USD
Magic Wand Active 11 3 667 3 667 468 —
SVYM Active 300 50 000 13 207 36 793 100.0%
Kerala
Hope Active 2 252 279 858 210 454 69 404 47 170 81.7%
Foundation
Madhya Pradesh
Sambhav Inactive 205 18 000 17 403 597 597 96.7%
Prayas Jhabua Inactive 763 94 550 84 277 10 273 100.0%
Shakti Mahil a Active 919 107 817 40 480 67 337 100.0%
Sangh
Maharashtra
CBMD Inactive 500 46 583 46 583 100.0%
Sagras Active 3 125 387 163 274 922 112 241 100.0%
PSW Active 573 65 802 24 921 40 880 100.0%
BNGVN Active 570 97 833 83 884 13 949 100.0%
Sakhi Active 77 21 000 10 458 10 542 100.0%
Samudaya
Kosh
Manipur
Freedom from Inactive 123 10 563 7 570 2 993 2 993 71.7%
Hungers
SEVA Active 844 108 900 53 966 54 934 2 489 95.6%
Orissa
Pragati Active 1 197 107 750 84 240 23 510 23 510 78.2%
Gram Utthan Inactive 1 580 107 158 107 158 100.0%
NSKS Active 1 406 159 443 116 541 42 782 121 99.9%
Ori da Inactive 221 18 283 15 151 3 132 3 132 82.9%
DSS Active 489 49 750 31 658 18 092 100.0%
SARC Active 351 43 017 26 357 16 642 18 99.9%
Tamil Nadu
New Li fe Inactive 57 8 883 8 883 100.0%
Sornammal Inactive 18 1 833 1 833 100.0%
Trust
Bl aze Trust Inactive 100 11 745 11 745 100.0%
Uttar Pradesh
BMSKSS Inactive 77 7 058 7 003 56 99.2%
West Bengal
SSVWSS Active 2 942 379 133 268 488 110 646 218 99.9%
DBIS Inactive 228 21 000 20 919 81 99.6%
VAM Inactive 50 4 167 4 167 100.0%
UTSS Inactive 196 18 533 4 632 13 901 13 901 25.0%
SEDP Inactive 256 26 867 26 432 435 483 98.2%
KSDF Active 424 40 583 15 200 25 383 100.0%
GBK Active 1 748 339 883 185 401 154 482 339 99.8%
Total 42 25 002 3 000 741 2 081 335 911 014 8 393 125 154 94.1%
Average 595 71 446 50 764 31 414 1 399 8 344

Copyright © 2015 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc
 Strategic Challenges of a Social Innovation
Acknowledgments
The authors gratefully thank Conseil Regional de Bour-
gogne for co-financing this research.
References
Allemand I, Brullebaut B, Raimbault S. 2013. Exploring the
role of the board of directors in cooperatives: Lessons for
microfinance. Strategic Change 22(1/2): 79–93.
Allen NE, Larsen S, Trotter J, Sullivan CM. 2013. Exploring
the core service delivery processes of an evidence-based com-
munity advocacy program fpr women with abusive partners.
Journal of Community Psychology 41(1): 1–18.
Anderson G. 1993. Fundamentals of Educational Research.
Falmer Press: London.
Ashta A. 2008. Sustainable growth rates: Refining a measure.
Strategic Change 17(5/6): 207–214.
Ashta A, Assadi D. 2011. The use of Web 2.0 technologies in
online lending and impact on different components of interest
rates. In Advanced Technologies for Microfinance: Solutions and
Challenges, Ashta A (ed). IGI Global: Hershey, PA.
Ashta A, Hudon M. 2012. The Compartamos microfinance
IPO: Mission conflicts in hybrid institutions with diverse
shareholding. Strategic Change 21(7/8): 331–341.
Ashta A, Khan S, Otto PE. 2011. Does microfinance cause or
reduce suicides? Policy recommendations for reducing bor-
rower stress. Available at: ssrn.com/abstract=1715442.
Beckett A. 2012. Disrupting practices: New insights into inno-
vation. Strategic Change 21(5/6): 217–229.
CGAP. 2008. Microfinance Investment Vehicles Survey. Con-
sultancy Group to Assist the Poor: Washington, D.C.
Constantinou D, Ashta A. 2011. Financial crisis: Lessons from
microfinance. Strategic Change 20(5/6): 187–203.
Daher L, Le Saout E. 2013. Microfinance and financial perfor-
mance. Strategic Change 22(1/2): 31–45.
Davies PN, Koza MP. 2001. Eating soup with a fork: How
informal social networks influence innovation in high-
technology firms. Strategic Change 10(2): 95–102.
Descubes I, Timsit J-P, Truong Y. 2013. Social innovation in
emerging economies: A resource-based view perspective. Stra-
tegic Change 22(7/8): 503–510.
Copyright © 2015 John Wiley & Sons, Ltd.
13
Dowla A. 2012. How to deal with a default tsunami in the
microfinance industry: Lessons from Grameen Bank. Strategic
Change 21(7/8): 343–353.
Dunphy S, Herbig PA, Palumbo FA. 1995. Structure and inno-
vation. Strategic Change 4(3): 137–154.
Fink M, Lang R, Harms R. 2010. Local responses to global
technological change — contrasting restructuring practices in
two rural communities in Austria. Technological Forecasting
and Social Change 80(2): 569–581.
Goodman P. 2006. Microfinance investment funds: Objectives,
players, potential. In Matthäus-Maier I, von Pischke JD (eds),
Microfinance Investment Funds: Leveraging Private Capital for
Economic Growth and Poverty Reduction. Springer: Berlin; pp.
11–46.
Hannam M, Cheng P. 2012. Financing sustainable micro-
lending in London. Strategic Change 21(7/8): 369–378.
Higgins RC. 1977. How much growth can a firm afford? Finan-
cial Management 6(3): 7–16.
Johnson S, Ashta A, Assadi D. 2010. Online or offline? The rise
of “peer-to-peer” lending in microfinance. Journal of Electronic
Commerce in Organizations 8(3): 26–37.
Kotter JP. 1995. Leading change: Why transformation efforts
fail! Harvard Business Review Mar/Apr: 59–67.
Leadbeater C. 2005. The era of open innovation. TEDGlobal,
www.ted.com/talks/charles_leadbeater_on_innovation
Mader P. 2013. Rise and fall of microfinance in India: The
Andhra Pradesh crisis in perspective. Strategic Change 22(1/2):
47–66.
Mersland R, Urgeghe L. 2013. International debt financing and
performance of microfinance institutions. Strategic Change
22(1/2): 17–29.
Milana C, Ashta A. 2012. Developing microfinance: A survey
of the literature. Strategic Change 21(7/8): 299–330.
Mulgan G, Tucker S, Ali R, Sander B. 2007. Social innovation:
What it is, why it matters and how it can be accelerated. Skoll
Centre for Social Entrepreneurship: Oxford.
Mumford MD. 2002. Social innovation: Ten cases from Ben-
jamin Franklin. Creativity Research Journal 14(2): 253–266.
Patton M. 1987. How to Use Qualitative Methods in Evaluation.
Sage Publications: Thousand Oaks, CA.
Strategic Change
DOI: 10.1002/jsc
14 Arvind Ashta, Djamchid Assadi, and Nadiya Marakkath
Périlleux A. 2013. Strategic governance lessons from history for
West African microfinance cooperatives. Strategic Change
22(1/2): 95–106.
Prahalad CK. 2006. The Fortune at the Bottom of the Pyramid:
Eradicating Poverty Through Profits. Wharton School Publish-
ing: Upper Saddle River, NJ.
Rosenberg R. 2007. CGAP Reflections on the Comparta-
mos Initial Public Offering: A Case Study on Microfi-
BIOGRAPHICAL NOTES
Arvind Ashta holds the Banque Populaire Chair in
Microfinance at the Burgundy School of Business,
Dijon, France. He offers courses in microfinance
and researches institutional aspects of microfinance,
technology in microfinance, and CSR. He has
taught microfinance as visiting faculty in Brussels,
Barcelona, Chicago, Hertfordshire, and Pforzheim.
He guest edits special editions of various journals
devoted to microfinance. He is on the editorial
review board of Cost Management and Strategic
Change. He is a member of a micro-investors’ club
(CIGALES), research associations (CEREN,
CERMi), and professional associations (European
Microfinance Platform).
Correspondence to:
Arvind Ashta
Banque Populaire Chair in Microfinance at the
Burgundy School of Business
ESC Dijon-Bourgogne
29 rue Sambin, 21000 Dijon, France
e-mail: arvind.ashta@escdijon.eu
Copyright © 2015 John Wiley & Sons, Ltd.
nance Interest Rates and Profits. World Bank: Washington,
D.C.
Trifilova A, Oleynik-Garbuz J, Bessant J. 2012. Develop-
ing capabilities through social innovation: A case study of
student-led initiatives in Russia. Paper presented at EURAM
2012.
Yin R. 1994. Case Study Research: Design and methods. Sage
Publishing: Beverly Hills, CA.
Djamchid Assadi is a professor and a member of the
research team of the Banque Populaire Chair in
Microfinance at the Burgundy School of Business,
Dijon, France. He is a specialist in (online) strategy
and marketing. His research focuses on the impact
of non-economic factors on buying behavior and
strategic behavior, and ‘peer-to-peer’ relations
including ‘social lending.’ He teaches the course
Microfinance Strategy and Marketing. He has
taught at several universities in France and the USA.
He has written many books, several book chapters,
and articles and papers presented at numerous
conferences.
Nadiya Marakkath is an assistant professor at the
Centre for Social Entrepreneurship, School of
Management and Labor Studies, Tata Institute of
Social Sciences (TISS), Mumbai, India. Apart from
her teaching at the school, she is the coordinator of
the Incubation Center and Funding Support
Services offered to the nascent social entrepreneurs
at the Center for Social Entrepreneurship of TISS.
Her current research efforts span microfinance
sustainability management, inclusive financial
systems, legitimacy and sustainability challenges in
social entrepreneurship, and funding models for
social ventures.
Strategic Change
DOI: 10.1002/jsc