Last updated on: 4 August 2018

Using this page to detail out ideas for an alternative banking model that I’ve been talking with lots of people about. If you “see what I see, feel as I feel”, please drop me an email on nikhil.js [at] gmail.com and let’s see if we can do something together.

1. The Randge.org microlending platform has been an amazing version of this: I can SEE all the people applying for microloans, and CHOOSE to lend x amount to so and so people. I can hedge my bets and spread the investment out, giving only small amounts to several applicants across sectors and geographies. And I also have the option of just marking my preferences and letting Rangde do the re-lending for me once a micro-loan is returned. Since 2009 the same Rs.3k or so that I put in has been re-used so many times to help people in need, it’s been a force multiplier. I can proudly say I’ve spent over rs.1L towards poverty alleviation in India when my actual input was only Rs.3k.

2. But to take it forward into proper banking where I’d use the account to store my regular income and make withdrawals for day-to-day expenses when needed and use the account for my digital transactions via netbanking or debit card or UPI, some more mechanisms will need to be brought in.

3. In such a bank, there would full transparency of whom the bank is lending money too, and I as a depositor can choose which categories my deposit money (or the resulting fraction of the deposits’ pool from the perspective of the bank) is it OK to lend to.

4. In return for the opportunity, loan applicants would have to give up on privacy about their application the way it is in Range.org and crowdfunding sites.

5. Let’s see an example of how point 1 would pan out from the bank’s perspective:
5.1. Depositer A has marked 100% of his rs.5L deposit for solar.
5.2. B has marked 35% of her Rs.4L for solar.
5.3. C has marked 20% of his Rs.10L for solar.
5.4. So assuming the bank only has these 3 depositors, its total lending quota for solar sector for the year is : (5*1 + 4*.35 + 10*.2) / (5+4+10) = 44.21% . (I won’t fix the amount because fractional lending and all)
5.5. The bank can thus do 44.21% of its lending to solar sector enterprises, for that financial year.
5.6. These quota markings will be valid for one FY only. If it’s FY 2019-20, depositors will be given the facility to submit their quotas through a section in their netbanking account, during Feb and March 2019. If they don’t submit by 31st March, an equal distribution to all categories is assumed as default.
5.7. The final % will be calculated upon deposits as on 1st April 2019 and fixed for the year. Well, actually, there may be cases of a big % member suddenly withdrawing all their money for a family emergency. In which case, the total quotas will need to be recalculated and further lending in that sector stopped if it’s already gone over the recalculated quota.

6. The above was for category-wise lending. There can be a direct lending process too, in nearly the same way it’s there on Randge.org or crowdfunding sites. In that case, the risk is directly linked to the depositor : If you pitched in Rs.10k to co-lend to a local organic shop business and they folded and were able to give only 80% of the principal back, then Rs.2k is deducted from your account as your investment loss, the case is closed and end of story. No further avenues for me to drag the loan-taker or the bank to court etc. My choice, my risk, my loss.

7. So with greater individual control over the lending, comes the greater individual responsibility and risk and this bank’s depositors have to be kosher with that before joining in.

8. The depositors would simultaneously be the joint shareholders of the bank, and in times of proper repayments and net profit, the returns would be deposited in the appropriate amounts in people’s accounts. It will NOT be an equal distribution : if your chosen sector or your chosen loan-taker is the one who repaid successfully, then you get the proportionate return. If your quota or chosen person flunked, you don’t get the same returns as the other guy who picked a winner.

9. Thus, in this bank, the concept of default interest rate on deposits both savings and fixed, would be done away with. All other aspects of bank account remain : use the bank to store your income safely, have it instantly available for withdrawals, use a debit card, netbanking, UPI etc, use your account to accept wire transfers, etc.

10. Frankly speaking, I’d rather PAY a small fee to have all these facilities made available to me, have my bank simply store my money safely and keep it liquid, available and not lend to anyone and not have prospects of NPAs wiping out my family’s savings or making my government tax me more to recapitalize them etc. I’d happily give up my greed for the pathetic interest amount I’m getting today in exchange for rock-solid security and convenience. But that’s an idea for another banking model.