Tuesday, January 5, 2010
Wednesday, April 30, 2008
The IPL is not without controversy, as the lucrative television contracts and sponsorships have allowed the teams to offer salaries a fair bit above that of other leagues. The resulting small exodus amongst players from many national leagues. We were astonished to see [very tall] nearly nude, white women in glitzy outfits. The expasts are aware of this custom at NBA basketball games, the Indian men must have thought they won the lottery: one ticket provides soft core and the best game on earth- at the same time! There were many heads darting between the ‘action’…
We were astonished to see [very tall] nearly nude, white women in glitzy outfits. The expasts are aware of this custom at NBA basketball games, the Indian men must have thought they won the lottery: one ticket provides soft core and the best game on earth- at the same time! There were many heads darting between the ‘action’…
What is great is that the IPL is opening sport to a completely new cohort. We were surrounded by fans just learning the wave and complicated group cheers.
Seeing Cricket live did raise my appreciation somewhat, now if they can just get the vendors to start selling a decent beer…
Monday, March 17, 2008
Two interesting events the past week in the Indian microfinance space. First off, in what can only be described as a clear vote buying maneuver (a general election is likely later this year) the finance minister, Palaniappan Chidambaram, announced that all loans to farmers with Rs. 50,000 (US$1,250) or more outstanding would be forgiven. The plan, which allocates 60,000 crore (US$15bn) is equivalent to 15% of the entire national budget.
This is all somewhat ironic given other government policy. The Indian government promotes increases in agricultural productivity by requiring 13.5% of commercial banks net credit activity to be in the form of “direct agricultural loans"; as this increases supply to the segment, farmers are able to access loans at below market rates. The thinking goes that increased access to credit will allow them to make capital purchases and thus increase their productivity. So after years of shoveling credit onto farmers the government now seems is now using loan forgiveness is the correct , what will be the next weeks policy?
The good news is that there is no direct impact on microfinance- the scheme only provides for waiving of bank loans (MFI’s aren’t banks.) Also, only loans above Rs. 50,000 will be forgiven, much larger then the average Rs.8000 of microfinance loans. The greater worry comes when microfinance clients look at their wealthier neighbors who are having much larger loans forgiven- what about me?
The foundation of micro lending has always been to educate the borrower on basic financial principals and instill strict credit discipline. With these twin pillars in place MFI’s have been able to offer unsecured loans that achieve phenomenal rates of repayment. If the culture of credit discipline is undermined by the hope of loans being forgiven- the entire basis of the industry is at risk.
The other interesting event was the introduction by Reliance group of a dedicated microfinance fund. Initially it will be a debt only fund- which is great, MFI’s can always use more access to debt finance. Reliance generally moves very aggressively into new markets and everyone is a bit tense to see if this initial foray is the start of something bigger- offering microcredit directly to consumers?Obviously this is a great thing- the more competition the merrier- and better for our ultimate goals; it is hard however, after pouring yourself into an organization- to welcome a very robust competitor into the space. We'll just have to work that much harder.
Admittedly, they do make great commercials….
Sunday, March 9, 2008
Whew, exciting month. Headed back to the states for two weeks to be with my family in
It snowed in
Fiscal year over here closes at the end of March and so all the banks are trying to clean up their balance sheets- deals aplenty to be done. Have been bouncing between
Spent an absolutely amazing weekend in the town of
Saturday, February 9, 2008
Found out Wednesday that my Grandad had been diagnosed with cancer. Being separated from family during these times is definitely something I considered before coming over here, but it doesn’t lesson the feeling of just wanting a hug from my dad. Between abbreviated phone calls with family at home it has been a rough few days.
My first recourse is to start pounding away on the excel models, maybe microfinance can buy me a bit of karma. Then Thursday I got to trek across town for a different type of coping. LifeSpring maternity hospitals run perhaps one of the most innovative and inspiring socail enterprises I have seen; top quality, no frills, extremely affordable health care ($35/ delivery, inclusive of all consultations and medicines) done at the only level feasible in India- massive scale.
LifeSpring succeeds in offering a valuable service to those at the bottom of the pyramid by being led by a passionate, energetic entrepreneur; a rockstar core management team and a blushingly proud hospital staff “we wouldn’t work anywhere else.”
Being at the hospital and seeing the new parents, seeing their optimism- they are going to raise their children in an
And this is one of the reasons it is so exhilarating working at Spandana- getting to partner with organizations like LifeSpring. We are placed at the nexus- a huge customer base that we touch every week; to the extent we are able channel meaningful products like maternity health to them- we can go far beyond credit in the impact we make. It helps you remember what can get lost in the maze of conference calls, models and business planning. At the end of this chain, we may have just given that little boy or girl a better chance to succeed.
Start timing us, lets see how fast we can scale this.
Wednesday, February 6, 2008
Recently there have been signs that microfinance in
Due to their giant populations and rapidly expanding economies,
While the Chinese government is showing no signs of openness in many areas, the economy is clearly an exception- and this embrace of liberal economics may now be spreading to microfinance as well.
Last fall the Chinese banking regulator, the CBRC, lifted many of the obstacles for foreign banks to begin operations, additionally it has been actively supporting foreign banks who target the rural demographic, by structuring pilot programs. It seems Citi, HSBC and Standard Chartered have taken the charge and are now dipping their toes in.
Additionally, it seems Vikram Akula’s SKS- the darling of Indian microfinance, is unfurling plans to enter the land of the panda as well. With a pile full of cash and one of the most professional management teams in microfinance they will surely make a dent.
Also, I ran across this: a children’s book about microfinance- pretty neat.
Sunday, February 3, 2008
A peculiarity of Indian Microfinance is at play here. The regulating body for MFI’s, the Reserve Bank of
The RBI, like all central banks, has strict caps on the amount of such debt a MFI can take relative to its capital base. If they want to take on additional debt (to expand operations) they must take additional equity. Given the incredibly ambitious expansion goals most Indian MFI’s have, these equity rounds will be having with increasing frequency. Doing some quick math SKS will probably require additional equity toward the end of 2008.
So what are MFI’s doing with all this money? There is no shortage of ideas, expansion into
Friday, February 1, 2008
So after a generally very hectic January for most in the industry we got a chance this week to step back from operational goals and re-access the big picture- where will Indian microfinance be in 5 years? I am in the resort town of
Thursday and Friday many of the industry leaders (they didn’t notice me in the back row) in this space gathered for a workshop and two major topics seemed on everyone's mind:
As most people I talk with can attest- I am unabashedly in favor of the trend toward commercialization. While many dissent this viewpoint as a betrayal of microfinance’s roots, as I witness changes in the industry I am discovering that this debate is increasingly becoming academic: commercial microfinance is here to stay. I contend this to be primarily positive simply because increased money allows increased scale. But that is not to say there is no danger in this approach- it can be all too easy to lose sight of the ultimate goal of helping the poor. Which leads to the next question…
How can we better articulate the social benefit?
There is evidence trickling in that microfinance is having real impact, I recently came across this study. The trick is formulating this to stakeholders [read politicians] to create goodwill for the industry.
It is a very peculiar accident that microfinance is held in rather high esteem (maybe too high) in the west but viewed skeptically in many countries where it operates. Indian MFI’s have in the past been victims of political whims, but not since the early 2006 (ancient history in this space)
Overall a very productive series of discussions; beaches and balance sheets- I suppose we can't complain too much.
Thursday, January 10, 2008
Today Tata announced the arrival of the world’s most inexpensive automobile, smartly named the Nano- for months people have been calling it by its sale price: the 1 lakh car. That works out to approximately $2,500, not bad for a brand new car that looks decent enough and can even keep dry five at a time.
In the next few years competitors such as Fiat, Suzuki, Bajaj and even Honda and
It is widely expected that many who currently ride motorcycles (that cost 40-50% of what the Nano will) have aspirations of trading up to a car that was previously cost prohibitive. Surely, the improvement in safety is a huge benefit of upgrading to the Nano. Motorcycles currently jam
India’s roads are among the world most dangerous; according to this study traffic fatalities per 10,000 vehicles was more then10 times higher then the US (and due to the methodology the real risk might be significantly understated.)
But at the same time
I cant help but lament that many south Indian cities are following the arms race model; building ever more freeways in competition with car sales rather then investing in mass transit. Though easier said then done, political squabbles need to be put aside and more projects like
All of these theoretic’s called for some on the ground research. So in the name of investigation your correspondent jumped aboard a ‘two- wheeler’ today on our way out to one of the field branches for some MIS testing. Transportation by two- wheeler is indeed much more efficient then that of their four-wheeled brethren, we shaved 40% off the time spent waiting in traffic by those who opted for the luxury of an SUV.
So this all may be a mute point- will the masses give up the efficiency and savings for the comparative comfort and safety of the Nano? Anecdotally, it seems so. In my informal poll, mostly at work where most incomes range between $500 and $1000 per month, there is real enthusiasm. My co-workers, who for the most part are the first generation to leave their rural towns and villages, view car ownership not only as efficient transportation but also a definitive signal of their success. Check back soon as I may be blogging from the backseat of an auto during my hour long commute…
Wednesday, January 2, 2008
2007 was a busy year for microfinance. We saw the first IPO- Compartamos in
Additionally, the ecosystem that will drive future growth continued to expand. Multiple entrants released IT solutions targeted at MFI’s in 2007 and they will continue to tailor these offerings based on specific needs.
Mainline commercial banks became much more sophisticated in their dealings with MFI’s. For most MFI’s in There is significant opportunity for the first IPO in Indian Microfinance to happen this year, and with it increased acceptance into mainstream business -for both good and bad. Expect Indian MFI’s to touch 30 million clients by the end of this year and be present in far wider geographic areas, especially the northeastern states of West Bengal and Assam; these areas have been a little late in joining the fray but several MFI’s, especially Bandhan are poised to ensure the region catches up quickly.
There is significant opportunity for the first IPO in Indian Microfinance to happen this year, and with it increased acceptance into mainstream business -for both good and bad. Expect Indian MFI’s to touch 30 million clients by the end of this year and be present in far wider geographic areas, especially the northeastern states of West Bengal and Assam; these areas have been a little late in joining the fray but several MFI’s, especially Bandhan are poised to ensure the region catches up quickly.
It should be an exciting year, continue checking back as the Indian microfinance story unfolds.
In some personal news, I got my first haircut and straight razor shave in
In an update to a story I mentioned last week;
Thursday, December 27, 2007
Tuesday evening we all got together for Christmas dinner and drinks, though no substitute for family, we all had a very nice time. I even got to meet Santa!
In some tragic news, Thursday evening the ex-prime minister of Pakistan, Benazir Bhutto was assassinated by suicide bombers after a rally in
Sunday, December 23, 2007
While I was in Mumbai Friday news came that Ford is heavily leaning toward Tata Group,
Unfortunately, I had very little time for sight seeing while in Mumbai- but was able to break away for a bit today for some exploration in the old sections of
Last night we headed out to the
Wednesday, December 19, 2007
By its very nature microfinance, the use of capitalism to help alleviate poverty, will thread a fine path between profits and social benefit. Microfinance is simply a tool that will be wielded in many ways. As such it will (and should) come in for critical evaluations of its both positive and negative impacts.
The granting to Mohammed Yunus and the Grameen Bank of the 2006 Nobel Peace prize was a dubious honor for the industry; it was the high water mark for a veritable flood of positive PR the industry has received over the past five years. No doubt, the industry has benefited from the exposure, organizations like Kiva, Microplace and Prosper owe their continued support to the popular recognition in the
But at the same time, the industry has managed to severely over bill itself, Microfinance Institutions (MFI’s) have been at the forefront of this effort. Primarily using anecdotal evidence rather then rigorous studies, they have managed to create the popular conception of a poverty ending tool. Poverty is far too complex a problem to be solved quickly or by a single approach, microfinance has created a promise that cannot be fulfilled.
The first question any rural borrower asks is what the procedure is for receiving a loan, followed by where and how often they can repay. Many of these borrowers are inexperienced with financial institutions and afraid to walk into a formal bank and fill out the mountain of paperwork, they have heard stories of friends being refused on technical grounds- they don’t want to waste their time. Second, borrowers don’t want to travel the distances to the physical branch offices of a bank and be bound by an inflexible repayment schedule. Repaying loans one week at a time is an advantage for many poor business owners; they have no proper mechanism for saving this weeks profits until the end of the month, they prefer to repay the loans as they receive the cash. These services require credit officers to come to the borrowers and significantly reduces the credit officer to borrower ratio- the provision of these services drive up costs.
On the demand side, Vikram Akula the head of SKS states it well “Returns on investment for micro-enterprises are extremely high. Studies have estimated returns from micro-enterprises fall in the range of 50% to 100%.” When these small business’s are able to maintain such profitability they are relatively inelastic to changes in the rate of interest- what matters to them is service.
Spandana charges 26% (in American terms) interest on its loans. Is this usurious? In the
Is microfinance doing good? In most parts of the world, that is a tentative yes. My hesitancy is primarily due to a lack of credible studies to show the benefit (though this is changing, a study by this group on Spandana is due out in May.) But both anecdotally and theoretically it seems progress is being made. Whenever you increase the supply, as MFI’s do for credit, it reduces the price. This can be seen in villages where MFI’s are active- local moneylenders are forced to charge much lower rates- this is surely good news. Microfinance is no panacea, but slowly, it is helping to improve the lots of many.
On the personal front, I managed to get registered with the foreigners’ office without being extorted for a baksheesh, found an apartment with a guy who works at Acumen Fund- in a section of the city called Banjara Hills, will be nice to get settled in. Am headed off in the morning for Mumbai (
Sunday, December 16, 2007
They didn't mention Saturday is a work day. I got to Hyderabad last Sunday after five fast paced days in Delhi that were spent catching up with a few old friends, gathering as much knowledge as I could on the state of Indian Microfinance from my very patient Lok colleagues; and at a couple of social events getting a chance to meet many expats who are here to work in this exciting country.
As many of you know I interned with Grameen Bank two years ago and had a spectacular time. Since then I have not quite been able to put to rest my keen interest in microfinance and
For the next six months I will be working on the ground, through Lok Capital, with one of their investees, an Microfinance Institution (MFI) called Spandana. I am incredibly excited. They are a top- notch organization comprised of bright, talented people- entirely devoted to helping raise living standards through the extension of financial services. They are as a Lok colleague put it "always trying to build a better mousetrap." When asked, people top to bottom will explain their pride at the organizations ability to cheaply offer highly customized credit to disadvantaged people, and especially Spandana’s operating expense ratio (defined as: Operating Expense/ Average Total Assets.) They are proud for good reason, as operating expense ratio is a rough proxy for the rate of interest they need to charge poor people in order to stay in business.
As of March ’07, Spandana had an operating expense ratio of 5.52%; this is nearly unheard of in the industry. For comparison, a few other well know MFI’s (Share, Basix, SKS and Spandana all operate primarily in
This can be accredited to the ruthless (though sweet) eye for efficiency of the founder, Padmaja Reddy. An entirely tireless women, she has nurtured Spandana from a small NGO to now the largest MFI in India, by working 80hr weeks and overseeing nearly every aspect of the business.
And so, in a nod to increased efficiency I have learned that for the next half year or so I can look forward to one day off per week. During the course of introductions one of the senior guys quipped [half] jokingly “Tyler, we purposely didn’t tell you about the work schedule until you got here.” Haha, though on a serious note, I think it will work out- the people here are motivated, engaging and generally a joy to work with.
They have some big plans for the next five years, we are going to see if we cant help to put some of the process’s in place so that can happen (introducing a two day weekend is first priority.)
Overall, the process of outsourcing my life has gone rather smoothly. After two very long flights, immigration passed smoothly (I just knew there was going to be some problem with my visa), a taxi was waiting to pick me up at the airport and I was whisked away to a guest house (basically a bed & breakfast) provided by one of the founders of Lok. Lok and Spandana have been a huge help arranging accommodation, getting cell service, and generally finding the things I need. I am currently staying at a guest house that is attached to Spandana’s office, can’t beat the commute.
The food is tremendous. I am slowly getting re-acquainted with eating with my [right] hand and generally trying my best to avoid the taboo's of etiquette that I missed out on growing up in the US.
I am slowly getting re-acquainted with eating with my [right] hand and generally trying my best to avoid the taboo's of etiquette that I missed out on growing up in the US.
So, thanks for making it this far. In this column I hope to comment on some of the events that are shaping the fast evolving microfinance space and also share a bit of my experiences in this dynamic, thrilling country. I hope to post 2-3 times per week, so check back every couple of days or so.
On the agenda for this week, get out into the field a bit with Spandana, continue the apartment search, register with the Foreigners office (my first real experience with the dreaded Indian bureaucracy) and hopefully explore some more of bustling
Incidentally, I just came across this very critical look at microfinance published Friday in Business Week, take a look and I will post some of my thoughts soon.