Monday, April 16, 2012

Jairam Ramesh's value addition to the Microfinance sector

After phenomenally adding value as Minister for Environment by blocking various projects and then mysteriously approving them, in his new avatar Jairam Ramesh is looking to adding value as Rural Development Minister.

For too long, the Microfinance industry has been suffering because of unreasonable demands placed on them. The RBI regulation now states that they cannot charge more than 26% interest. Plus, their spread cannot be more than 10%. That is, if their cost of borrowing is 12%, they cannot even charge 26%. They can only charge 22%. But if their cost of funding is 18%, then they cannot charge 28% but only 26%. Thus the maximum spread is 10%.

Then, there are other restrictions. They need to have a minimum of 10 crore equity. There are quite a few Microfinance companies with equity considerably lower than this. They have to now scramble and get this equity. But given that the market situation is so bad, no one is likely to be interested in investing in them, or if they invest, it will be at the face value or perhaps even at a discount, thereby diluting the promoter's equity completely.

Nationalised banks have been unwilling to lend money to the Microfinance companies, as they demand a clean balance sheet and no loss. But given the whacking these companies received last year thanks to brain-dead AP government law and the SKS mess, most companies have made a loss.

So, these companies have nowhere to go, and they were seriously looking forward to the Microfinance bill from the Govt. of India. Now steps in Mr. Jairam Ramesh saying that this bill will affect Self-help groups (SHGs). In what way, I am unable to understand. Is the proposed law asking money to SHGs to be stopped? No. The proposed law merely supersedes silly laws by state governments.It creates a regulatory authority to deal with these institutions instead of allowing every single state government to thrust its own laws.

Jairam Ramesh has a problem with "Akulas". In fact, the entire Microfinance industry has a problem with Akula and his SKS which in their extreme desire to grow went overboard. But then the new set of regulations have tightened the sector enormously. Can the Minister mention another name or another company? How can he tarnish the entire industry using a single name?

The delay in passing this bill will make the life extremely difficult for many small Microfinance companies. The lack of clarity will force fewer private banks to lend money to Microfinance companies. The same thing will keep venture capital firms to stay away from investing in this sector.

The losers will be the promoters of Microfinance companies and millions of poor people. SHGs cannot be winners either. The winners will be moneylending sharks and Jairam Ramesh like politicians.

Thursday, April 12, 2012

Earth quake and Nuclear reactors

This was my first experience. The tremors were mild in Chennai. I was in the middle of recording couple of book reviews for Makkal TV.

I was in Chennai during the 2004 Tsunami and didn't feel any tremors then. I do remember vividly the panicked crowd running on foot and in autos carrying all their valuable belongings. Yesterday was in the middle of work. Almost everyone in the office wanted to leave immediately as they felt the traffic will pile up, little knowing that they will be only adding to the chaos. Only three or four of us stayed on till 6.30 PM.

The talk now is centered on Kalpakkam and Kudangulam atomic power plants and their safety. Tamil Nadu is not in a heavy seismic zone. The tremors we felt yesterday were insignificant. In fact, Tamil Nadu didn't even feel anything of this kind during the Maharashtra, Gujarat and Pakistan earthquakes in the last two decades in which thousands of people had died

I can understand opposition to nuclear plants on the basis of strong principles. To base it on such weak arguments as lack of safety under mild tremors is ridiculous. But I guess it is futile to discuss these things as neither party is willing to listen to reasoned arguments.

Tuesday, April 10, 2012

A brief history of Citibank

There is a nice advertisement, a sheet over today's Mint, from Citibank, to commemorate its 200th year.

1812: Citi opens as The First National City Bank of New York.
1866: Citi funds the transatlantic cable.
1904: Citi funds the Panama canal.
1948: Citi supports the Marshall plan to rebuild Europe.
1956: Citi backs uniform cargo containers.
1958: Citi backs the commercial Jetliner.
1977: Citi pioneers the ATM.
2011: Citi is the first card in Google Wallet.

I don't see how the 2011 move is that great. However, the other ones are, so if I live for the next 20 years, I will understand the significance of Google Wallet move.

I need to find a good history of Citibank.

Monday, April 09, 2012

Odisha kidnappings

It will be wrong on the part of the Odisha government to accept the demands of the Maoists and release the jailed Maoist guerrillas, in order to secure the release of an Italian tourist. There is an MLA in the custody of the Maoists and there will be a demand for releasing few more Maoists to secure his release.

In this connection, I will quote a portion from the Wikipedia page of John Paul Getty Jr.
Getty initially became reclusive after the death of his second wife in 1971. He moved to Rome as head of Getty Oil Italiana. In 1973, his eldest child and son, Paul III, was kidnapped in Rome by Calabrian mobsters and held in the Calabrian Mountains, chained to a stake in a cave. Getty did not have enough money to pay the $17 million ransom demand, and his father refused to help, saying "I have 14 other grandchildren, and if I pay one penny now, then I will have 14 kidnapped grandchildren." However, when one of his son's ears was delivered by mail to a newspaper in Rome (delivery had been delayed by three weeks because of a postal strike), his father finally agreed to help out with the ransom payment by making the ransom payment a loan to his son.
Eventually the ransom was paid. But the real wisdom lies in this statement: "I have 14 other grandchildren, and if I pay one penny now, then I will have 14 kidnapped grandchildren."

If even one Maoist guerrilla is released from the jail, there will be more kidnappings, more negotiations and more releases. You will forced to go down that route again and again. So do not give in to Maoist demands. If it means losing the lives of an Italian tourist and an Odisha MLA, so be it.

Maoists should be fought, and finished off.

Thursday, April 05, 2012

Greece suicide

A few years ago, I was attending a meeting organized by a private equity firm. They had invested in our company at that time. (Since then, they have exited.) Things were quite bad then. The US financial markets had crashed, taking with them a whole lot of companies around the world. Countries were on the verge of bankruptcy.

A Swiss investment banker, one of the principals who deals with billions of dollars of investment talked at length about the hardship Europeans were going to face. There was a talk of Greece, Spain, Portugal, Ireland, Italy and several other countries.

People living in these countries have not seen dire poverty since the second world war. There is unemployment benefit and a decent social security system. But the countries are over-leveraged and in serious debt problem. The economy is tanking. The middle class are in the brink of becoming poor. Youngsters have lost their confidence.

The Swiss banker was talking about the kind of turmoil these countries were going to go through. The reported suicide by the 77 year old Dimitris Christoulas is the beginning.

If you do not have any savings and your Government is cutting down on its expenditure (and in particular social security payments such as old-age pension or the unemployment allowance) where will you go? If your children themselves are trying hard to make their ends meet, how will they support you? That too in countries where parents supporting children above a certain age and children supporting parents in their old age is not known?

There are thousands of farm suicides in India. A majority of Indians are wallowing in poverty. I am not trying to compare one suicide in Greece to the situation of millions dying or mal-nourished in India. However, in case of India, contrary to what the "opponents of neo-liberalism" would say, I have only seen steady, albeit slow, progress towards a better life.

What the single incident in Greece has shown is the beginning of the trend towards more such gory incidents - deaths, street fights, crime and overall heart ache - in Europe. It is for this that this event is significant.

We are about to witness one of the worst decades for Europe.

Wednesday, April 04, 2012

IPL not moneyball anymore - Hindustan Times

IPL not moneyball anymore - Hindustan Times

I am not a major fan of IPL. The first two seasons I saw a quite a few matches. The third season, very few. And the fourth season none at all. It had become too boring, for me.

I did predict that IPL will lose its sheen, if the BCCI did not reform itself. Now, the ad rates and ad bookings show clearly that TRPs are falling and advertisers are staying away.

In the meantime, Lalit Modi, with all his bluster, has said in an interview with The Hindu that IPL will contribute between 65 to 70% of the total income of BCCI! This shows what sort of warped thinking Modi has, and probably that is one thing the current bigwigs of BCCI share with him.

Tablet galore

First there were grey market Chinese made Android tablets. I bought a 7" resistive touch one, running Android 1.6. Then I bought a 10" resistive touch one, running Android 2.2.

Then the Indian government announced Aakash, its cheap 50$ variety. Supposed to be manufactured by Datawind, this went nowhere. In any other sensible country, the government and the minister responsible would have been taken to the task. Not in India. Kapil Sibal continues to be the minister for IT, Telecom as well as education through the Human Resource Development ministry. Make no mistake, Aaksh 2 will also be a disaster.

Datawind said it will push its own tablets priced around 4,000 Rs in the Indian market. Then, Wishtel announced it was launching its own low cost tablets.

Right through this period, we did have the Apple Ipad in the market while Samsung and Dell were selling their Android pads and RIM selling its Playbook versions.

Just recently, two low-cost players have announced their versions. One is HCL and the other Micromax.

The news reports presenting these announcements are rarely detailed. There are some key factors which determine whether the pricing is fair, such as whether the screen is resistive touch or capacitive touch, physical size of the screen (7" or 10" or ...), pixel density, chip speed, weight, OS (if Android, which version), battery life, storage capability, whether 3G compatible or only wi-fi, camera (if any, or 1 or 2 and their megapixels) and so on.

It is left the specialty sites to figure out exactly what is there in these devices and whether the price quoted is reasonable.

Both HCL and Micromax are looking to bundle educational content, in significant contrast to Apple, Samsung etc. In this, HCL/Micromax have really understood the Indian market. The children want fun and games but the parents want their children to study. Therefore, throw in some educational content to hoodwink the parents and they will buy it for their children. Then the children can happily play Angry Birds - all four of them.

It appears that in the short run, there will be more Android devices out in the Indian market. Apple Ipad will remain a premium product. A sub 10k Android pad will be easy to buy for most middle class. That is where things will turn out to be sad for most buyers. All these Android devices can not easily be upgraded to "newer" operating system. Their capability is highly limited. Most of them will not be Indian language compatible. Rooting the devices will not be easy. That sort of talent is still not available in India.

Even if rooting is possible (since most of the products are Chinese made and white-labelled and passed off as if manufactured in India), very few customers will even have the gall to do this. If you root the device you may lose the warranty and your manufacturer may not support you.

We have a long way to go.

Monday, April 02, 2012

AIESEC Youth To Business Forum @ Sastra

I spent yesterday at Sastra University, Thanjavur, the event being AIESEC Youth To Business Forum. Here are some of my observations:

* The students are amazingly confident, much more than what we ever were during our days.
* The event was entirely conceived, planned and conducted by the students and done quite well too.
* A number of them consider entrepreneurship as a serious career option, which is probably not all that surprising.
* Several of them have very interesting business ideas, and if implemented may become quite successful.

* However, most of the ideas revolved around Internet and e-commerce. Some on marketing and retail.
* I couldn't find anything related to core engineering.
* I found that girls were not as enthusiastic as boys when it came to talking about start up ideas, though they were easily 50% of the entire group. Start-up space is almost fully all male, it appears.

It looked very positive, in all. I do expect some of these students to go on to build very exciting enterprises.

Inter-linking of rivers

There is a clamour for river interlinking mostly only from Tamil Nadu.

There is a clear reason for it though. Tamil Nadu is one of the most water-starved states in India. It has problems with all the neighbouring states in sharing river water. The main cause of concern for Tamil Nadu is in getting a fair share of Cauvery water. Then, there are lesser problems such as Mullai Periyaru with Kerala, Palaru with Andhra and so on.

Andhra had also agreed to provide Krishna river water to Chennai. This is not based on any riparian claim, but Andhra had agreed to this on goodwill. At times, Chennai gets some water, but this is not always automatic, left to the wishes of Andhra.

As other states try to appropriate the waters of the rivers that flow through them for agriculture and drinking water supply, Tamil Nadu will be the big sufferer.

Since every once in a while there are floods in North Indian perennial rivers, the idea of linking up all the rivers in India was mooted.

To go into the geological difficulties or the environmental impact will not be necessary here.

My view is that, the political landscape will simply not allow this to work. River interlinking is not the same as laying multi-lane highways. Every state wants it. All benefit from it, some more than others. Roads are zero sum games. But river water is. One can keep coming up with fancy schemes to make use of any excess water.

As water is not metered and no one is notionally paid any money, there is a tendency to waste water in large quantities. This is not going to change in the years to come. Farmers need more water; industries need more water and urban settlements need more water.

So, even if we miraculously link all the rivers, Tamil Nadu will find that the results are not to its liking. The project will cost a lot, will take many years to build, and after this, the first few years may be good for Tamil Nadu. Then, Karnataka and Andhra will find more ways of diverting additional waters to their own starved population, thereby making Tamil Nadu as poor as before.

What Tamil Nadu requires is something else. It is to make better use of the rain water. Recharging of all the water bodies effectively alone is sufficient to solve drinking water problems across the state. Further, it will go far in solving the irrigation requirements in many regions. Parts of Tamil Nadu will be arid, and rain water is not going to help these regions. It is here that Tamil Nadu should look at purchasing water from the neighbouring states. One way of doing this is to produce large amounts of electricity and use that as a barter chip.

Tamil Nadu is better placed than Karnataka and Andhra to produce more electricity. Tamil Nadu has the investing power as its finances seem to be much better. It can borrow much more money than the neighbouring states. The problem is with its approach to the industry. If it can wake up and become industry friendly, then it can achieve power surplus, and with it will come negotiating ability to purchase water.

This will be easier to achieve than believing in interlinking of rivers.