Tuesday, January 31, 2012

MFI’s New Stance of Survival

Plummeting profits, huge operational costs, accumulation of losses and many more negative sentiments are now considered as synonyms when we come across any news regarding the Micro Finance Institutions and SKS Micro Finance takes the lead in this down slope trend. But to stay afloat, microfinance promoters are now sailing into new lending areas: from cycles to phones to gold and houses. This throws up a whole new set of challenges for them as well as for regulators.

About 70 to 80% of commercial funds for MFIs come from banks and much of this is priority sector lending which are 2-3 percentage points cheaper than the normal bank loans. And certain limits of these funds are bound to be lended as microfinance, that is why as per RBI rules clearly states that if more than 15% of the loans are lended for non-microfinance portion then these sectors will become ineligible for these cheaper funds. So it becomes a challenge for the promoters to follow the rules as well as to keep churning profits which are already strained that is why now they have focused on other strategy of tweaking products and operations.

In the way the new loans are delivered, there are three differences from the way MFIs operated:
·         One, the loans are larger,
·         Two, they are being directly given to the individuals, not through groups, who bore initial responsibility of checking credit-worthiness and repayments and
·         They are for asset purchases backed by collateral.

A promoter of one of the MFI from the north clearly states his intention when he says “We will now be looking for people with monthly salaries. Not the moong phali - walas (peanut sellers)”.But this poses a grave risk for the priority sector funds being used for other purposes.
All these years, the microfinance industry promoted itself as a potent means to pull people out of poverty but now, in its bid to survive, the industry is looking beyond the poor. Is this mission drift?
Different promoters have different view: Ujjivan’s founder, Samit Ghosh thinks, “If you start focusing on middle-income households, the focus on the target customer base gets diffused” but if you listen to what Vasudevan of Equitas says “Our mission is how to improve the quality of life for clients who were not able to access the formal financial sector till now. That doesn’t change”
Now as the MFIs are looking to diversify, so the question arises are they doing so out of duress or do they actually see an opportunity to help the poor in the same old way but with different products? This is the question which can be only answered as the time passes. So let’s wait and watch.

Wednesday, January 11, 2012

“Need for Robust Fundamentals

“India must not obsess with how fast its economy is growing and instead pay more attention to its human development indicators which are worse than even that of Bangladesh”
                                                               -Amartya Sen (Nobel Laureate)
Day in day out, all the national newspapers, journals, magazines, web portals etc are talking about the international economic situation, its palpable effects on the Indian economy, its survival chances and the cushion factors to avoid the major international impact on the domestic markets. It’s all about growth rates, inflation figure, purchasing power figures, GDP numbers and more economic numbers. But does a country’s overall growth depends only on economic numbers? Can a country prosper only with one section of society flourishing at a greater speed than the other? And can the economy only depend upon the production rates or the inflation rates? An assertive NO is the answer to all the above questions.

To make a country move on the right path of progress there are many factors other than the economic figures that play a vital role i.e. The Human Development and the societal gains. It has been starkly mentioned by Mr. Amartya Sen that just running behind the 8-9% growth rate won’t make India’s image in the world more superior until its economic factors pushes the human development and the societal factors in the same direction.
We as a nation are bound to break the unenviable record of the most densely populated country of the world and we also feel proud to cherish the demographic dividend which our country would benefit from in the coming future but this can only be possible if the entire population has the basic demands of food, shelter, clothing and education within their reach. And towards this direction the incumbent government has formulated The Food Security Bill which would definitely help the poor for the basic intake of the nutrition and in order to avoid the appalling malnutrition data which shows the backwardness of our human development factor.

Though in the Human Development Index we are growing at a good pace but still there is a daunting task which needs to be addressed. The literacy rate directed towards the Millennium Goal looks elusive. The rate of unemployment is also on a rise coupled with lack of sufficient shelter and food for the 1.2 billion plus countrymen. If the government pays a little more attention towards these aspects and tries to break the reform paralysis, then the magical economic figure of 8-9% growth rate of GDP can be achieved without much effort. These underlying factors’ growth is the real reason for an economy to boom.

So be it 6.9% or 9% GDP growth rate, it would not matter much if the real underlying factors are not given enough space to grow. Let the economy stand on the robust fundamentals.

Tuesday, January 3, 2012

D.St – At the Absolute Bottom?

3 January, 2011 – 20561 and now on 23 December, 2011 – 15738, that is our Sensex’s performance.
3 January, 2011 – 13454 and now on 23 December, 2011 – 9629, that is the Bankex’s fall.
The above mentioned data forces us to contemplate that has the Dalal Street reached close to its bottom, will it ever go deep down even further and even if it recovers then will it be able to last its surge for a period of time?
After a year which investors would definitely want to forget as index plummets almost 21% over its position earlier, the financial gurus are making comments that the markets are close to bottom but not out of woods yet. They still have a view that index would hover in and around the 16k and 17k mark. Though it is very difficult to indicate the mark on the exact bottom but through Price to Earnings ratio things become clearer.
Concerns about lower economic growth, policy paralysis, lack of investors’ confidence, burgeoning fiscal deficit, surging oil prices and lower industrial production clearly breaks the growing trajectory’s flow and rather retards the growth. And when Sensex and Dalal Street are the topics of discussion then sentiment plays pivotal role and with so many speed breakers sentiments are inevitably negative.
A report by ING Investment Management suggests that for FY12, fiscal deficit could rise to 5.7% of GDP as compared to 5.1% of GDP in FY11. Corporate earnings could slow down further, given the slower economic growth, which means there could be more downgrades from analysts in 2012.
And it is not only the domestic lack of growth which pulls the trajectory down but the global economic scenario which is glooming too plays a great role in this negativity. Be it USA or Europe, both being our largest exporters are severely hit by the downturn. This directly impacts our production system and indirectly our growth too. 1991 reforms if played a positive role in making our country a global contender of being a super power, then it also glued us with the direct impacts of the global negativity.
OPPORTUNITY- D St on the lowest level is also an opportunity for the investors for bottom fishing which gives them a chance to buy stocks which have fallen much below their actual level. These stocks are expected to bounce back as the time moves on and the markets improve, as this is the best strategy in the bear markets. Also investors can eye upon the beaten down sectors like automobiles and banking, which has the ability to come back sharply if the central bank cut rates in the upcoming quarters.
Since the markets are close to a bottom, it still opens a viable option to invest in for the future events. Now markets even when down offers opportunities, it’s the investors who need to smell the right one and keep the sentiment positive.