Monday, September 10, 2012

“The few defaults are due to Migration & Natural Calamities”

M. R. Rao, CEO, SKS Microfinance Ltd.

Launched in 1998, SKS Microfinance is one of the fastest growing Micro Financial Institutions (MFIs) in the world, which has served more than 5 million women members in poor regions of India till date. Of course, the company has been in the news for the wrong reasons following the unceremonious exit of its ex-CEO Suresh Gurumani. Current CEO M. R. Rao talks about the company’s business model and challenges it faces:

B&E: Tell us about SKS’ entire delivery mechanism. What are your other major business growth drivers?
MR: SKS targets the poor and upper poor class. The upper poor class consists of families earning Rs.25,000-Rs.50,000 per annum like medium farmers, small entrepreneurs and families falling just above poverty line like landless laborers. This is the segment of the poor that can most benefit from microfinance. Overall, SKS’ target constitutes of rural (74%) and urban (26%). Through its NGO, Swayam Krishi Sangam, SKS works with the ultra poor or the destitute who need far more intense involvement and a kind of spoon feeding to nurture them and make them use their loans effectively. SKS provides the ultra poor with vocational training, social awareness and health awareness over an 18-month period and also provides these families with assets, which they are taught to manage.

Apart from income generating loans, SKS also offers insurance products jointly with Bajaj Allianz. We have covered nearly 2 million lives across our network with this product. SKS also provides life enhancing products like water purifiers, mobile phones and solar lights at a better prices than the existing market price. Also, SKS is providing housing loans and education loans, which are in the pilot phase. This February, SKS has tied-up with Metro Cash & Carry to supply inventory to SKS members who have Kirana stores.

B&E: How does SKS Micro Finance define its eligibility criteria?
MR: SKS follows the peer-lending model developed by the Grameen Bank of Bangladesh. There are two parts involved – formation & administration of the group. A group is a collection of five individuals who come together to gain access to credit. Groups are the building blocks of the peer-lending model, and strict credit discipline starts with strong groups. SKS uses five-member groups. Experience has shown that a five-member group is small enough to effectively enforce group peer pressure and collective responsibility on a unanimous basis. Groups must be self-chosen as only then will members be able to serve as guarantors to each other. Groups must have the following characteristics: Poor, close proximity of members, no close relations in order to avoid personal problems, mutual trust and the adult members should not be above the age of 55 years.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Saturday, September 08, 2012

CANADA: DECELERATING GROWTH

After growing at a red hot annualised rate of 5.8% in Q1 2010, Canada’s Economic growth has come down to just 2% in Q2, 2010. Canadian policymakers now need to look beyond the ‘short cuts’, be it interest rates or output, if they want the Economy to sustain its growth momentum.

Even net exports made a 4.5 percentage point drag on overall GDP growth. Result: In July, Canada’s trade deficit widened to $2.69 billion, the biggest gap since records began in 1971. What’s more? Net exports have not been a positive contributor to GDP growth since Q1 2009. While it does not appear that the drag from net exports will slow down anytime soon, what’s more confusing is the continuing soft inflation (at 1.7%) amid weak productivity growth (0.6% yoy as of August 2010), fast wage gains, and a closing output gap. So, with fragile economic recovery underway and inflation rate at the bottom of its target range, is it appropriate on the part of BoC to further increase the interest rates after already having raised them thrice in 2010?

There are still many who don’t see this as a threat to the sustainability of the Canadian economy in the long run. Jimmy Jean, the US based economist at Moody’s Economy.com tells B&E, “The housing retrenchment was long expected and has not been excessively severe, even showing signs of recent stabilisation. The cooling observed in consumer spending ties in closely with the housing slowdown, which again makes sense and is not overly worrying in light of still-healthy income growth.”

But then, income growth is likely to slow further considering the impact of the weak GDP growth on employment (unemployment rate is already at 8%) and, in fact, one can already see it happening. Second quarter GDP data already indicates a slowdown in consumer spending growth to 2.6% (yoy) from 4.3% in Q1 2010. Though BoC had not replied back to B&E’s queries till the time the magazine went to print, it, however, in its latest press release, accepts that the recovery in Canada will be slightly more gradual than it had projected in its July Monetary Policy Report.

No doubt, looking ahead, the IMF too expects Canada’s economic recovery to be among the strongest of the G-7 countries over the next two years. But, at the same time it should not forget that when an economy is not working normally (as is the case with Canada), one cannot rely on the ‘short cuts’, be it interest rates or output. In other words, policymakers should leave the overnight rates at 1% during their next policy decision on October 19, 2010. Rather, they now need to work towards developing models that have a better understanding of money and credit flows at a more disaggregated level and that include the key institutional features of banking and capital markets. If Canadian policymakers look only at interest rates, inflation, and output, they might miss out on the bubbles that perhaps might be in the making. If that happens, it could spell a disaster for the Canadian economy. Well, they say, it’s always better to be safe than sorry!


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face


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Tuesday, September 04, 2012

It pays at times to stay married!

Speculations abound on the probability of the Hero Honda JV heading for a sudden break up. B&E’s Pawan Chabra does a speed-check on the repercussions of such an event for both players

August 26, 2010. Venue: Taj Palace Hotel, New Delhi. SIAM’s 50th annual convention was in its last session before the day was called off. The theme of the session was crystal ball gazing for the Indian automotive industry, and the panel had eminent names of the industry like Anand Mahindra, Vice Chairman & MD, Mahindra & Mahindra, Abhay Firodia, Chairman, Force Motors, Ravi Kant, Vice Chairman, Tata Motors and Venu Srinivasan, CMD, TVS Motors. As the session was in its question and answer round, Madhur Bajaj, Vice Chairman, Bajaj Auto pointed out that it is somehow difficult to predict the future; as an example, Madhur forwarded the example that in the early 1980s, no one could have predicted that scooters will be replaced by motorcycles. Before Madhur could complete his statement, Abhay Firodia gesticulated towards the much respected Brijmohan Lall Munjal, Chairman, Hero Honda Motors (sitting next to Madhur Bajaj on the same table), giving a repartee, “He predicted it!” The statement consolidated the emotion of the event – that not only had the Munjals forecasted correctly the change, they had also acted on the same in a brilliant manner, by forging one of the most successful JVs in Indian corporate history with Honda Motor Corporation in 1984.

It was at a period when the country saw many JVs and alliances happening in the domestic circuit – be it Kinetic joining hands with Honda or TVS and Suzuki getting into an alliance. But the fact is that most of these alliances ended sour – including all those mentioned above; all except the Hero Honda JV.

But apparently, corporate history is set to be re-written. The technological agreement between Honda and the Hero group was due to expire in 2014, but reports are now filtering out that Honda is attempting to move away from the relationship by attempting to sell their stake in the JV, The day these yet unconfirmed reports hit the stock bourses, Hero Honda saw its share price falling by over 6%. But that’s clearly not the worrying part for the Hero group. It’s quite evident that the parting of ways could inflict much more damage to the Hero group; which will be left lagging on the technology front.

In reality, even till last month, there was no such talk, report or discussion about any future breakup. When B&E met Anil Dua, Senior VP – Marketing & Sales, Hero Honda, in August 2010, he had enthusiastically commented, “Honda has had the most profitable JV with the Hero Group in India and as the companies have been launching right products at the right time, the strategy has paid off very well.” On the contrary, sources in the industry are of a view that the main issue of dispute between the two giants is on royalty payments. In case such a breakup does occur, the option of getting a new technology partner, developing its own R&D or continuing with Honda’s support are the most probable choices for the Hero group. For the uninitiated, the Hero Group owns a majority stake in the JV (see chart) and with Honda moving out, it would not only take a huge pile of cash reserves from Hero (to acquire the stake, if it wants to stop others from buying into the company) but the company could also take a temporary blow on volumes (due to supply issues). The market leader is already facing supply constraints and has seen its market share fall from over 50% since time immemorial to 44% in September 2010; and competitors like Bajaj Auto & TVS Motors have been quick to build on the opportunity.



 
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Monday, September 03, 2012

US: Pranab is still the External Affairs minister

Secretary of State Hillary Clinton’s State Department considers Pranab Mukherjee to be India’s foreign minister! More similar gaffes inside...

Truth is stranger than fiction, but fiction does appear to have an irresistible appeal for two of the world’s largest administrative agencies, the US State Department and CIA. The official web portals and communiqués of the US State Department and CIA are splattered with notable misinformation and errors that would be necessarily considered highly affronting at a diplomatic level.

Last week, we showed how both the State Department and CIA confidently misrepresented India’s map (and showed Kashmir as part of Pakistan) on their websites. We had no idea there was more to come – perhaps even ‘the’ reason for why the Americans seem to be making no headway with India on foreign affairs. The US State Department’s official website mentions that the Minister of External Affairs of India is (still) Pranab Mukherjee! S. M. Krishna, the current Foreign Minister of India since May 2009, has been notably left out of the State Department’s official communiqués. Incidentally, Krishna has also met Barack Obama in various forums, including at New York in September 2009. Not all listed information is wrong, though. Some US government letters are thankfully still reaching the right addresses in India. The Home Minister of India is correctly named as P. Chidambaram; and so are some other Indian politicians.

Mistakes on the CIA and State Department’s websites are not only India-centric but can be found in the case of other countries too. What’s interesting is that, in spite of the official websites of these respective countries portraying genuine information, the US has failed to recognise the same in its own records. First, the comical. In South Korea, three years ago, a series of protests against the CIA finally forced the agency to correct the information about South Korea’s origins (CIA had earlier amusingly stated that “South Korea has been a nation for a millennium;” South Korea, apparently a stickler for dates, protested en masse as this nation has been in existence only since the last 4000 years).


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Saturday, September 01, 2012

IN THE FAST LANE

Last year’s slowdown was a blessing in disguise for the public sector behemoth SBI, forcing it to become truly competitive. And the bank has only moved ahead since then. Avneesh Singh finds out how

Financial inclusion may be a buzzword for India Inc. but when it comes to groundwork, a majority of them falter. But not this “Banker to Every Indian” for whom ‘inclusion’ is about carpet bombing the Indian geography with its presence, a strategy that has seen it (leave aside the associate banks) reach over 12,450 branches and 16,584 ATMs across India. In fact, in the next two years, the drive is barbarically brobdingnagian (if one could use such a term) for SBI wishes to now get 1,00,000 un-banked villages in its connectivity map! What’s more? At a time when trust was witnessing a free fall, this bank everyday attracted more than `1.7 billion average deposits (during FY2010). While deposits were up by `620 billion (a 8.36% yoy growth – from `7.42 trillion in March 2009 to `8.04 trillion in March 2010), gross advances too were up by `929.40 billion registering a growth of 16.94% from `5.48 trillion in March 31, 2009 to `6.41 trillion in March 31, 2010.

Not surprisingly, the net interest income rose by a significant 13.41% to `236.71 billion in FY 2010 (up from `208.73 billion in FY 2009). And the reason for all this is interestingly in one area. When banks were shunning retail customers, SBI took the lead in lending to the ‘shunned class’ and consequently became the single largest retail lender in India (education loan up by 34.61%, auto loan up by 45.44% and housing loan portfolio up by 31.69%). Even in corporate lending, SBI diversified its loans across segments, thereby minimising the probability of loss. In fact, the large corporate loans reported a significant jump of 18.51% during the last fiscal. But that does not mean that it has completely ignored the bottom of the pyramid, which for the fact makes over 90% of India’s total population. As part of its microfinance programme SBI has credit linked more than 1.71 million self help groups across India with cumulative credit of `115.62 billion.

When asked about the secret behind this stellar performance, S. K. Bhattacharya, MD, SBI told B&E: “performing well has become a habbit for employees at SBI. No doubt, top management devices strategies and policies, but the real business takes at the branch level. So, it’s the employees of the bank who should be credited for this performance.” Further, thanks to a resurgent focus on maintaining a cost effective operating architecture, the bank has successfully brought down the average cost of deposits by 50 basis points to 5.80% and kept its net NPA (non performing assets) at 1.72% (of gross assets) as on March 31, 2010. In fact, the ratio of high cost bulk deposits to total domestic deposits too has come down from 10.74% in March 31, 2009 to 1.79% in March 31, 2010.


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