Author: Avishek Gupta

I help drive sustainable development by financing the growth of professionally managed entrepreneurial ventures that solve key social and environmental problems. Having financed and observed over 250 ventures from close quarters, I understand the challenges that such ventures face in scaling up. I have the knowledge of process, financing and technology solutions that can help overcome those challenges. Separately, I have the experience of building businesses that finance early/growth stage companies. Most recently, I was involved with growing Caspian Debt to a full-fledged operating company from an initial 3 member fund investments team.

Housing and Housing Finance in India (Part-1)

Housing is a significant engine for growth and development of any economy. Safe, hygienic and affordable housing has a direct impact on the quality of life and health of households, leading to a better civil society and higher productivity at work. Moreover, the housing construction sector itself leads to direct and indirect employment to a large number of people in several associated industries. The Government, the RBI and the NHB have been consistently working towards achieving the goal of housing for all.

A major policy concern, however, with respect to housing has been the severe mismatch between the demand and supply of housing units especially for the economically weaker section and lower income groups. As per Technical Group on Urban Housing Shortage (2012-17), more than 95% of such housing shortage in urban areas is in the EWS and LIG category. The Working Group on Rural Housing for the Twelfth Five Year Plan (2012-17) has estimated the total housing shortage in rural areas at 43.67 million units. It is also of major concern that 90% of the rural housing shortage (approximately, 39.30 million units) are in respect of Economically Weaker Sections.

In this backdrop we have to note a few key underlying issues. There has been large scale migration of people from rural and smaller urban centres to a handful of large cities over the past few decades. This has resulted in extremely high demand for housing in these cities leading to escalation of property prices and thereby making most housing in big cities beyond the reach of even the middle class. This has not only led to the peculiar problem of large number of highly priced unoccupied/unsold houses in spite of the country having a large housing shortage, it has also led to severe challenges to the civic infrastructure and service delivery capabilities of these cities adding to the exclusion. It is imperative that for a more inclusive future, in addition to direct measures like improving affordability of housing in the larger cities and enabling easier home finance options, alternate strategies like building rental housing options for economically weaker sections and development of smaller urban centres would be key.

While there are a host of issues to be addressed in order to create an enabling environment in the country that results in adequate and proper housing for all, let us focus on the access to housing finance challenge in the next few posts.

Interest Rates

When the interest rates are high, the manufacturing industries slow down capital investment to avoid bearing high cost of investments and hence lead to flattening of long term growth.
When the interest rates are low, the manufacturing industries intensify capital investments, leading to higher levels of automation and hence leading to increased levels of unemployment in the long term.
Off course, it is much more complicated than that but what is the right interest rate to have?

The Dreamliner

The recent excitement and fanfare around the arrival of the Dreamliner aircraft in India reminded me of the good old childhood days. The average Indian household was then deprived of most of the material luxuries (“durable goods”)  that we consider basic necessities today. The most sophisticated device that you could expect to find in the house was the radio or the cheaper handy version better known as the “transistor”. Around the late eighties and early nineties, scooters, televisions and refrigerators started entering the average Indian household. Their arrival was marked by huge celebrations. Friends, relatives and neighbours would all come rushing to take a first look of the new member of the family. Pujas, flowers and chants made the whole incident look like a festival!

I have clear memories of the day when the first television (TV in short) came to my “maama-ghar“. Ours was a joint family with 5 families living in a bungalow tucked away in the lap of the hills and forests on the Chota Nagpur Plateau. My grandfather was a physician who decided to set up his practice in the quaint hilly village of Silli in the tribal heartland of Bihar (now Jharkhand). The huge house was complete with mango, litchi, jack-fruit trees in the backyard and farmlands just outside the boundary with a row of hillocks a few hundred meters away.

It was the first TV in the town! It had to be an event! We knew since morning that the TV was supposed to reach home around evening. It was to be bought from Ranchi (the current capital city of Jharkhand) which was some 55 km away but the road had to cut through the hills and dense forests and often took longer than expected to cover the same distance. The entire town was waiting with bated breath for the TV to come. Several times during the day, our neighbours from the tribal village came down asking if the TV had already come. Kids of all ages lined up close to the house as evening came close. The sun slowly set and darkness fell but nobody would move. It grew darker and people slowly started drifting back to their huts.

Much later the sound of vehicle horn was heard and everybody rushed out of the house. The kids in the house zipped across the large playground in front of the house to the other side to see the van even before it reached the house. The sky blue “Matador” van came tumbling down the slope of the playground, chased by kids of various sizes and came to a halt at the doorstep. Children howled in excitement, the women of the house struggled to keep their happiness in control and the entire neighborhood stood waiting with glistening eyes for the TV to be taken out from the van.

The TV did finally come out and it was set up in the largest room of the house. The antennae was fitted on a long wooden stick, connected to the nearest socket board and then the TV flickered on. Sweets were distributed and the doors of the room were opened wide for everybody in the neighborhood to come in. Almost everybody in the small town came down to the extent that I almost felt that the jackals, elephants and the leopards in the nearby forest would also come down to witness the euphoria.

For about 10 years or so since then, the house was open to neighbours from the nearby tribal hamlets to watch TV with us. The TV room was always jam packed. So much so that the actual inhabitants of the house barely found a place to sit. People of different age groups always made sure that they catch up  on the “Chitrahar” and the Sunday movies. Whenever electricity failed (which it often did), batteries were put to use! One of my uncles had a car battery charging unit. I guess the whatever he made in that business (if not more) was used up in charging the batteries for the TV.

India has changed so much since then. Bringing a TV or a refrigerator home is no longer a marquee event. We don’t celebrate them. Somewhere those big things in our life have today become obvious and bland. Is this a sign of development or lost ability to celebrate new things in life. The arrival of the Dreamliner proves that we can still celebrate a new marvel like we did in the past or may be not?

Insights from G2012 Mexico Financial Inclusion Twitter Conference

On 25th July, 2012 I was invited to participate in the G2012 Twitter Conference on Financial Inclusion organised by Ashoka Changemakers and G2012 Mexico. There were three back to back sessions over six hours focused on technology and financial inclusion, financing livelihoods, and the future of financial inclusion innovation. I participated in the Session on Livelihoods Financing. Overall, it was quite an interesting conversation. Here is a blog post on the conference summarizing the key discussion points.

Interestingly, the blog says ” The Twitter conference gathered more than 150 experts, thought leaders, social entrepreneurs, and innovators from different parts of the world. It reached almost half a million Twitter accounts and involved simultaneous conversations in English, Spanish, and Portuguese.” That is huge!

Access to Credit: Financing Options for Farmer Producer Organisations (FPOs)

FWWB and SFAC organized a Round  Table Discussion (RTD) forum on July 31st, 2012. I had the opportunity to attend the RTD and talk about the possibilities of enabling innovative market based financing solutions for Producer Organisations. Needless to say, it was one of those rare gatherings with everybody from policymakers to practitioners being present in the same room. The RTD was very well represented by Academia, FPO promoting organisations, Financial Insitutions, Donor Organisations and others.

The minutes of the meeting can be found here. (RT- Delhi – July 31 2012)

The organisers:

Small Farmers’ Agri-Business Consortium (SFAC) was set up in 1994 by the Governement of India. SFAC has emerged as a Developmental Institution with its core aims and objectives focused on increased production and productivity, value addition, provision of efficient linkages between producers and consumers. SFAC deals with agriculture in its wider connotation, including fisheries and horticulture.

Friends of Women World Banking (FWWB): In 1982, promoted by SEWA, Friends of Women’s World Banking, India (FWWB-I) was created as one of the first few affiliates of Women’s World Banking.

Why go cashless?

We want to make cashless payments to farmers, rural labourers directly to their bank accounts and hand them over a card which they can use to transact “business”.

By removing cash from the system, we have managed to remove chances of “middlemen” (our very own people handling payments) siphoning money out of the system before it reaches the farmer or the labourer.

But then, what does the farmer do with the card? Where does he get the cash? Nobody in his immediate neighbourhood accepts cards! He needs to pay cash to buy his food!

He has to go to the bank which is in the next town to draw cash from the bank. All the farmers/labourers in his area get the transfer on the same day and so on one day of the month the bank branch in the nearby town is packed with villagers looking to withdraw their cash. It is a nightmare for the bankers and the villagers because they have to wait for hours and they have spend money and one full day to go the town.

To solve the problem, we got agents who carry a small authentication device and a bag full of cash. The agent then delivers the cash to the farmers at his doorstep. What if the agent gets the authentication and then does not pay the full amount of due like the earlier “paymaster”. Off course, the agents are “recruited” by organisations and hence the villagers have an institutional “back-end” to file complaints and given that this institution is smaller than Govt, it should be more responsive compared to the big Government machinery. But, does it really happen that way?

Moreover, the agent runs the risk of being robbed/killed because of the amount of cash that he is carrying. How do you prevent that?

What is the way out? Carry on with this till the kirana shops in the villages accept cards for payments? Given that mobile is now ubiquitous, how about mobile payments? How complicated is that?

An interesting article on the PSD World Bank blog: Read

Margin contribution

What is the logic behind asking for a margin contribution from a debtor before you give a loan?

I can hear/think of three potential reasons:

1.) Skin in the game/deterrent: “I am ready to risk my little amount of hard earned money to get this big amount of money from you. If I do not repay to you, it means I have not done well to get my hard earned money back either.”

2.) Seriousness of purpose: “I am serious enough regarding the usage of the debt and have appropriate plans for utilisation that is good enough to give me the confidence to risk my own money.”

3.) Indication of ability to repay the loan

What is the difference in terms of risk that a lender is exposed to in the following cases?

a.) the lender gives a INR 10 lakh loan and takes a margin contribution of INR 2 lakhs.

b.) the lender gives a INR 8 lakh loan and no margin contribution.

If you have these two options which case will you lend to? Say everything else is the same.

 

“To laugh often and much…

To laugh often and much; to win the respect of intelligent people and the affection of children; to earn the appreciation of honest critics and endure the betrayal of false friends; to appreciate beauty, to find the best in others; to leave the world a bit better; whether by a healthy child, a garden patch or a redeemed social condition; to know even one life has breathed easier because you lived. This is to have succeeded.”
-Ralph Waldo Emerson