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.

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

“Credit bureau” for air travellers

Some people just don’t want to switch off their mobile phones when the flight is about to take off. The same guys happen to be equally keen on switching on their mobile phones (if at all, they have switched them off!) even before the flight touches down. Some others feel that putting on the seat belt is against the fundamental right to freedom. Even if they do put them on, after “intense” insistence from the cabin crew, they do ensure that they unlock it and spring up on their feet even while the wobbly flight is finding its way to a stable parking bay. There are a few others who take immense pleasure in poking the assistance button  every now and then for inane requests.

I was wondering if we could have a credit bureau kind of a thing where you could report flight “behaviour” of passengers on a compulsory basis and use the flight behaviour score (a la Cibil, FICO, Equifax, etc.) to decide the premium that the concerned person should pay to board another flight.

Such a bureau would record details of the passenger behaviour as reported by the cabin/ground crew of the airline companies and give scores. So, if you are hell bent on yapping or texting away when the flight is about to take off, you get a negative score. Similarly, if you don’t understand that you need to keep your seat back upright and somebody has to tell you five times to do so, you get another round of negative scores.

So, with a score of 300 you can bid goodbye to flying for a period of atleast 2 years. The chronic “defaulters” can then easily be kept off the “access to airline services”.

One more question, has anybody done any research on why the same people who are incredibly fast in getting up immediately after touch down (and yanking off the oversized baggages from the overhead lockers) are the same people who just dont want to get off the airstairs when they are climbing it down?

Enjoy your festivals!

Why are festivals important?
A. It gives you the excuse to do things you dont generally do everyday. Meaning it gives your brain the rest from usual work to help you refocus.
B. It gives you an excuse to bump into people you never met/spoke to before.
C. It gives you an opportunity to expose yourself to good old “quaint” ideas that you completely disregard in your day to day life.

In brief, celebrate festivals!! (off course,once in a while.)

How much equity and when?

When you judge a promoter on his interest in the business in terms of equity contribution brought into the business, what would you consider more sensible?

A. bringing in equity capital in phases

All start-ups are prone to initial setbacks but some of them can recover if further capital is pumped in to the changed business model (pivot). If the promoter spends all his money in the first attempt/business model, he would never have money to implement the pivot.

B. Bringing in equity capital in one go right at the beginning

If the promoter has brought in all his money into the business right at the beginning, it shows his dedication and indicates that come what may, he will make his business work.

From an investor perspective:

  • How do you determine which level of capital brought in is enough to prove seriousness of the promoter in the business?
  • Would the amount of personal equity brought in, indicating dedication to the business, vary from industry to industry? (My sense is yes. Tell me if I am wrong)

How would the assessment vary between the first equity investor and the first debt “investor”?

Beyond the Margin: Redirecting Asia’s Capitalism

On August 24, 2011 Avantage Ventures released a report titled ‘Beyond the Margin: Redirecting Asia’s Capitalism’, the first to analyse the Asian social finance market.

I had the opportunity share some of my insight thoughts with the Avantage Ventures staff during the preparation of this report. The report has, for the first time, made an attempt to give a number to the estimated size of the Asian Social Investments market. The report highlights six key social sectors that would benefit most from impact investments, these include:

  • Affordable housing
  • Sustainable agriculture and agribusiness
  • Water and sanitation facilities
  • Primary and special needs education
  • Rural and elderly healthcare
  • Rural access to energy

Of these, affordable housing, primary education and rural and elderly healthcare represent the three sectors with the greatest market opportunity. The report also estimates the potential market size that can be captured through impact investing in Developing Asia to be between USD52 to USD158 billion by 2020.

The report Beyond the Margin  can be found here. or here av_report_final_full_screen_version

Who can you lend money to?

What I have assimilated in the last few months:  bunch of things may be considered to decide upon who is “creditworthy”.

1.) Does the borrower have an intention to repay

  • Whether he has a past track record of taking loans and what does that track record look like. If he doesn’t have a track record you can’t tell whether he is a good borrower or a bad borrower. In other words, some history of borrowing is better than no history of borrowing when it comes to credit scoring.
  • What do people known to him say? Would he make a good borrower?
  • What does his historical track record of income and expenditure show? Is he financially cautious? Does he save money? Does he educate his children? Has he built assets over time from his income like savings, FD, property, gold, insurance, chit fund?
  • Has he repaid both secured and unsecured loans?

2.) Does the borrower have an ability to repay.

  • How much does he earn? How much is his expenditure? Does he have documented evidence? If not, what is the estimated income for somebody with similar profession in that particular geography? What do his suppliers say? What do his customers say? What do people who pay him say?
  • What do people, who know him, say his earnings are? What kind of a locality does he stay in? How are his living conditions?
  • Do the assets accumulated by him over the last 3-5 years reflect the income that he claims he has?
  • What is the maximum and minimum earning possible per month?
  • What is the residual amount of money left for the family after repayment of installment if the loan is given? Reduce loan amount or increase tenure if very little is left for the family.