Reading List- 23rd Nov, 2013

1.)What if your memory is fake?

Article: Fake memory

Those people who seem to have a photographic memory might just be having a fake memory!

2.) A brilliant innovation gets you fit for the Olympics!

Video: Subway tickets

3.) The story of Mike Tyson. Told again.

Article: Mike Tyson

4.) How Amazon became an everything store

Article: Amazon

5.) Why does airline food suck?

Article: Airline food

Boredom and Low humidity are two key reasons along with constraints in preparing food in the air. We lose sense of taste/flavour due to a blocked sinus and low humidity. This makes us less perceptive of the taste. Interestingly, Indian food is less affected by these conditions due to the fact that naturally permits humid sauces in its preparation.


Reading List – 16th Nov, 2013

1.) What happened during the US Government shutdown?

Article: US Shutdown

2.) How did “Volvo” become synonymous with luxury AC road travel in India.

Case Study: Volvo- India

3.) The secret world of cargo ships. A brilliant story of how cargo gets moved across the world, in most cases the people moving them having no clue as to what they are carrying.

Article: Secret Cargo

4.) The perfect home? How would you design a “connected” intelligent home?

Article: Perfect home

5.) An interesting list of countries ranked in order of the incarceration rates.

Wiki: List

Reading List – 9th November, 2013

1.) How does the pirates business model work? An interesting article on financing Somali Pirates.

Article: Somali Pirates

2.) Would you work harder if you were given a raise? A new Harvard study says yes, but only if it came as a surprise and you thought that you were already being paid the “going rate”.

Article: Pay and performance

3.) What happens if you don’t have telephone, internet? An interesting story about what happened when a US island went completely off grid and only a few locations had connectivity

Article: Disconnected

4.) Fabulous work on micro-franchising from Jibu. A drinking water company set up in Africa.

Article: Microfranchising- Jibu

Interesting perspectives on how concepts like risk sharing, skin in the game and ownership structures can have a major role in deciding the success of delivery channels in any market, especially so for the developing world.

Proliferation of “Chinese” goods!

When I went around looking for some memorabilia at the Liberty Island, US hoping to take something back home, I was surprised to see all items having a “Made in China” stamp. I repeat … all. I was stumped. I wanted to carry something back that represented the US and here, everything that represented the US was actually Chinese!

A few years earlier, I lived in a remote village in North Bengal for two months. The village was 10 km away from a metalled road and had only mud houses. There was no electricity and none of the households had a toilet. Guess what the villagers used for pumping water into the fields for agriculture? Chinese pump sets!

Low cost wins. Not just against remote access and utter poverty, but also against pride.

Impact Measurement

In the recent times, there has been a lot of discussion on social performance measurement. From CSR initiatives to charity foundations and from investors to social enterprises, everybody has either adopted or has been talking about adopting social performance measurements.

At the same time there is a group of people who think it is all a fad with complicated measurement systems trying to “measure” qualitative factors which are extremely difficult to quantify and hence extremely subjective. How do you measure “well-being” for instance?

The answer lies in the fact that we have to find proxies that indicate well-being. For instance- number of times the person has fallen sick in the last 6 months. This is just a simplified indication of what measuring is about. The job of finding the right proxies is critical and often learnt from experience. We should not land up with a wrong proxy and try to push results in that direction doing much disservice to the actual intent of the social programme or enterprise.

We need to identify a simple verifiable metric and we have to track it in regular intervals beginning with the baseline.

The metrics must be simple to track but verifiable and the tracking methodologies should not be so expensive that it doesn’t justify the the measurement & verification process altogether.

My career has revolved around the issue of “Income Generation” either through providing technology support, training to small entrepreneurs or through providing access to finance. I keep thinking how I can measure the impact of the work that we do on small entrepreneurs.

What could be that one metric that I could measure to keep understand the impact?

I think the primary indicator to keep track of is “Asset” build up. Assets could be land, building, an additional room in the house, a cow or a a vehicle bought with own money. It is easy to verify and track. In cases where it is part funded by loans, we can find out if his last few repayments were made on time.

What do you think?

Business Sustainability

There are four key ways in which we typically try to do better in business/improve profitability.

  1. Offer a cheaper product with the belief that improved affordability will increase the size of the target market.
  2. Offer a better product (at the same or higher price) with the belief that customers will appreciate the value of a better product and pay the premium to buy it.
  3. Increase revenue by increasing the number of units sold (either through larger production or expansion of geography or a better marketing push) or increasing the price (by offering better products?).
  4. Cut costs. This would help you do better in terms of profitability at the same revenue levels.

While all the above are seen to operate, my personal belief is that a combination of 2. and 3. is the best strategy to adopt. The other two may be good in case of a late life cycle product. While it is another question as to what/how you define late life cycle products, it is certain that such products would either have significantly cheaper substitutes (so cheap that it is close to my manufacturing costs) which weren’t initially found OR the need for the product is fast vanishing altogether (a standalone music system with multiple CD/DVD players?). In either case, the product would soon die and your company would die too unless you develop a better product.


A note by consultants at McKinsey on pricing, gets me thinking on the increasing volume vs cutting cost options. According to them, “a price rise of 1 percent, if volumes remained stable, would generate an 8 percent increase in operating profits—an impact nearly 50 percent greater than that of a 1 percent fall in variable costs such as materials and direct labor and more than three times greater than the impact of a 1 percent increase in volume.”

This means that a 1% reduction in cost has greater positive impact on profitability than 1% increase in volume!  It also means that increasing pricing is the surefire way to bumping up your profitability. This is from a study on S&P 1500 companies.

Caution: Know when and how you can increase your prices.

Needs more thought.

Pricing: Loan against property v/s home loan

Simplified Definitions

Mortgage Loan/Loan Against Property (LAP):A mortgage loan is given for an open end use and is given against the lien of a property.

Home Loan: is given for a restricted purpose of buying/ constructing a house to stay.

Typically a mortgage loan is often the most common way of raising funds for growing the business. Banks typically get comfort from the availability of fixed collateral to be able to recover from in case of loan default.

The rate of interest charged on a Loan Against Property is higher (much higher) than a Home Loan.

Historically, default rates of LAP (for business purposes) have been high justifying a high rate of interest.


Question 1: Is the assessment of loan eligibility for LAP done assuming that cash flows from the business will grow due to utilisation of the funded amount for capex/WC use? If that is not the case, why would the default happen?

Question 1 a.) why can’t we give the loan based on existing cash flows?

People say that the loan size would be too small and not meet the requirement for the capex. My comment on that response would be “Oh common! let’s grow step by step. Give me some other reason”.

Question 2: Why doesn’t the “emotional attachment” story that works in case of home loan doesn’t work for LAP?

Question 2. a.) Does the person seeking a LAP have multiple properties and so property offered on mortgage has lesser “Emotional attachment”?

Guess so.

(Also, the question is how enforceable is the mortgage? In a lot of cases, especially developing countries, legal recourse may just be too cumbersome/ inefficient. So, isn’t the collateral acting more as a deterrent. I guess it is.)

Question 3: Would a LAP given based on existing cash flows AND after taking the owners current residential home as collateral completely change the loan performance?

That is what a number of financial institutions are now trying out with the lower income/informal sector entrepreneurs. Assess loan eligibility based on current cash flows and take the residential property of the entrepreneur as collateral. However, the interest rates continue to be higher going with the notion that LAP has generally resulted in high defaults. Interestingly, last 3 year’s history in these kind of loans show very low (between 0.5- 1 % delinquency in the 90 days past due bucket). Off course, three years is not enough time but these 3 years have been the roughest phase for business in India in general as well. The other key reason for good portfolio performance could be that this type of lending is new and the good quality selection could be due to the initial “start-up precautions” taken by the financial institutions starting this product.

Assuming loan performance does show improvement in this kind of loans, is there a reason to suggest lower interest rates and hence greater affordability?

At last but very important, one oft stated reason for low home loan interest rates is that the purchase of home does not generate additional revenue but LAP for small business does and hence the borrower can pay a premium. For all practical purposes, this reasoning silences all the discussion and the confusion around the pricing by simply stating that the lender wants his pound of flesh! That’s all!

What do you think?

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?