Sadhna

The many questions on MFI regulation

2010-11-21T13:11:00.001+11:00

The cacophony surrounding microfinance regulation has left little room for the voice asking some fundamental questions that should ideally be guiding the debate on any reform.

The pro-regulation lobby has been worried about the recent suicides of indebted borrowers in Andhra Pradesh which they claim is a direct result of a) many MFIs chasing few borrowers and therefore bullying poor people into taking loans they do not need, b) charging very high interest rates for these loans and c) using coercive tactics to ensure repayment of the loans, so much so that some even encouraged poor people to commit suicides so that the MFI could get their claims. On the other hand are claims of government conspiracy to promote its own bank-linked SHG model which suffered due to stiff competition from the MFIs.

While allegations on both sides sound horrific, they beget the question of how true these really are, how pervasive these are amongst the plethora of MFIs that exist, and consequently and most importantly, what should the response be. Given the complexity of the industry, the allegations and the information asymmetry it is extremely difficult to understand exactly what is going on. Here is a nice survey article on the problems of AP which in turn points out to several others.

The MFI gross loan portfolio in India stood at USD 4.6 billion and is said to have a a borrower base of of 26 million in 2009*. These span a variety of structures (NBFCs or not; for-profit or not) and operational models, including different forms of collection of funds, different lending and recovery practices, different funding sources including commercial banks and donor agencies and a distribution of interest rates.

If a few MFIs are the culprits, then there is little to gain by brandishing the whole sector as 'bad'. An article in the FE discusses this issue. The response needs to ensure that in taking action against fraud, we do not shut off an industry that has been providing much needed credit access to those who have been left out by the banking sector in India.

Do we want to only regulate outright fraud, or setting of interest rates? Do we want to ensure that information is available? Do we want to oversee all the processes or just new products? Or do we want to do all of the above? Would we treat all the agencies similarly? Would we treat all the products similarly? What would be the cost of doing so? What about borrower responsibility? Sure, the borrowers are poor, but does it absolve them of the responsibility of taking multiple loans knowing fully well that they do not have the ability to repay? When does responsibility shift from MFIs that lure to borrowers who get lured? This is a very difficult question, but one that needs to be asked.

To regulate the MFIs without understanding the issues that both lenders and borrowers face would be jumping the gun too soon and in a few years create the problem of too-much-thoughtless regulation that we have all too often encountered in India.

The whole issue also needs to be looked at in the context of laws and regulations that already exist. For example, would MFIs be covered under fraud protection laws prevalent in the country? If not, is there something special about MFIs that requires a separate agency? What about laws for creditors as well? For example, would a MFI be covered under the SARFAESI if debtors default?

The Andhra Pradesh ordinance certainly does not seem to have addressed any of the issues. In fact it has managed to cease operations of all MFIs by a stroke of a pen in a matter of days. Even if one believes that the government is right in its intent, such haphazard actions by the state hurts potential investment and business, which whether one likes it or not, are key to generating income and jobs.

If anything, the MFI regulation debate in this country is in need of some serious public-policy rethink keeping in mind that throwing the baby with the bath water is not the ideal way to go forward.

*Source: http://www.mixmarket.org/mfi/region/South%20Asia

How governments mess up

2010-11-09T22:51:00.001+11:00

The NYT has a great article describing how a government department is pursuing policies that exactly offset each other.

On the one hand, Dairy Management, a marketing arm of the United States Department of Agriculture has made cheese its mission while the parent department continues to pour dollars into an anti-obesity drive. This has come about because all the money spent on promoting 'low-fat' milk led to a pile-up of milk-fat and what better way to get rid of it than promoting cheese sales? Net change in obesity: not much.

Just another example of ad-hoc policies adopted by governments to solve the problem at hand without giving much thought to its broader consequences.

Update: Another fascinating article on the unintended consequences of policy in the context of obesity.

Thinking about corruption in India*

2010-02-27T16:52:00.002+11:00

Given how ubiquitious corruption is in India, I wonder how the process of 'cleansing' will ever come about.

I'd like to think of a very simple world which has two people. Lets call the first, the officer and the second, the common-man. Given the institutional structure, the common-man needs the officer to get his work done. For example, he needs the officer's signature to get the title to his land.

As long as the officer knows that a) the risk of getting caught is low or b) the punishment on getting caught is low, it is not in his interest to not take a bribe. As long as the common man knows that a) the chance of him being able to expose the officer in a short period of time is low or b) upon exposing, he has an even lower chance of getting the signature or c) the bribe actually expedites the signature process, it is not in his interest to fight against the officer.

I see this status-quo changing when either the officer is made redundant i.e. the institutional structure is such that the signature is no longer required. Or when the risk-reward for both parties changes such that it is costly for the official if he gets caught, and cheap in terms of time and money for the common man to expose the official. As we move towards a market-economy, the first process will gather steam but it can only go as far as we can live without the bureaucracy/government. The second is what, I think, we need to focus our energies on.

So lets add another player: another officer who calls himself the super-officer. Assume this person has the authority to sack the corrupt officer. Other things equal, we have made it more expensive for the corrupt officer to take a bribe as the punishment is higher. We have made it cheaper for the common man to complain -- he knows who to go to. Of course, this rests on the super-officer not being able to get into an agreement with the corrupt officer that they share proceeds from the bribe. The benefits from aligning with the common-man have to at least be equal to if not more than the benefits from colluding with the corrupt officer.

I have heard several anecdotes about how some measures to fight corruption, actually led to higher corruption. I remember one story where initially for a tender to be passed, one needed a signature of one official. Given complaints about high bribery, a new rule was passed that required that unless all five officers signed, it could not be passed. It was believed that bribing five officers was a very expensive proposition. What happened was that competitors (for the tender) started bribing the last official to NOT sign their rival's tender. This just highlights how crucial the reward structure is if anti-corruption measures have to succeed.

How do some of the recent innovations to fight corruption in India fare?

The Right to Information Act: This has made it easier for people to demand information from the government. I still do not know how this translates to redressal. It also remains to be seen how this is brought about once more and more people start to use it and there is 'case-overload'.

Anti-corruption bureau (in Maharashtra): This allows people to file complaints against corrupt government officials. The ACB does not have the power to sack the official, but directs such complaints to the judiciary. This has solved the problem of who to go to, but not really solved the problem of being able to do things in a short-period of time and will be limited by the efficiency of courts to bring about speedy redressal. I do not know what the reward structure of the ACB officers is, and how well aligned it is with that of the common man.

Zero Rupee Note: This makes it cheaper for the common man to expose the officer, but it still does not ensure that upon exposure things don't fall back to the same old equilibrium.

We need several such initiatives that are able to provide better information, and redressal in short periods of time. The 'aam-admi' needs to be incentivized to wage this war, and the 'babu' worried that it is a losing battle.

* This post grew out of conversations with Amol Hatwar.

Testing the effectiveness of our schools

2010-02-23T22:56:00.000+11:00

Raghuram Rajan and Abhijeet Banerjee argue for the need for effective testing in our primary schools. I could not agree more.

An interesting organization set up by the IIM-A alumni is Educational Initiatives - India, with the mission of qualitative improvement of India's educational system. They seem to have a wide range of testing and teacher training programs that effectively measure learning outcomes.

This is a valuable resource for governments to actually have independent assessments of all the money that is poured in the name of education.

Cities for a new India

2010-02-23T22:30:00.000+11:00

While most of us have dismissed the recent 'who-is-a-Mumbaikar' furore as another political stunt, it does raise some serious questions about the process of urbanisation and migration in India. I think Mumbai is only the forebearer of several such brawls, as cities get metro-nized and become magnets for immigrants from across the country. What we really need is not one Mumbai or New Delhi, but several city-centers across the country that are able to absorb the rising numbers who flee impoverished villages in search of a better life.

At one end of urban development lies GIFT, a public-private partnership between the Gujarat Urban Development Company Limited (a Government of Gujarat undertaking) and IL&FS, built to serve as the hub for financial services in country. It will certainly change the landscape of Gujarat, and neighbouring regions.

Building cities from scratch is one way to go about urbanising India, but not harnessing natural advantages of existing centers of commerce is a mistake. Nagpur is one example that always comes to mind. Located smack at the center of India, it could serve as a nucleus for facilitating internal trade. To some extent, it already does. But trade within India is complicated given the nature of State-level taxes and other barriers to goods movements. Nagpur is just one casualty of such impediments. Plans are currently underway to develop it as an international cargo-hub, with manufacturing, health and technology parks planned around. Not that this is a bad idea, but it is ironic that we dream of making it the international hub, but forget its huge domestic potential.

Another missed opportunity, to my mind, is the North-East of the country. If the GOI wants to really plan an international hub for transporting goods towards South-East Asia and further to Australia and New Zealand, endowing Guwahati or Shillong with a major international airport will do for the region, what decades of policy has not. This region also has far more to offer by way of tourism, which an international airport will only facilitate.

It is time to think out of the box.

Responding to the claim that Bollywood does not take a stand

2010-02-09T23:34:00.006+11:00

Soutik Biswas raises a very important question on why Bollywood does not take a stand? He claims that 'with liberalization Bollywood's divorce from contemporary realities has been complete'.

I think taking a stand can be done in two ways:

By making movies that reflect the pressing issues of the day.

I don't think Bollywood is doing too badly on this front. There is certainly a trend towards making more relevant movies, and these cut across all budgets. The latest that come to mind deal with issues such as the rat-race in our educational institutes (3 idiots, Taare Zameen Par), news-channel wars (Rann), petty corruption (Rocket Singh), communal themes (Aamir, A Wednesday), terrorism (New York). I am sure I could think of more, but a comprehensive list is not the objective here. While many would argue (correctly) that some of these are not exactly the best-written or executed movies, I think they do mark a move towards talking about what matters.

One could also argue that most of these are oriented towards city-audiences, I think issues of corruption, education, terrorism are relevant just about everywhere. And we have also seen movies set in small-towns, Omkara and Ishqia being one's that I can think of immediately.

I also think editing standards have improved considerably in the last decade, and I continue to be optimistic.

By taking a stand outside the movies, and getting involved in the larger civil society.

In this, I agree with the article, in that we have only a SRK to look to for not apologizing to the Thackerays. I think the problem is deeper than just film-makers being devoid of reality. The film industry largely does not have access to financing through banks, or equity markets. (If this has changed in recent years, I would love to know). If the door to formal borrowing is closed, the other option is financing through informal sources, and I have only heard stories that claim that large pots of money come from the underworld. In addition, our track record on law and order is not something we can be proud about. It is then not surprising that everyone kow-tows to the local don (or the politician, and often there is no difference between the two). We should not blame individual people, in as much as look towards reforming whatever the laws are that stop producers from raising money from the markets and ensuring basic law and order.

For if Farhan Akhtar were to issue equity for one of his movies, I would totally buy, if not for the movie, but for my loyalty to him! I think I would not be alone. :)

Gender imbalance, dating problems and national savings

2010-02-09T22:53:00.001+11:00

The NYT has a very interesting article on the repurcussions of changing sex-ratios in higher education on dating possibilities. With a 60:40 ratio of women to men in higher educational institutes across America, frequent all-girls-night-out's do not seem to be the exception anymore. Girls have apparently become less choosy about men, and also less demanding about what is acceptable behaviour. Classic case of supply and demand!

See http://www.nytimes.com/2010/02/07/fashion/07campus.html?pagewanted=1&hpw

In another corner of the world, economists have found a link between another kind of a skewed sex-ratio (122 boys born for every 100 girls) and the high national savings rate. The idea is that the one-child policy in China has led to a gender-imbalace as families have a preference for male children. This has led to a situation where men are finding it difficult to find brides and as a result have to compete for them. Families have responded by saving more in anticipation of marriage-related expenditures.

See http://www.voxeu.org/index.php?q=node/4568

If one is to buy this hypothesis, we should see a reversal of the preference for sons in the next decade, and a more balanced sex-ratio, for if people are so rational to save more in the expectation of a shortage of brides, why would they not see that it makes more sense to have daughters now?

A stand-up economist

2010-02-09T06:37:00.001+11:00

Funny, this!

http://www.standupeconomist.com/videos-public/

On Identity

2010-02-07T19:19:00.003+11:00

The latest row over the 'Marathi manoos' in Mumbai and discussions with Bee have led me to think more deeply about what belonging to a particular group means, and more importantly how fungible this is across time.

A natural definition of a Maharashtrian (for example) to me seems to be someone who a) speaks the language of Marathi and b) has ancestral roots in the state now called Maharashtra. Upon reflection, this seems to include people with such ancestral roots who migrated to outside of Maharashtra, but continue to speak the language. And seems to exclude those who have been living in Maharashtra for over 2-3 generations, speak Marathi fluently, but either do not consider Marathi as their mother tongue and/or still have a memory of ancestral origins outside of Maharashtra. This transcends to Indians, who have settled outside of India for several generations as well. No matter the number of years I live in Australia, I will always be asked, where am I originally from?

It almost seems to me that I cannot escape my Indian identity (or the Maharashtrian identity) no matter where I live or who I choose to associate with. Or for that matter, gain an Australian identity, which is very different from a passport that makes me a citizen.

This leads me to think about the process which allows us to assume new identities and the time it takes. A white immigrant in Australia for example, is able to pass off as an Aussie, far more easily than a brown or a black immigrant. Also, one might consider oneself an Australian, but unless there is approval and acceptance from fellow-citizens, it does not count for much. Marrying outside one's ethnicity might allow kids to be half-and-half and if enough people do so, after several generations, there will be an erosion of such ethnic identities.

I think of two ways assimilation can occur: one is where ethnic identity does not matter. Prior to the 'Marathi manoos' controversy, I would like to think that the idea of a Mumbaikar superceded any linguistic identity. The hope is that post this controversy, life goes back to the old equilibrium. The second, which I call 'true' assimilation, is when over time such lingustic or ethnic identities become indistinguishable. I am sure there are more success stories of the first kind (and several failures as well), and it is well worth studying the process of both.

Why is this important? I highly recommend a paper by George Akerloff and Rachel Kranton who show how identity affects behaviour and economic outcomes in ways economists have not considered as deeply before.

Is the court going to deal with all implicit contracts now?

2010-02-04T19:41:00.005+11:00

Delhi court rules that sex before marriage constitues rape

In the latest ridiculous news to emerge out of India, a Delhi High Court judge seems to have held a man guilty of rape because he had intercourse with his fiance, but later refused to marry her.

The intervention of the court, in what appears to be, breach of an implicit contract, sets a worrying precedent*. From the article, it seems that the accused stands guilty because he did not keep the promise of marriage. Why does this promise have more weight than any other that people make in the course of their personal and professional lives? Is the court now going to intervene if I get help from someone with the promise of friendship but later change my mind? Is the court going to pardon pre-martial sex that is had without the promise of marriage? And are we going to create a whole new industry that gives out 'promise-notes' that can be held as evidence in court?

Ludicrous.

Update
* Correction: Not a precedent because there are several cases of breach of promise suits. But worrisome none the less. (Thanks Bee)

Gloria Jeans takes to the street

2010-02-02T16:23:00.000+11:00

Gloria Jeans outlets on Mumbai streets

Gloria Jeans, a coffee chain from Australia plans to fight it out with the ubiquitous road-side tea-stalls by offering coffee for Rs.25 on the go, using carts on roads and highways. From this article it seems to me that the coffee will not be brewed (or made or whatever the right word for this is) as is the case at any traditional, located-in-the-mall kind of an outlet. But then this strategy puts it in the same league as other coffee vendors who provide instant coffee at the press of a button at somewhere between Rs.5 and Rs.15 (at least the last time I checked). The other question is, can it convert a tea-drinker to a coffee-aficionado? Given the quality of button-pressed coffee, it is then still not competitive on price and quality, unless, 'freshly made brew on-the-go' implies something different.

What is nice about Gloria Jeans coffee (and generally coffee that is made in Australia) is the way it is actually brewed. Without that, it has lost its charm, for me at least. For the rest of the people, the outcome remains to be seen.

The race for the license to rent to a sex-worker in Amsterdam

2010-02-01T16:53:00.003+11:00

Before wandering around the red-light district in Amsterdam, I had the chance of talking to a former sex-worker at the Prostitution Information Center. The view there was that all the girls in the red-light district are independent sex-workers and legalization has worked very well because they have the right to refuse, can better save the money and generally have better health outcomes. However, evidence on outcomes after legalizing prostitution has been mixed. In general, Sweden which has followed a completely opposite approach to The Netherlands has seen lower prostitution rates, even accounting for under-ground activities. There are several arguments made on either side, and I will not go in to them here. Interested readers can refer to

http://www.humanismbyjoe.com/prostitution.htm
http://sisyphe.org/spip.php?article691

What was interesting to me was the amount of regulation involved in this trade in Amsterdam. Every step along the way, one needed permission from the Government. For starters, each building in the red-light district needs to be designated as a building where it is permitted to rent a window to a prostitute. Then one needs a license to actually rent out a window from a permitted building. There are several legalities to go through before this is granted. It can be taken away if for example, the license holder cannot account for all his money. Off late, the local government has stopped issuing new licenses and in fact, is trying to seize away licenses from existing holders. I can already see a monopoly on license business and wonder if there is a secondary market in trading these licenses. Already, we have hit a roadblock on the pros of legalization.

There will be those who argue that these licensing requirements are inefficient, but without these (in one form or other) I don't see how legalization will help make this trade any safer. In countries such as India, where governance problems pervade in just about every activity, this will be just another one to the list. I don't think while clamouring for legalizing prostitution, we really understand what it involves.

Private schooling in India

2009-11-27T21:50:00.000+11:00

I have often heard that private schools are gaining market share in India. How different learning outcomes are for the weakest private schools from government schools is not clear. It remains a mystery why parents (especially the poor) prefer to send their kids to private schools if learning outcomes are not very different.

Perhaps we need to think differently about what outcomes mean. Perhaps outcome equates to better contacts with the slightly more rich who go to the private schools so as to get jobs from them. Perhaps private schools discriminate less on the basis of caste.

We need to think carefully about why we see a preference for private schools, IF there is no tangible difference in learning outcomes.

Clans and kingship in ancient India

2009-11-27T21:49:00.002+11:00

Just into the first few chapters of John Keays 'India: A history', I am quite fascinated.

Keay points out that in early times the form of organization were the 'sabhas', 'samitis', or the 'parishads' -- essentially a form of consultation amongst leading clansmen. Several clans would break off their parent clan and claim their 'janapada' or territory. What is interesting to me about this process is the seeming ease with which new clans were formed, and the lack of strict codes of conduct that governed social behaviour in such clans. Tribal law (at least that I hear of from Afghanistan or the Middle East) appears to be extremely rigid regarding 'acceptable' behaviour. Perhaps geography and the ease with which clans could produce a surplus have something to do with demands on strict adherence to a belief system.

In Brahmanic tradition, one reason for the the rise of 'kingship' from existing 'clanship' is that it was thought to be the only insurance against anarchy. Anarchy in this system apparently arose because now there was competition for resources, and Vishnu had to persuade Manu to become the 'raja' (king). Authority and law-enforecement were his responsibilities. Manu agreed on four principal conditions all which involved his subjects paying him from their harvest or produce (in modern terms, a tax). This in turn led to households pressing for title to land, water and other resources to be able to pay their obligations to the king. Property rights in India perhaps have a longer history than we think or know.

Hello world.

2009-09-22T11:53:00.000+10:00

Its 2009 already!

Hoping to start writing again

2007-11-25T13:11:00.000+11:00

Test post once again! More should follow.

The fight against HIV

2006-04-03T10:29:00.000+10:00

Good news from South India.

I had not believed Murali who has been the DFID project manager on HIV awareness projects when he was telling me about their success with the condom promotion programme among high risk groups such as truck drivers. The programme focused on making contraceptives available at non-traditional outlets. The problem apparently was(is) that since encounters with sex workers happen at night and are usually not planned, last minute access to condoms become a problem. And that is what the DFID programme sought to correct.

Superb article on demography

2006-01-12T23:26:00.000+11:00

It's the demograhy, stupid

"And the hard data on babies around the Western world is that they're running out a lot faster than the oil is. Replacement fertility rate--i.e., the number you need for merely a stable population, not getting any bigger, not getting any smaller--is 2.1 babies per woman.

...United States, hovering just at replacement rate with 2.07 births per woman. Ireland is 1.87, New Zealand 1.79, Australia 1.76. But Canada's fertility rate is down to 1.5, well below replacement rate; Germany and Austria are at 1.3, the brink of the death spiral; Russia and Italy are at 1.2; Spain 1.1, about half replacement rate."

India is doing no better either. For all the population trouble that people complain about, the annual average rate of reduction in the TFR has been 2.4% between 1990-2003. It is a pity no one seems to be thinking of a world with only old people.

Female infanticide in India

2006-01-10T18:11:00.000+11:00

From the IHT: India's lost daughters: Abortion toll in millions

I am not surprised. I was in Siddhagad -- a small village about 3 hours from Bombay a week back. The village is infested with little boys playing outside their houses. Little girls was a rare sight. I won't be surprised if the answer to that was abortion of female fetuses or female infanticide.