02.02.2011

Finance & Economy

• An excellent critique of the Malegam committee report on MFI lending
• Look at this op-ed from SSA Aiyar.  An excellent read.  We are deliberately not giving an excerpts because we want you to read in full.
• Now that you would have read the article in full, there is an interesting face-off regarding the following question:
• Should moneylenders thank Malegam panel?
• MFIs feel that the committee's recommendations will indirectly help the moneylenders.  They argue that the ceilings on interest margins as well as on loan size, will push MFIs to lend in those regions where operating costs are lower. This will lead to a complete neglect of financially excluded states like Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh and the North-eastern states, because legitimate operational costs in these regions make it impossible to operate with an interest margin of 12%. Even within states, the same problem will arise — for example, in Maharashtra, MFIs will hesitate to work in the poorer Vidarbha and Marathwada regions.
• Secondly, the committee's recommendations will force MFIs to hesitate giving loans below Rs. 10,000 because the interest cap is not remunerative for MFIs.  This will force the small borrowers to approach the moneylenders.
• Lastly, by raising the entry level capital requirement for MFIs to Rs. 15 crore and specifying a minimum capital adequacy ratio of 15%, the committee ensures there are no MFIs below Rs. 100 crore. But it is smaller, localised MFIs of Rs. 10-20 crore size which reach the poorest borrowers in financially excluded areas.  This too will push small borrowers to the moneylenders.

• Tight liquidity won’t tame inflation
• Commodities sold as asset class had become the investor’s favourite instrument in 2010 outpacing stocks, bonds and currency transactions, both at the London and the New York exchanges.
• By tightening liquidity in order to fight inflation, emerging economies have only hurt themselves.
• The inflationary woes exacerbated as the economies had to buy crude oil from spot markets at higher prices.
• Instead of relying on liquidity, India needs to put in place new micro economic initiatives to rein in inflation.

• A look at our black economy
• According to a study by Global Financial Integrity, cumulative illicit flows from India amounted to $104 billion during 2000-08, ranking 14th in the world. As a percent of GDP, India’s underground economy comprises $640 billion, or 50% of GDP.
• Look at this related graphic.
• The people behind this year’s budget
• Look at this news story.  It is interesting.