NIVESHAK

THE INVESTOR VOLUME 2 ISSUE 3 APRIL 2009

 Niveshak From Editor's DesK
Volume II
ISSUE 3
April 2009

I
may have always been blamed of being pessimistic for sharing all bad financial
news and outlook with you through Niveshak since the collapse of Wall Street.
Together we have tried to find the bull among the ruins of the Sub Prime. But
Editor we were chased by bears in all the financial markets from Kospi to Nasdaq. We were also
overwhelmed by negative corporate financial results and unhealthy Macroeconomic reports
Biswadeep Parida
in all the countries across continents.

Team Niveshak But this time we have got some good news for a change. Markets are recovering. Yes,
the bull is back, picking momentum and means serious business this time. All the major
Amit Choudhary share markets have shown green figures on most occasions since 9th of March 2009. After
Nilesh Bhaiya writing off billions of dollars of toxic debt to US Treasury in the past quarters, some of the
Sareet Mishra major US financial institutions are back in profits this quarter.
Sarvesh Chowdhury India has gone a step further in giving positive data. When Kospi, Dow Jones
Sujal Kumar Industrial Average, S&P 500, Nasdaq composite index , Euronext etc have grown by 15 to
Tripurari Prasad 25%, our very own Bombay Stock Exchange has shot up by 35% since 9th of March 2009.
Most of India Inc’s financial results are out and all seem to have shown profits whereas
some of their counterparts in the west have struggled. This may be the first signs of decou-
pling of the Indian Economy from the West but we may be far away from that.
This may be the first signs of recovery but it is too early to predict. The devasta-
tion we have seen till now may be just the tip of the Sub Prime iceberg. We are still not
clear. We shall wait for more good news and positive data for a few more quarters to cel-
ebrate good placement seasons next February.
In the present issue we shall try to focus on another Institution which has been or
at least seemed virtually unscathed from the financial crisis – Microfinance. We will try
to study its growth over the years and evaluate its future prospects in rural India. As we
begin to assume the departure of the crisis, we take a look at the impact the global slowdown
had on Indian Private Equity players and its implications on India Inc. We shall try to
understand the current recession under Minksy’s Hypothesis. This hypothesis states that
bubbles and slowdowns are just a part of the economic boom and bust cycle.
In the current crisis, US and European crisis were the worst sufferers. BRIC econo-
mies were also devastated to same proportions. This crisis may see these powerful economies
loose the reigns of economic growth to the N-11 countries. How true are these assumptions?
We may have an answer. We will also try to substantiate this study with an article on the
Investment opportunities in Nigeria, one of these N-11 countries. This is the account of one
of our friends who undertook his winter internship in Lagos, Nigeria.
World Leaders met at the London G-20 conference and took a few steps to see the
world out of crisis while the International Monetary Fund decided to float it reserve cur-
rency – Special Drawing Rights worth $250bn. Though the move is expected to help emerg-
ing economies with their Liquidity problems, some economists also feel that the allocation
would add to the Inflation-related woes. We shall also try to analyse these news items and
their implications.
I also have some good news from Team Niveshak. In a bid to connect with our stake-
holders, we have launched a blog for Niveshak. This blog will carry latest news from the
world of finance along with all the archive files of Niveshak. You are cordially invited to
All Images and artwork discuss on the latest news and also provide you suggestions and reviews to make your Nive-
are copyright of IIM shak better.
Shillong Finance Club Happy Blogging.

-biswadeep Parida
©Finance Club
Indian Institute (Editor- Niveshak)
of Management, Shillong

Disclaimer: The views presented are the opinion/work of the individual

author and The Finance Club of IIM Shillong bears no responsibility whatsover.
 ContentS

In The News
Ways and Means Advances(4)
G-20 London Summit(4)
Special Drawing Rights(5)

Finsight
Next 11 Economies(6)

Cover Story
Microfinance(9)

Article of the Month

Was Suprime Predictable(17)

FinGyaan
Behavioural Finance(18)

FinTraX
Global Slowdown & Indian PE Players(21)

Food for thought

Fixed Income Markets in India(23)

Opinion
Investment oppurtunities in Nigeria(26)

FinLounge
FinToon(8)
FinQ(27)

© The Finance Club, Indian Institute of Management, Shillong

 I n the newS

Ways and Means Advances to the Government

of India for the Financial Year 2009-2010

W ays and Means advances(WMA) are the tem-

porary advances extended by RBI to the gov-
ernment of India to bridge the gap between expenditure
and receipts. It started on March 26, 1997, when Govt. of
India and RBI signed an agreement putting the ad hoc
T-bills system to end w.e.f April 1, 1997. WMA are not a
sources of finance but are meant to provide support to
government on account of mismatch in revenue or other
receipts for meeting the government liabilities. Limits on
WMA are fixed at the beginning of the fiscal year by RBI.
For the financial year 2009-10 the limit for WMA is
decided to be Rs.20,000 crore for the first half of the year
and Rs.10,000 crore for the second half of the year. The
same for the financial year 2008-09 was Rs. 20,000 crore
for the first half and Rs 6,000 crore for the second half.
The interest rate on WMA/overdraft is decided as under:
a) Ways and Means Advances : Repo Rate
b) Overdraft: Two percent above the Repo Rate
The minimum balance required to be maintained
by the Government of India with the Reserve Bank of
India will not be less than Rs.100 crore on Fridays, on the
date of closure of Government of India’s financial year
and on June 30, and not less than Rs.10 crore on other
days. When 75 per cent of the limit of WMA is utilised by
the Government, the RBI may trigger fresh floatation of
market loans.
The government borrows through this facility for
90 days. The advantage of WMA route is that it does not
impact market liquidity conditions and helps keeping the
government’s cash flows intact.
-Amit Chowdhary

G-20 London Summit 2009 –

T he Group of Twenty Ministers and Central Bank
Governors (commonly known as G-20), com-
prises of representatives from world’ 19 largest national
parency in financial regulations, to increase cross border
co-ordination and to boost world trade for attaining sta-
bility in the global market.
economies, and an additional representation from Euro- The summit resulted in certain financial commit-
pean Union. Together, they represent 85% of the world’s ments to be met in near future despite the apparent dif-
output. On April 2, 2009 the G-20 summit was held in Lon- ferences among the economies. France demanded
don, the agenda being the revival of the Financial Markets stricter financial regulations and even
and the World Economy. threatened to walk out of
The summit was the continuation of the summit. Germany also
the 2008 Washington sum- had an opinion for stricter
mit where the mem- regulations. However, US
bers agreed to the needs and UK wanted a large
of a new international stimulus package. The end
approach to handle the result was a global deal
challenges to the finan- to provide $1.1 trillion to
cial markets and world tackle global financial
economy. The cause of the crisis. This includes $750
summit was the unexpect- billion for IMF to help
ed global crisis and the need distressed countries,
for immediate steps to curb $250 billion to boost
recession globally. world trade, and $100
The main objectives billion of additional
of the London summit 2009 lending by multilateral de-
were to decide on the mon- velopment banks. An important aspect of
etary and fiscal policy to in- the agreement is the plan for IMF to issue SDRs (Special
crease demand, to protect and support the Drawing Rights) worth $250 billion.
emerging and developing economies and ensuring that Though the agreements have been made to boost
IMF (International Monetary Fund) has enough resources the global demand and increase the money supply
and instruments, to restore confidence, increase trans- through IMF, the actual implementation of these tools
Page 4

Niveshak Volume 2 Issue 3 April 2009


remains a question mark. The poor countries won’t be
getting the major share of the stimulus package. Only
$50 billion from the $250 billion of trade finance will go
to poor countries and from the $250 billion of free money
from IMF, their share is expected to be only $19 billion. So,
though a lot of promises were made during the summit,
the effects of these promises seem to be limited. Most of
the countries will rely on their own financial system to
boost the demand.
Special Drawing Rights
C ountries participating in world trade initially
used mainly two kinds of reserve assets – Gold
and the US Dollar. These were traded between nations in
order to control their exchange rates and maintain equi-
librium in the Foreign Exchange market. But as the Inter-
national trade and financial development was growing
at a rapid pace in 1960s, it became difficult to physically
move gold across nations and moreover, it was necessary
to avoid the disproportionate rise in value of US currency
in relation to other reserve assets. And then the world
woke up to the need for a new in-
ternational reserve asset. Special
Drawing Right (SDR) was then cre-
ated in 1969 by the IMF in order
to supplement the existing official
reserves of the 185 member coun-
tries. The use of SDR by countries
to manage their exchange rates can
be explained using a small example:
For instance, if the value of British
Pound falls considerably as com-
pared to the US Dollar on account
of heavy inflow in US from British
Institutions, the US Treasury can
use its SDR reserves to purchase UK
pounds from the Forex market in order to increase its de-
mand, thereby increasing the value of remaining British
pounds. The SDR is also used by the IMF and few other
important international organizations for their internal
accounting purposes
Initially, when SDR was introduced, it was equiva-
lent to US $1. But, as floating exchange rates were adopt-
ed by countries in 1973, SDRs began to be defined in terms
of a “basket” of major currencies of the world, which
have the most significant contribution in World Trade
and Finance. Currently, SDR comprises of four currencies
© The Finance Club, Indian Institute of Management, Shillong
I n the newS
But, the major outcome of the summit is the grow-
ing power of IMF, and decreased influence of US. Also,
regular meeting of G-20 in future, to monitor progress in
the financial market is a positive sign. This may lead to a
completely different outlook to the world economy and
financial system in future and is a positive step towards
attaining stability.
-Nilesh Bhaiya
– US Dollar, Euro, Japanese Yen and Pound Sterling. The
weight of each currency is reviewed every five years by
the IMF based on the relative importance of each cur-
rency. However, the currency value of SDR is updated on
a daily basis based on the day’s exchange rate values of
the ‘basket’ currencies in terms of US Dollars.
Each member country is allotted a quota which pri-
marily depends upon its relative size and contribution
to the world economy. SDR is the denomination used
for the quota. The allocation to each member determines
its financial obligation to IMF, its ac-
cess to financing by IMF and also its
decision making power. The General
Quota decisions are also taken every
five years; there have been two gen-
eral quota announcements so far,
both in the 1970s.
A third allocation of US $250
billion is currently under consider-
ation by the IMF after its approval
by the G20 nations recently in April
2009. Though the move is being
hoped as one which will help emerg-
ing economies with their Liquid-
ity problems, some sections of the
world of Finance also feel that the allocation would add
to the Inflation-related woes. Nevertheless, the pros of
the much needed influx of money seems to weigh over
the few cons, as the additional allocation will reduce the
members’ reliance on other expensive debt instruments
for building reserves.
-Mohit Khemka
Page 5
 FinSighT

11
Looking Beyond the BRICs

W e have heard a lot about the BRIC economies

of late. But have we ever given a thought to
the other economies apart from these BRIC economies?
Economic Growth: The economic growth has gen-
erally been positive and has increased over the years. Re-
cent growth performance has been quite stable, and the
Where do they stand? Have they got the potential to be dispersion in growth is the lowest in 20 years. Though
able to make an impact? With this thought emerged the Vietnam is the only nation amongst N-11 that has grown
concept of N-11, the Next Eleven. in comparison to BRICs, but five others have also aver-
The Next Eleven (or N-11) are the eleven countries aged 5%-plus growth over the last five years.
identified by the Investment Bank Goldman Sachs as hav-
ing the high potential of becoming the world’s largest
economies in the 21st century along with the BRICs. These
nations are Bangladesh, Egypt, Indonesia, Iran, Mexico,
Nigeria, Pakistan, Philippines, South Korea, Turkey, and
Vietnam. The list includes some economies, which are
very well known to the investors like Korea and Mexico,
and some which are very new to them such as Nigeria,
Vietnam, Pakistan and Bangladesh. The reason for their
selection was that they were the next set of large-popula-
tion countries beyond the BRICs.
Goldman Sachs used macroeconomic stability, polit-
ical maturity, openness of trade and investment policies,
and the quality of education as the criteria.

The N-11 Economies

The three major kinds of economies in N-11 are:
a) High income and development levels are in rela-
tively good shape. The biggest challenge is to be able to
sustain the growth so that the economies can compete
with the richest ones in the world. Some such economies
are Korea, Mexico and Turkey.
b) Traditional emerging economies like Indonesia
and the Philippines where the growth has been strong
formerly and the attention on growth has been high pre-
viously. The challenge here is to move firmly back onto a
strong growth track.
c) Economies which has generally not been on the
growth track recently but have thought-provoking pros-
pects like Egypt, Nigeria, Pakistan, Bangladesh, Iran and
Vietnam. This group needs the proper investor focus.
Vietnam currently has the highest growth potential and
the best chance of delivering it.
Recent Performance of the N-11
Global Trade: The overall weight of the N-11’s has
been increasing over the past years and over the past few
years the global growth has increased by around 9%.
Market Performance: The market performance has
been varied for these nations. Some of them has seen
good growth while others still are very risky in terms of
the market operations. 5 of the N-11 have observed mar-
ket gains of more than 300% since 2003, with Vietnam up
a spectacular 500% since 2003.
Openness in the market: The market in these econ-
omies have started opening up for trades over the past
few years, particularly in Vietnam, Egypt and Turkey.
Growth Prospects of the N-11
GDP Growth: As per the calculations, the N-11 econ-
omies’ aggregate GDP is expected to be about two-thirds
of the size of the G7 by 2050. All of the N-11 economies
have an expected growth rate of 4% or more over the
next 20 years, if they can continue with the stable growth
conditions. Even with the solid growth, only Korea and
Mexico (and perhaps Turkey) are likely to have a reason-
able chance of catching up with the developed country
income levels over the next few decades.
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Niveshak Volume 2 Issue 3 April 2009


Increased Demand: The demand from the N-11 is ex-
pected to increase continuously and they could overtake
the G7 in around 25 years and would be twice that of G7
by 2050.Thus their growth contribution will continue to
rise at a fast pace.
Rising Income levels: N-11 economies are expected
to have large income raise over the next twenty years,
especially Vietnam, which can possibly have more than
fivefold increase in the next 25 years. The ranking of in-
come levels is less likely to change than the ranking of
economic size.
Current Market Shift: There has been a shift to-
wards current developing economies mainly driven by
the BRIC economies, which will help the N-11’s to grow
at a fast pace.
© The Finance Club, Indian Institute of Management, Shillong
FinSighT
Growth condition and Potential in N-11
Growth Conditions: N-11 economies vary greatly in
terms of the growth potential. While Korea rates higher
than most developed countries, including the US on one
hand, Bangladesh, Nigeria and Pakistan rank in the low-
est third of all countries. Also, only Korea and Mexico
seemingly have got conditions favorable to make it able
to rival the current major economies. Being a member
of OECD, it has better growth conditions as compared to
the other N-11 nations. Bangladesh, Pakistan and Nigeria
have broad and systematic issues across a range of areas
and other economies have certain specific areas of weak-
nesses.
Potential: Most of the N-11 governments have off
late been keen on improving their growth conditions.
But, there is a considerable difference amongst the N-11
nations themselves. While Vietnam is the closest to Best
in Class, Nigeria is the furthest away.
Conclusions
While the BRICs dream focuses on the overall shift
in the pattern of global activity, the N-11’s influence might
grow but not to the level of becoming a global story on
that level. While there is no doubt that some of the N-11
economies could join the world’s largest economies, sev-
eral more might become large regional economies and
some of them (like Vietnam) do seem to have the po-
tential of showing sustained and structural high-growth
path as has already been displayed by China and India.
As a group, these N-11 nations are already somewhat
richer and more integrated into the world economy than
what the BRICs are now. It goes on to suggest that the
impact of their integration with the global economy is
likely to be less dramatic.
Page 7

Because of the potentially large and fast growing
markets and with rising incomes and activity, N-11 na-
tions have the potential to become an important source
of growth and opportunity that can be leveraged by both
the companies and investors over the next two decades
or so. If the N- 11 economies can begin to deliver on some
of their increasingly stated desires to improve growth
conditions, they might end up proving to be amongst the
more interesting investment stories of the next few de-
cades. But there are still some questions that are unan-
swered. The first is whether the economic environment
can be turned into broader gains in growth conditions
that will lead to an increase in the chances of significant
FIN TOON
Niveshak Volume 2 Issue 3 April 2009
FinSighT
structural improvement and the second is how much
the current environment has inflated artificially, the per-
formance of such groupings like N-11 and other similar
groups.
As with the BRICs, the goal of the N-11 dream has
been to explore the frontiers of what might be possible in
the world economy in the days to come. This can help us
be better prepared for the challenges on the road ahead.
By Amit Agarwal
XLRI Jamshedpur
Page 8

MicroFinance...
M
icro-lending refers to ex-
tension of very small loans
to the people living in
poverty who are not considered bank-
able. These people lack collateral, steady
employment and a verifiable credit his-
tory and therefore cannot meet even the
most minimal qualifications to gain access
© The Finance Club, Indian Institute of Management, Shillong
Cover stor Y
to traditional credit. However, in recent
years, this population at ‘The Bottom of
the Pyramid’ is considered as a business
opportunity rather than a burden on the
society. They are now starting to grab the
attention of social entrepreneurs as well
as private equity firms.
Page 9

Fig:The world Economic Pyramid
According to the UN World Development Reports,
‘Fortune at the Bottom of the Pyramid’ refers to the poor-
est but largest socio-economic group. Globally, this group
encapsulates about 4 Billion people around the World
mostly in developing countries
Evolution of Micro-lending
The poor usually suffer from a permanent poverty
syndrome. They do not have sufficient capital to invest in
productive activities. Low capital leads to low productiv-
ity, low income and low savings which in turn lead to a
weak capital base.
This vicious cycle perpetuates a permanent poverty
syndrome. It is believed that the poor will be able to break
out of this vicious cycle of poverty if they have access to
proper and affordable credit. It is not the lack of skills
but the lack of access to proper and affordable credit that
prevents the poor from coming out of the poverty. This
fact was recognized by Prof. Yunus of Bangladesh who
pioneered a Microfinance revolution through Grameen
Bank.
Micro-lending to Micro-finance
What started as Micro-lending has, in recent years,
evolved into a wider concept called Micro-finance. Micro-
finance encompasses micro-lending and also includes oth-
er services like deposit services, fund transfers, insurance
and other financial services to the low income groups.
Microfinance aims at delivering the financial services on
a sustainable basis so that the poor can break out of the
poverty cycle and raise their income levels. When some
institutions started micro-lending to the poor, they felt
the need to offer a gamut of other services, most notably,
deposit services and insurance to the poor. This widened
the scope of micro-lending.
Niveshak Volume 2 Issue 3 April 2009
Cover stor Y
Interest rates
The interest rates on microfinance loans in India
range from 22% - 32%. While this may seem high, they are
still half the rate charged by local moneylender. The high
cost of funds for the MFIs can be explained as follows:
the MFIs get the funds from the bank at 12%, the cost of
credit delivery and collection of payments adds 5% each,
while the cost of provisioning for bad debts and capital
adequacy requirements add another 1%-3% each. Howev-
er, some changes in the regulatory framework enabling
the MFIs to take deposits will enable the MFIs to reduce
their lending rates by about 5%-6%.
Healthy Deposit-Loan Ratio
The Challenge for Microfinance Institutions is to
provide affordable services to the poor and at the same
time earn a decent return on capital for the investors and
become sustainable business opportunities. Maintaining
a healthy deposit – loan ratio is critical for this. Collect-
ing deposits from clients has become an integral part
of various Microfinance models in various parts of the
world, most notably Indonesia, Bangladesh and also the
SHG-Bank Linkage model, because of a variety of reasons.
Firstly, Savings deposits provide a cheap source of funds
to the microfinance institutions. These funds can then be
used for lending to the people who are in need of loans.
In fact, the mobilization of savings deposit can go a long
way in ensuring the financial sustainability of the micro-
finance institution because the institution will no longer
have to depend on external funds or aids for its opera-
tions. A live example of this is the model followed by
Bank Rakyat Indonesia. Bank Rakyat Indonesia has been
the most successful in mobilizing savings deposits from
its clients by offering various savings products and giving
a thrust on savings mobilization. As a result of this, the
program has about 30 million active savers compared to
about 3.1 million active borrowers. The deposit to loan
ratio in 2004 was about 225%. As a result of this sav-
ings mobilization, the bank branches had access to cheap
source of funds and did not have to depend on external
funds and also helped them post a profit of $153 million.
Secondly, Savings provide a kind of insurance against any
chance of default. This is because in case of compulsory
deposits, the borrower has to maintain some savings de-
posit with the microfinance institution which gets for-
feited in case of default.
Priority Sector Lending
In 2000, the Reserve Bank of India, allowed lending
to MFIs by commercial banks to be classified as priority
sector lending. This released large amounts of commer-
cial bank financing for MFIs and allowed them to scale
their lending operations rapidly. A number of commercial
banks recognized the opportunity provided to partner
with MFIs to expand in rural areas. ICICI Bank pioneered
a Partnership Model with various MFIs which enabled
Page 11

them to keep the debt on the Bank’s balance sheet and
enjoy financial leverage to grow their client base.
Global private equity players and domestic banks are
now chasing MFIs to take a stake or to extend term loans
if the industry trends are any indication to go by. Private
equity funds raise capital from financial institutions and
banks and lend it to micro finance companies, mostly
for equity. Venture Capitalists have set up Microfinance
Funds aimed at funding the needs of new entrepreneurs
in the industry. This is a quite recent phenomenon and it
will go a long way in ensuring the sustainability of prof-
itable MFIs which run on private investor money rather
than donor aid
Indian Scenario: Suggestions
1. Allowing NBFC – MFIs to accept demand deposits:
As stated earlier, in India, a lot of work is being done by
NGO – MFIs. These MFIs usually have the legal form of a
NBFC. However, in India, NBFCs are not allowed to accept
demand deposits. NBFCs are allowed to accept only time
deposits only after meeting capital requirements. Since
these MFIs are not allowed to accept demand deposits,
they do not have access to a cheap source of funds. This
pushes up their cost of funds and affects their profitabil-
ity. Some regulatory changes can be made to allow MFIs
to accept demand deposits.
2. Following changes can be made to allow MFIs to
accept deposits:
a. Change in Regulation: A change in the regulation
can be made allowing NBFC-MFIs who meet specified cri-
teria to mobilize deposits. The specified criteria can be in
the form of minimum duration of operation of the MFI,
the number of clients, the size of the portfolio etc.
b. MFI – Bank Linkage: The MFIs can adopt a model
where they can be linked to the banks such that the de-
posits of the clients of the MFI can be maintained in the
banks. The MFI will get a credit facility of an amount
based on aggregate deposit of the clients of the NGO.
c. MFIs can act as Business Correspondents of the
Microfinance in India: A new model
Demand of microfinance in India
In India, nearly 35% of the population is at the bot-
tom of the pyramid and the potential for microfinance
services is around 350 million and so far only 40 million
is being catered. Out of these, 74% of them live in the
rural areas.
Various indicators of demand:
• Savings or Deposits: Around 59% of the rural
population does not have a savings account. This could
be attributed to the lack of need for such deposits or
lack of knowledge.
• Payment Services: Of the 41% rural people having
© The Finance Club, Indian Institute of Management, Shillong
Cover stor Y
Banks: This will enable the NGOs to mobilize savings of
their clients. This model of acting as business correspon-
dents can incorporate extensive use of technology in the
delivery of financial services. The NGOs can accept the
deposits and make the entry through a hand-held com-
puting device. This will be useful in introducing the con-
cept of ‘branchless banking’ in remote areas.
3. Use of Technology in Delivery of Services: Trans-
actions Costs form a major portion of the overall costs
of the MFIs and push up the cost of delivering financial
services to the poor. Use of technology, especially mobile
services, can play a major role in lowering the transac-
tion costs as well as administrative costs of the MFIs.
IBM in collaboration with FINO, a technology solutions
provider has introduced the use of multi-purpose smart
cards already reaching out to half a million people. Such
transaction by a smart card costs one tenth that of a tra-
ditional bank transaction. With the right market condi-
tions, mobile banking could help reducing the costs and
reach large numbers of poor people who are outside the
formal financial system.
The road ahead
Micro-lending has enabled individuals to set up
successful micro enterprises and create assets from the
micro loans availed by them. Micro-finance has the ca-
pability to enable them to move up the value chain and
graduate from group-based borrowing to individual bor-
rowing based on collateral and a proper credit history.
This will enable their inclusion into the formal banking
system thus enabling the MFIs to move on to serve other
areas as out of the 300 million people in need of microfi-
nance services only 40 million have been served till now.
By Kushal Agarwal & Surya Ravi
MDI Gurgaon
savings account, most of them use the deposit facility as
a means for safekeeping and find little or no use for vari-
ous payment services.
• Credit: Though the increase in indebtedness. Yet
only a small portion of the population utilises the formal
loan services. The formal loan taken is generally used
for land or machine purchases. Working capital or social
loans are generally taken from informal source mainly
because of the collateral.
• Insurance: Access to insurance is very limited and
the demand for the product appears to exceed its supply.
Page 11

Source: RFAS 2003
Though there has been a significant increase in formal
rural deposits and credit from 1972 to 2001, yet a large por-
tion of the population still do not have access to proper
formal finance facilities which can be seen in the below
figure.
Source: RFAS 2003
Rural Finance Providers
India has a range of rural financial service providers,
including the formal sector financial institutions at one
end of the spectrum, informal providers (mostly money-
lenders) at the other end of the spectrum, and between
these two extremes, a number of semi-formal/microfi-
nance providers.
• Formal providers: Commercial banks, Regional
rural Banks, Cooperative Banks, Post Office Systems and
Insurance companies with limited reach
• Semi Formal/Microfinance providers: Microfi-
nance Institutions, Self Help Groups bank linkage pro-
grams
• Informal Providers: Moneylenders, Trade Credi-
tors, Local Shopkeepers
Existing Products and Services
A few of the most important products and services
along with their current status in India are given below
SHG-Bank Linkage Approach has been the most suc-
cessful format in the recent years.
The model has its own share of concerns in the form
of
• Scale of operations of the SHG program and high
cost of group formation.
• Lack of capacity to promote and maintain groups
to ensure quality
Microfinance Institutions have grown over the years
Niveshak Volume 2 Issue 3 April 2009
Cover stor Y
but a point to note would be that the growth has been
region specific and they service very few clients as com-
pared to Grameen bank. Each MFI in India services on an
average 6,500 clients whereas each MFI in Bangladesh
services over 1 million clients. The Indian MFIs are limited
by scope due to regulatory reasons and most of the MFIs
are not supposed to take deposits. The following aspects
in India are hindering the growth of MFIs
• Indian legal and regulatory framework and Cost
of funds for Indian MFIs.
• Capacity & skill constraints and inadequate sup-
port systems
• Most Indian MFIs lend to SHGs thus all the draw-
backs of an SHG also apply in this case too.
Service Provider Model this has been piloted by pri-
vate banks like ICICI Bank. The current exposure to mi-
crofinance through this model is very small, however
new and innovative approaches are being pursued.
Kisan Credit Card is a new approach to provide cred-
it to the agricultural credit. This model has been conve-
nient for most people considering the ease of disbursal of
credit. However, a cause of concern is the uneven growth
in its distribution across various states. Also 20% of the
large farmers are reported to avail this scheme whereas
only 2% of marginal farmers use it.
More such products and services are available like
Micro insurance, Weather Insurance, Portfolio Securitiza-
tion of microloans, Commodity price insurance, etc.
Constraints
Supply Side Constraints
Banks are reluctant to lend in the rural market be-
cause of the following reasons
• Uncertainty and Default Risk
• Lack of Credit Information
• Weak Legal and Regulatory Framework and Gov-
ernment Policy
• Collateral Issue and Transaction costs
Demand Side Constraints
From the perspective of a rural borrower, the fol-
lowing reasons make formal/semi-form rural finance an
unattractive option
• Absence of Flexible products and services
• Collateral Issue and Transaction costs
A New Model
From our perspective, a new model could be set
up that would successfully overcome most of the issues
faced by the existing products and services. This model
would require the creation of a new entity, say a Micro-
finance Entity (ME), for the sole purpose of promoting
microfinance activity. Following are the characteristics
of the new model
• It would be an extension of the existing SHG
Page 11

format and also combines the Grameen methodology. It
would introduce the idea on the lines of a Social Stock
Exchange (SSE)
• The new entity created would have as its cli-
ents the following three types of groups:
(1)The normal Self Help Groups, (2)
Individuals who do not have the op-
portunity to form a self help group
of their own, (3)Groups which need
financing for a project in which each
group member has a stake.
This model is based on the
SHG format because of its success
in India and to capitalise on the vast
network of rural banks in India. The
model would require each rural
bank to create an Micro Enterprise.
These MEs could fall under the regula-
tory framework of NABARD. These MEs
would have the following characteris-
tics:
• These MEs would have subsi-
dised financing from NABARD
• Lending by all banks to MEs
would be considered towards the bank’s
legal obligation to direct a fraction of their
loans to the poor. This would also induce
the private banks to participate in the pro-
cess. As the ME is a part of the rural bank,
it would be able to accept deposits.
The ME would also include the
Grameen methodology of microfinanc-
ing as an SHG method might exclude
individuals who are among poorest of
the poor because of their relatively lower
economic status. The ME would pool such
individuals and ask them to form groups
and the rest would follow the Grameen
model. For those groups whose members want to
be partners for a common project, the ME would
tap the market to fund their projects. These
projects are first evaluated for feasibility by the
ME as well as the track records of each member
would be considered and if successful, the details of the
project would be put up on the proposed stock exchange
for the market to be a part of it. The investors would buy
the units related to the project and be benefited with divi-
dends once the project is successful. The investors could
also trade their units on the stock exchange depending on
their perception of the success of the project. With the
introduction of the stock exchange the following advan-
tages could be realised
• A facility to tap the market, especially the socially
conscious market. It would also provide means to regu-
late the microfinance market.
• It would create a conduit for donated money. As
this would give a clear picture of where a donors mon-
© The Finance Club, Indian Institute of Management, Shillong
Cover stor Y
ey is being used and how effectively it is being used, it
would attract donors to participate
• With the possibility of making profits, though
not as much as in the normal capital markets, it would
attract more number of the socially conscious
people
• The units bought through this
route could also be considered as a part
of the banks obligation to lend money to
the priority sector, which would be more
attractive to banks considering possible
returns from the project
• This route would be more attrac-
tive for a borrower as it would be cheaper
as compared to a loan. The unique point of
this model is that if the project is successful the in-
vestors as well as the farmers would be benefited,
however if the project fails the farmer would just
be affected by the loss of the project but not by
the burden of paying any interest which would
have been the case if the farmer had taken a loan.
This might also induce entrepreneurial spirit
• The MEs would benefit by the commis-
sion charged and could collaborate with NGOs
to make people aware of such opportunities
However the above model could have the
following disadvantages
• With increased attractiveness of
commercial loans, there could be a de-
crease in lending of social loans
• In the case of loans chan-
nelled through a normal SHG, the
same constraints would apply in this
model as well. The same applies for
loans given through the Grameen
methodology.
Yet this model would help them
to prove the situation considering the following
advantages
• The stock exchange route would ensure better
quality of the groups formed
• Cost of the groups formed would be low in the
case of commercial borrowings
• With better quality of groups formed, the model
has better financial sustainability
• The MEs formed would also provide borrow-
ers with deposit facilities as they are a part of the rural
banks. Also cost of funds in the case of commercial bor-
rowings would be low.
By Akshay Sathya & Hitesh Parikh
MDI, Gurgaon
Page 11

Commercial Microfinance: Process and Challenges
While micro-lending dates back hundreds of years,
perhaps thousands, modern microfinance can trace its
roots to nearly simultaneous initiatives in Bangladesh and
Bolivia in the mid-1970s. The Grameen Bank in Bangladesh
has had enormous success over the years in taking its
peer-group-based model to rural clients throughout Ban-
gladesh, and has exported that model to several other
countries, where it has been repeatedly copied and modi-
fied by other Microfinance Institutions (MFIs).
Commercial microfinance, on the other hand, is rela-
tively new. It wasn’t until the early 1990s that a conflu-
ence of supply and demand factors drove the provision
of some micro-lending into a profit-focused model with a
double bottom line – a return to investors and a socially
responsible agenda. On the demand side, many MFIs had
finally reached a level of efficiency where subsidized loans
were not only no longer necessary, but in some cases were
a disincentive to the efficient management of commer-
cial microfinance and an obstruction to the social goals
of economic development and self-sustainability. Mean-
while, the size of the microfinance industry worldwide
had hit a point where subsidized funds from government
agencies and multilateral institutions like the World Bank
were no longer sufficient to cover demand. Global politi-
cal and economic changes contributed to the growth in
demand, as rapid democratization in Eastern Europe and
the former Soviet Republics, along with capitalist reforms
sweeping many Latin American and African countries, left
hundreds of thousands of rural peasants suddenly depen-
dent on no one but themselves.
While the demand was escalating, the supply side of
microfinance was undergoing its own renaissance. Mean-
while, there was a surge in the amount of private sec-
tor funds looking for alternative investments. Emerging
market investing hit its heyday in the early 1990s. Around
the same time, socially responsible investors such as Amy
Domini and mutual fund groups such as Calvert and Pax
raised the level of awareness of socially responsible in-
vesting, and began to show investors that it isn’t all about
charity – that investors can help make the world better
while still earning a return on their investment. During
early 2000s, when the dot-com bust, ensuing economic
and stock market downturns in the U.S. and other de-
veloped countries sent some investors out of the stock
market in search of new, alternative places to put their
money.
Commercial aspects
Microfinance is undoubtedly one of the most diverse
sectors of global finance, so it comes as no surprise that
there is no single model that covers the institutions that
manage commercial microfinance.
Microfinance investors are a mixed breed – they span
continents and classes, genders and races, and they are as
Niveshak Volume 2 Issue 3 April 2009
Cover stor Y
varied as the investment management institutions they
put their money in. Those institutions range from banks
and funds to offshore and onshore investment compa-
nies and a hodgepodge of other creatively organized and
alternatively financed institutions. The microfinance in-
stitutions (MFIs) that dole out the loans and other finan-
cial products are an assortment of credit unions, cooper-
atives, NGOs, commercial and private banks, government
agencies and a myriad of derivatives of these institutions
– every bit as varied as the rural peasants, urban mothers,
roadside traders, Arctic fishermen and Slavic seamstress-
es who borrow their money. Collectively, however, all of
these players have managed to achieve social agendas
such as poverty reduction and economic development,
and it can be – when managed properly – profitable. For
investors, microfinance is a new and exciting asset class
that is already a growing parts of the portfolios of some
institutional and individual investors the world over.
In commercial microfinance, the process begins on
the supply side with an investment into any number of
microfinance -oriented funds, investment companies, co-
operatives or partnerships. The investment might be a
securitized or non-securitized share in a fund, an equity
share in a company or partnership, or a share in a coop-
erative. In many cases, commercial microfinance funds
will take a combination of public and private funds, in-
cluding subsidized loans from multilateral institutions or
commercial microfinance loans that are guaranteed by
quasi-government agencies – such as the U.S. Overseas
Private Investment Corp. (OPIC).
Process of commercial micro finance
Commercial microfinance is a “work in progress.”
The institutions that administer and manage microfi-
nance funds are constantly evolving to address the needs
both of the credit clients they serve and of private inves-
tors. Increasingly, oversight authorities are being estab-
lished and standardized guidelines are being developed
that are improving disclosure and reducing the potential
for corruption and mismanagement – which in recent
years have plagued other sectors of global finance, in-
cluding the investment banking and mutual fund indus-
tries. Already, most of the MFIs that do receive commer-
cial microfinance funding are required to pass through
formal, third-party audits and to meet certain reporting
and accounting guidelines. And recently, the MicroCapi-
tal Institute implemented a service to provide ratings on
the microfinance funds and investment companies them-
selves, which should help to boost disclosure and adher-
ence to international standards. Increasing competition
will continue to drive the efficiencies, costs and perfor-
mance of all parties involved with microfinance, from the
investment managers to the MFIs.
Page 11

Challenges
Microfinance, at large, has been practiced by small lend-
ers especially in rural areas to mitigate the poverty. Sometimes
borrowers either fail to repay the loan either because of their
tardiness or due to failure of their low scale business. This situ-
ation leaves individual lender hapless. Here comes need of suf-
ficiently managed body of lenders and borrowers. Groups of
people come together and make dedicated group called self help
group (SHG) to carry out small lender-borrower relationship.
Other challenge is to mitigate incentive problems that make it
difficult for providers and (potential) users of financial services
to come together in the market place, and to create incentives
that make it economically rational for them to do business with
each other. In this context it is necessary to distinguish between
three levels of incentive problems, and thus also between three
levels of institutional design.
Figure 1: Various level of incentive relationship involved in MFIs
The first level consists of the lending operation, and hence
the relationship between lenders and borrowers and the market
for small and micro loans. A borrower who conforms to the con-
cept of human nature assumed by economists “naturally” does
not want to pay back a loan that has already been disbursed
to him/her. In many developing countries and transition econo-
mies, it is very difficult to use the legal system to enforce con-
tractual obligations to make interest and principal payments.
That is the reason why microfinance institutions (MFIs) have to
be able to find methods of persuading their borrowers to pay
back their loans, with interest, on time and in full which are not
only effective and inexpensive, but also socially acceptable.
The second level refers to the internal structure and oper-
ating methods of MFIs. The objective here is to develop strong
incentives for employees, and especially loan officers, which in-
duce them to issue a large number of small loans and also to
see to it that they are repaid. Incentives are also needed for staff
in management positions to ensure that, despite the presumed
higher cost of issuing small loans, they do not stop serving small
and micro entrepreneurs, who constitute a particularly impor-
tant target group from the point of view of development policy,
yet at the same time focus on maintaining the financial sustain-
ability and soundness of the institutions they manage.
The third level of incentive problems concerns the inter-
action of three groups: (1) those who manage an MFI, (2) those
who provide its equity, and (3) those who offer funds for techni-
cal assistance.
At this level, the problem of the ownership structure and
corporate governance of an MFI is posed– a problem which
tends to be particularly acute when the institution in question
is financially successful. It is the way in which this problem is
addressed, more than any other factor, that determines whether
an institution of this kind remains viable in the long term, and
also whether it remains relevant as an instrument of develop-
ment policy in the long term. Government regulation on the
© The Finance Club, Indian Institute of Management, Shillong
Cover stor Y
practice of microfinance by small and big players is also a chal-
lenge. To nurture the development of micro finance in way
to suit the small financial requirements of poor population a
proper plan of action has to be comprehended by policy makers
of economy.
Regulation on MFIs
The need for regulation and supervision of MFIs arises
from several considerations. While all types of financial institu-
tions irrespective of their origin and mode of registration and
incorporation have to report statutorily to RBI, National Bank
for Agriculture and Rural Development (NABARD) or to some
specified agency like SEBI or National Housing Bank, the NGOs
engaged in providing microfinance services do not have to com-
ply with any statutory requirement in this regard. These agen-
cies mainly purvey small sized credit to their clients besides, in
some cases, mobilizing small savings from them.
Regulation and supervision of the formal banking institu-
tions is well organized under various Acts, viz. B R Act, Regional
Rural Banks (RRB) Act, Cooperative Societies Acts and RBI Act.
While RBI supervises commercial and urban cooperative banks
and NBFCs, NABARD has been authorized to supervise RRBs and
cooperative banks on behalf of RBI. Regulation is, however, al-
most entirely attended to by the RBI. As regards MFIs, none
except those registered as NBFCs and cooperatives are presently
treated as part of the financial sector. As most of them are
registered as societies or trusts, the question of their supervi-
sion and regulation from the financial angle had not arisen.
Except submission of annual accounts and a report on their
operations to the authorities under the Acts of their registra-
tion, these agencies are not under any statutory compulsion to
comply with specified norms or instructions in respect of their
microfinance activities encompassing mobilization of savings
and granting of loans.
Conclusion
Microfinance, no doubt, has opened a new avenue for
business focus for financial institutions. A large portion of
world population is still to be tapped for financial services. This
in turn, gives a paradigm shift for financial firms, which have
experienced ups and downs in their regular financial practices.
Micro finance provides an opportunity to go rural and complete
the human-organization financial relation at large scale. Many
banks and financial firms have lined up to create a consortium
which focuses on microfinance. Having solidified microfinance’s
reputation as a valuable development tool, the next generation
of MFIs must now demonstrate poverty alleviation. Extensive
new funding sources are necessary. MFIs must pursue new cap-
ital sources by aligning the core qualities that distinguish them
from funding competitors.
By Md Manauwar Alam
NMIMS, Mumbai
Page 11
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 Article of the montH

WAS Predicatble?
SUBPRIME
M insky’s Financial Instability Hypothesis (MFIH)
talks about the natural cycle of boom and
bust in financial markets of expanding economies. Ac-
Subprime Crisis Explained by MFIH
A variety of complex factors contributed to the sub-
cording to Minsky, the cycle starts in boom period when prime crisis which the world’s most successful nation is
the overall feeling about the economy is optimistic. This witnessing today. Innovative securitizations, credit sup-
optimism leads to overestimation of future expected re- ply without gauzing the risks associated with it, inability
turns from the investments made in the current period. of the subprime borrowers to pay back their debts and
In order to make these investments, debts are guaranteed the fall in asset prices led to the first financial crisis of
with very little margin of safety. Due to the speculation, the 21st century.
the equation between debt and risk changes and the fi- With mortgage based securities (MBS) and Collater-
nancial value of the assets rise. al Debt Obligations (CDO), the credit risk of the subprime
Minsky defined three different types of income debt borrowers was repackaged into attractive mortgage in-
relations. These are: struments and sold to third party
• Hedge Financing: Firms investors. These third party inves-
which can fund their debt tors had the right to cash flows
through their cash flows. obtained as a result of the yearly
• Speculative Financing: payments of the loans. Consum-
Firms which can fund their inter- erism boom was at its peak in
est only through their cash flows. USA during 2005 and as a result
the asset prices were the highest.
• Ponzi Financing: Firms
This wave of consumerism led
which have negative cash flows
the public to buy real estate at
and cannot even fund their inter-
Hyman P. Minsky astronomically high prices with
est.
the loans advanced by mortgage
Minsky suggested that in institutions.
a booming economy, the mar- Ph.D. (September 23, 1919, Chica-
If we analyze this situation
ket will be dominated by hedge go, Illinois – October 24, 1996), was an
in USA at that time using MFIH,
financing. Debt would be raised Economics professor at Washington
we can conclude that the over-
from the market at very high risk University in St Louis. His research
all sentiments of the public were
due to the speculation about fu- focused on understanding and expla-
good and the estimated returns
ture benefits. But over a period nation of financial crises. He was a
of these asset-purchases by the
of time the weight of speculative Keynesian who believed in the Gov-
public and the loan advancement
and Ponzi financing tend to in- ernment’s intervention in financial
by the companies were consid-
crease in the overall debt. This markets.
ered high. As a result the debts
happens because the change in
market was booming and the
the balance between debt and risk leads to fragility in the
institutions gave subprime loans without assessing the
market. The market finds out that the estimation about
risks associated with the loans. This changed the debt-
the future benefits was highly eschewed. At this instant,
risk equation as mentioned by Minsky and was the chief
the hedge financing converts into speculative financing.
architect of the subprime crisis.
This trigger leads to a financial crisis during which major-
ity of the financing converts to Ponzi financing. The graph shown below compares the real assets
prices in Y axis and time in X axis where t denotes the
Page 11

© The Finance Club, Indian Institute of Management, Shillong


year when the crisis started. It shows that in all crises,
the asset prices boom because of the over expectation of
future returns from the assets. In case of USA it has sur-
passed the other crises average by a huge margin and has
also started falling as an aftermath of the crisis, similar
to others.
Big 5 crises include Spain
(1977), Norway (1987),
Finland (1991), Sweden (1991)
and Japan (1992).
The borrowers who had borrowed huge debts to fi-
nance their purchases gradually started defaulting by the
early 2007 when the interest rates began to rise. Simulta-
neously, the real estate market began to crash. These two
events combined together brought about the subprime
crisis which we are witnessing today. Borrowers could
not pay back their loans and the mortgage institutions
could not recover their loans by selling off the proper-
ties as these prices had crashed. This had a catastrophic
effect on the third parties which had bought the MBS as
they could not get back the payments guaranteed. This
mortgage default payments and mortgage asset devalu-
ation forced the financial institutions to write off huge
amounts of debt.
All these events triggered a sharp credit crunch in
the market and companies all over the world are find-
ing it difficult to raise money from the market. Credit
crunch has also instigated a slowdown in the consumer-
ism which is having a cascading impact on the industrial
production.
Niveshak Volume 2 Issue 3 April 2009
Article of the montH
Big 5 crises include Spain
(1977), Norway (1987), Finland
(1991), Sweden (1991) and
Japan (1992).
In the graph above, t in the X axis denotes the year
in which the crisis started and index in the Y axis denotes
the public debt. We can conclude that the hallmark for
any financial crisis has been the high levels of debt in-
curred by the public. The same case is followed in US as
well where the debts have been rising since the last few
years. This increase in debt during the boom period with
no consideration for the risks leads to an imbalance in
the economy. This in turn results into a financial crisis as
suggested by Minsky.
We can safely conclude that financial crises oc-
cur because of the imbalances in the debt-risk equation
which takes place in an economy. Minsky suggested that
boom and bust in an economy follows a natural cycle
which is inherent in a capitalist economy. The real rea-
son for the onset of a crisis is the fallout in the debt-
risk equation which is more probable to happen in a
booming economy. This is what happened during the pre
subprime crisis days from 2002 onwards till 2006 during
which debt was given to borrowers without considering
the risks involved.
By Mayank Sinha & Girish Rathor
IIM, Kozhikode
Page 11

a l F i n a n c e
B e h a v i o u r
E ver wondered why the stocks in which you in-
vest always plummet down while those that
you choose not to put your money in always seem to
do well? Most of us have faced this question quite often
and ended up cursing our luck for an answer. But in real-
ity, there fortunately exists some logical explanation for
the illogical decisions that investors make and the subse-
quent effect on markets.
Behavioural Finance, also termed as ‘open minded
finance’ is a study of the influence of psychology on the
behavior of financial practitioners and aims at explaining
why and how people make seemingly irrational decisions
and systematic errors when they spend, invest, save, and
borrow money.
Financial markets have been subject to speculations
and inefficiencies. It is believed that market efficiency
is based on three conditions; rationality, independent
deviations from rationality and arbitrage. Behavioral fi-
nance questions all these assumptions in an attempt to
understand the behavioral explanations of overall market
outcomes. Are investors really rational? A gambler often
bets based on past trends knowing fully well that rou-
lette tables have no memory. Why does he put so much
at stake in a risky gamble at roulette table, with a faulty
strategy and a negative expected return? Similarly, many
investors do not achieve the degree of diversification that
they should. Others trade frequently without keeping tax
minimization in mind and paying huge amount as com-
missions. Many are more likely to sell their winners than
their losers, a strategy leading to high tax payments.
Furthermore, deviations from rationality are often
systematic. Behavioral finance attempts to incorporate
these human departures from rationality into standard
models of financial markets. Our gambler above is follow-
© The Finance Club, Indian Institute of Management, Shillong
FinGyaaN
ing the principle of representativeness when he believes
that the small sample he observed is more representative
of the population than it really is. Extending the same
principle to real financial markets leads to bubbles often
when the short term trends in one sector are extrapo-
lated to the entire market. What the investors faced after
the market crash in Jan 2008 was an example of repre-
sentativeness. This “law of small numbers’ emphasizes
that people tend to put too much weight on recent expe-
rience. As we saw, when equity returns were high for a
long time, many people began to believe that high equity
returns were normal. Two common mistakes investors
make are excessive trading and the tendency to dispro-
portionately holding on to losing investments while sell-
ing winners. These systematic biases are believed to have
their origins in human psychology like overconfidence,
herding instinct, limited investor attention or the human
desire to avoid regrets. Sometimes people’s preferences
also create distortions. For instance, a relatively higher
gain might make some feel better by as much as a small-
er loss makes them feel worse.
Mullainathan and Thaler point out three important
ways in which humans deviate from the standard eco-
nomic model. Bounded rationality reflects the limited
cognitive abilities that constrain human problem solving.
Bounded willpower captures the fact that people some-
times make choices that are not in their long-run inter-
est. Bounded self-interest incorporates the comforting
fact that humans are often willing to sacrifice their own
interests to help others.
Behavioral finance also shows what managers of
firms, other institutions and financial players might do to
take advantage of market inefficiencies. This falls under
arbitrage behaviour where sophisticated players stand
Page 11

ready to capitalize on the mistakes of the naive.
The tools generally used for studying people’s deci-
sion making behavior in financial markets are simulation
models, empirical analysis and forecasting. The behavior-
al principles come mainly from psychology, sociology and
anthropology. Some of the commonly observed principles
include heuristics and framing. Heuristics makes decision
making easier but can sometimes lead to biases. Many
investors tend to equally divide their funds into various
avenues which may not necessarily be the optimal alloca-
tion. On the other hand, overconfidence can also lead to
too little diversification, because of a tendency to invest
too much in familiar areas. Men tend to be more con-
fident than women, and this has clear implications on
their respective trading behaviors. The conservatism bias
contradicting the representative bias, states that people
tend to be slow to pick up on the changes and thus might
underreact.
Rules Of The Game
“If one goes by simple law of logic, one plus one will
be equal to two but when you talk about emotions one
plus one could be anything”, was opined by Parag Parikh,
the author of the famous book Stock to Riches.
The field of behavioral finance cannot be termed
new as psychology has been considered to play a key role
in determining the behavior of market for long. However,
in recent times it has been taken up much more seriously
especially in relation to decision making by pioneers like
Paul Slovic.
In broader terms, behavioral finance can be grouped
into two segments; illusions due to heuristic decision
processes and illusions caused by the adoption of mental
frames.
Heuristics refer to rule of thumb. It’s the same as
what we use in uncertain conditions or complex environ-
ments. When using heuristics one doesn’t stick to ratio-
nal decision making process, taking a 360o approach and
evaluating all the relevant information objectively, rather
takes mental ‘short cuts’ in the process, as one would say
“the easy way out”.
Heuristics can be dangerous as they can spring up
anomalies like ‘representatives’. This arises due to the
tendency of investors to create stereotypes. This can lead
to wild goose chase of some of the hot stocks with glam-
orous past data and avoidance of stocks which have per-
formed poorly in the recent past.
Another anomaly that investor gets into is labeling
companies and writing them off even before analyzing
their worth. In India for instance, multinational firms get
higher rating while public firms receive a lower rating,
even though the payouts are handsome. This is termed as
“Anchoring” by behavioral science experts.
Another one is overconfidence heuristic where
overestimation of skill leads investors to making mis-
takes. Often the investors find themselves in a soup due
Niveshak Volume 2 Issue 3 April 2009
FinGyaaN
to ‘Gambler fallacy’ heuristics, which develops by living
in a make believe world where the investors expect a
low price stock to recover, just because of its long range
average price. Others use the average price to earnings
method and believe that a stock is undervalued simply
because it has a lower price to earnings than that of the
industry average. What investors fail to understand is
that they should have the temperament to control the
urges which can get them into trouble due to investing.
…Silver light
Greed and fear can be called the real protagonist in
the stock market. The Prospect Theory coined by Kahne-
man and Tversky in 1979 throws light on some investor
reactions and decision making under conditions of risk
and uncertainties. Loss of aversion is what binds most
of investors. Studies point that people feel pain of loss
twice than pleasure of gain and hence they try to hold on
losses with the hope that tomorrow will be a better day.
Another aspect is regret aversion.
Though there are clouds of grey that loom over, but
investors are getting wiser with time. The traditional old
players do accept their mistakes and quickly learn from
them and move on. They maintain a ‘book of profits’ and
reduce losses by selling off.
Hence it’s all about means to realize the end. And
the end can be made beautiful by quietly observing and
bringing out the rationale behind the fallacies. By careful
observation of behavioral patterns of oneself and those
prevalent in market, investors can get an edge over the
basic fundamental tools that form the maxims of the
market.
Apparently, not all the number players are the rich-
est people around.
By Swati Goel & Tripurari Prasad
IIM, Shillong
FinQ March’09 Issue Answers
1. Western Union Money Transfer
2. Metlife
3. Amar Bose
4. London Stock Exchange
5. Union Bank of Switzerland
6. Vatican City
7. Money Laundering
8. Bangalored
9. Sunil Bharti Mittal, Bharti Group, Bharti Tele-
com
10. Shell Bank/Direct Bank
Page 22
 FinTraX

Global Slowdown
Impact on Indian private equity
I ndia witnessed a booming private equity activ-
ity in the recent years, with the growth of lo-
cal funds and the arrival of global players. The particular
situation in India — characterised by family-owned com-
panies, a huge listed sector, and yet a relative lack of li-
quidity in the market enabled the private equity firms to
position themselves as partners in order to become the
preferred source of investment capital.
However the scenario has changed drastically in the
past few months: stock markets are at a two-year low. size. Almost three fourths of the investments during 2008
The US and European markets are in a turmoil, and the were in the sub $25 million category, with the maximum
global economy is feared to be moving into a recession. number of investments falling in the $5-10 million range.
There is a liquidity crunch so much so that even banks Another noteworthy point is that a majority of invest-
are borrowing at exorbitant rates. The major challenges ments were seen in the first quarter of the calendar year
for PE firms right now are: the cash crunch, convincing 2008 whereas the last quarter was a poor performer both
the management about valuations and delays in profit in terms of number of deals (66) and the total money
bookings. Although the number of deals may have come invested (USD 1.1bn)
down; but they are indeed happening. The growth is
driven by anticipated huge private sector participation in
attractively growing sectors like infrastructure, banking
Pre-Crisis Period
and finance, IT, telecom, pharmaceuticals and healthcare The Indian economy had been enjoying a period of
sustained growth at around 8 percent a year. Favourable
market scenario and some spectacular and well docu-
Indian Private Equity Scenario
mented exits attracted the attention of private equity
In India, private equity is reasonably young, dating houses who had been participating in an unprecedented
back to the mid-1990s. In the past few years, there has number of investment deals. PE firms both local and in-
been an increase in number of private equity players, ternational started looking at wide range of sectors from
with India’s stock markets booming and sectors like the pharmaceutical, automotive, engineering, real estate to
life sciences, infrastructure and real estate being growth financial services, media, telecom, insurance, informa-
stories for the future. Global firms such as Warburg Pin- tion technology.
cus, KKR, Blackstone and the Carlyle Group have a pres-
Favourable market scenario and other complimen-
ence in India while Indian players like ICICI Venture, Ko-
tary prospects of the Indian markets resulted in exponen-
tak Group, Motilal Oswal and ChrysCapital are planning
tial increase in the number of deals, average deal size and
to expand further.
total investment. The table given below depicts the above
The Indian PE market seemed attractive to these mentioned trends.
international players for many reasons: its entrepreneur-
ial status; an investment base that truly understands the
multiple opportunities for PE; and a developing infra-
structure with strong underlying economic growth.

Private Equity Transactions in 2008 & 2007

The total number of private equity transactions in
India in 2008 was 399 amounting to ~USD 10bn. As can be
seen from the following table, a majority of investments
were done in the Late Stage. The year also saw significant
number of PIPE deals as the listed companies were avail-
able at unbelievable prices
However, 2008 saw a decline in the average deal
Page 22

© The Finance Club, Indian Institute of Management, Shillong


Crisis Period and beyond
After riding on a boom and witnessing stupendous
growth year-on-year, PE players such as Baring Private Equity
Partners, ChrysCapital and Kotak Group among others have in-
dicated that they will soon take a conservative approach to-
wards investments. The slowdown has resulted in making the
availability of funds difficult and putting pressure of exits on
marginal players.
In 2006 and the 2007(H1), a bubble had developed in the
PE market; the debt and acquisition multiples rose above his-
torical norms. However as the crisis hit, the LBO debt could not
be syndicated. This led to pulling out of many deals and renego-
tiations of others. Globally, the average deal size has decreased
from USD 519 mm in the second quarter of 2007 to less than
USD 200 mm in the subsequent quarters.
Recent Trends
1. Debt vs. Equity
It is not just the volumes and sizes that have decreased;
there is a change in the structuring as well. Private equity deals
now involve more equity and less of debt than during the pre-
crisis period. Whatever the debt portion is there, it is on less
favourable terms. The average spread of the Leveraged buyout
loans vs. The LIBOR has also increased.
2. Partnerships
There is a growing trend towards private equity investors
partnering with corporate for joint acquisition. There are thus
more Co-Investment Opportunities.
3. Increase in Holding Periods
PE firms are witnessing slower and negative valuation
multiple growth. This has increased the holding period to en-
sure a good return. Another reason for increase in holding peri-
ods is that private equity firms are spending more time improv-
ing portfolio companies’ operational performance.
The above trends and changes in the Indian Private Eq-
uity sector has resulted in a lot of restructuring which might
give way to major changes in the working of the whole sector.
The course of future changes will depend on how the following
critical issues are addressed.
• Will the governments intensify the regulation of the
private equity industry?
• Will tax rates on private equity distributions rise?
• How will the industry’s public image evolve?
• Can the basic private equity business model still
work?
Future challenges
This could well turn out to be private equity’s finest hour.
if the industry moves carefully and skilfully to help with the
global economic turnaround, partnering at times with corpora-
tions, sovereign wealth funds, and governments. Various chal-
lenges that confront the PE players at present are as follows:
• The Debt Problem
The main problem in today’s scenario is that the debt is
not available cheaply. In India, there has hardly been any his-
tory of LBO deals. And with the current financial crisis, the LBO
model seems to be getting extinct.
• The Evaluation Problem
Another issue that the PE firms are facing is that of evalu-
Niveshak Volume 2 Issue 3 April 2009
FinTraX
ation of the companies. The current market scenario is not re-
flective of the true valuation of the target and the PE firms have
difficulty in ascertaining the metrics against which to value a
company.
• Due Diligence Issues
With the recent Satyam fiasco, the private equity firms
have to go in for even more careful due diligence with respect
to the target. The confidence and trust in auditors has got af-
fected.
• Problem with Exits
Year 2008 witnessed very few exits. The money that was
invested 2-3 years ago is now tied up till the markets recover as
there are negligible exit opportunities available to the investors.
New Emerging Sub Sectors
The global slowdown has affected almost sectors of In-
dian economy severely and in such distressed times Private
Equity players need to target the new untapped sectors. After
analyzing various sectors we suggest the following three sec-
tors that hold the potential for future growth.
1. Airlines Maintenance and Certification Companies
• Currently there are 430 airplanes that fly domesti
cally, expected to grow to 750 by 2010
• Airplane maintenance market projected to be US $2
billion in 2010
• Hardly any airline maintenance companies
currently
• This work is currently largely outsourced to US and
European companies
2. Wine Companies
• With the rise in the disposable income and greater
awareness, wine is gaining popularity in India and
wine consumption is growing at 40-50% per year
• Wine industry is expected to grow at CAGR of 25%
over the next 5 years( more than any other sector)
3. Automotive Training Companies
• Indian automotive industry is likely to face a short
age of 2.5 million skilled personnel by 2016.
• E-learning company named Adayana has partnered
with 38 auto firms to create curriculum to train over
a million workers
Future trends
After analyzing the portfolio, market conditions, availabil-
ity of capital , attractiveness of different sectors we can predict
the following trends in the Private Equity domain for the com-
ing few years.
• Private equity activity may moderate but will remain
strong
• Demand for investment capital from companies in the
region will rise
• Local private equity firms will be the most active inves-
tors
• Minority state transactions will predominate
By Abhinav Chugh & Nidhi Kai cker
FMS, Delhi
Page 22

FIXED INCOME
MARKETS IN INDIA
The past, the present and the opportunities in future
The Past
W ith Commercial Banks forming the foundation
of the Indian financial system till the 1990s
and money lending having dug its roots deep, it took
a considerable amount of time for the Capital markets
to carve its position in the Indian financial system. The
foundation stone for the equity markets was laid in 1875.
Increasing activity was seen in the stock markets with
the coming up of the BSE, India’s oldest stock exchange
in 1965, the inception of NSE and the setting up of SEBI in
1992 to bring in a uniform enforceable code of conduct in
equity market (in wake of the events such as the Harshad
Mehta scams), along with the liberalization wave of the
1990’s and the conversion to electronic trading, led to the
huge surge in the stock market activity and the subse-
quent stock market boom in the recent times.
Despite the boom in the stock markets the debt
markets in India have remained sluggish as opposed to
the developed countries like the United States, where
bond markets are more popular than equity markets.
Some reasons for this include firstly the Government
regulated interest rates. The government had intention-
ally kept the interest rates low for a long time to ensure
a low cost of funds for the government leading to poor
interest among investors towards debt instruments. Sec-
ondly, there were regulatory limits on investments from
foreign investors. Thirdly, lack of transparency loomed
the financial system. This along with the lack of liquidity
due to non-tradability of GOI bonds on an exchange (only
bilateral negotiation between dealers was done, leading
to inefficient pricing), led to lack of interest for fixed in-
come instruments among Indian investors.
The Present
The Indian debt market has transformed itself into
a much more vibrant trading field for debt instruments
from the rudimentary market about a decade ago. The
credit for this goes to the liberalization of the Indian
economy in the 1990s and the changes brought about
by the Narasimhan Committee appointed in 1991 whose
broad goal was to increase the role of markets in resource
allocation. This was achieved through a shift from admin-
istrative control of credit, and government controls on
prices of securities such as shares or bonds. Interest rates
were deregulated and controlled by market forces of de-
mand and supply. Auction system was introduced for sale
of dated government securities in June1992. Many new
© The Finance Club, Indian Institute of Management, Shillong
Food for thoughT
players entered the market increasing the competition
leading to efficient pricing of financial instruments. Inno-
vative Financial Instruments such as Zero Coupon Bonds
and Capital Indexed Bonds were introduced. This did not
however receive a good response due to the lack of so-
phistication in the markets during the 1990’s. The system
of Primary Dealers was introduced in 1995 and a majority
of the GOI bonds are handled by them. A number of re-
strictions on Foreign Investments in Debt Securities were
removed, e.g. FIIs with 100% Debt Schemes were allowed
to invest in GOI Securities and T-Bills while other FIIs
were allowed 30% investment in these instruments.NSE
also set up its Wholesale Debt Market (WDM) segment.
These measures increased the transparency and liquidity
in the system and hence there was a broadening of the
market and ten-fold increase in the Primary market for
G-Secs between 1990-91 and 1998-99.
The debt markets however still faced a number of
inefficiencies such as:
• Lacking market breadth due to dominance of a
few players
• Lacking Market depth due to the strategy of
holding to maturity by leading players
• Poor retail participation due to incomplete and
slow communication of information.
Corporate Bond Market: Domestic savings mobi-
lized by financial institutions was the major source of
credit for companies till a decade back. The factors which
led to the poor situation of corporate debt markets in
India include firstly the higher attractiveness of equity
issue for corporate due to the abolishment of the office
of the Controller of Capital Issues (CCI), which allowed
companies to price their equity issues as per the market
appetite. Secondly, the domestic debt market declined
due to offshore issuance of debt. Thirdly, increasing pri-
vate placement of debt which has grown 6.23 times to
Rs. 62461.80 crores in 2000-2001 since 1995-96, has lead
to a decline in liquidity in the corporate debt market.
The corresponding increase in public issues of debt has
been merely 40.95 percent from the 1995-96 levels. All
these have caused PSU’s to dominate the corporate debt
market.
The Future
With highly liquid debt markets in US, Europe and
other developed countries, the focus is now shifting to
Page 22
 Food for thoughT

the Asian Countries. Japan currently leads the lot with trading desks in India to maximize returns by betting on
the biggest debt market in terms of size, liquidity and the direction of interest rate. (ref. Chart3).
turnover. In the AXJ (Asia-ex–Japan) region, China, Korea
and India currently seem to be the top three debt mar-
kets. The following factors indicate a very promising fu-
ture for fixed income (debt) markets in India
Some of the major factors which make India the
next best destination for setting up fixed income division
within the AXJ space include:
1) Bond Market Size (Local Currency): India’s debt
market is the fourth largest Debt Market in Asia with a
Debt Market Capitalization of INR 20 trn (USD 505bn).
Further, India’s Government Bond market is one of the
largest after Korea and China. (ref. chart1)

Chart 3: Returns and volatility of local currency bonds (Source: HSBC AXJ Guide 2007)

4) Maturity profile of Government Bonds: This is an

indicator of Market depth. India has a longer average ma-
turity profile than other AXJ countries and a well devel-
oped yield curve up to 20 years .The Indian FI market is
deep and liquid in longer dated bonds which can extend
up to 20 yrs. India thus has a deep market in Government
bonds.

Chart 1: Chart 1: Local Currency Bond Market Size (Source: HSBC AXJ Guide 2007)

2) Bond Market Growth: Growing at a CAGR of

18.56%, it is the fourth fastest growing bond market
among AXJ countries after China, Thailand and Vietnam
(over the last three years) Thus we can see a tremendous
growth potential in Indian markets as opposed to many
other countries in the AXJ space.(ref.Chart2)

Chart 4: Maturity profile of Government Bonds (Source: HSBC AXJ Guide 2007, CCIL
data 2007), Reuters

Chart 2: Bond Market Growth (Source: HSBC AXJ Guide 2007)
3) Returns and Volatility: India ranks highest in
terms of average Annual Return from local currency
bonds (10.64%) in AXJ space making it an attractive in-
vestment option to investors. The Indian bond market
also has maximum volatility in the AXJ space allowing
5) Other Factors :
• Market for Corporate Bonds: Even though the
corporate bond market in India is not too big, it has the
third largest corporate bond market among AXJ space af-
ter China and Korea with total corporate bonds outstand-
ing of USD 5 bn. There exists a huge potential for devel-
opment in this space given that liquidity for these bonds
is improved in the secondary market. The regulators are
thus focused on improving the depth and liquidity in this
market and credit derivatives have been introduced in
the Indian Market.(ref. Chart5)
Page 22

Niveshak Volume 2 Issue 3 April 2009


Chart 5: Corporate Bonds Outstanding (Source: HSBC AXJ Guide 2007, CCIL data 2007,
Reuters)
• High potential for Convertible Bond market: India’s
equity market is the third largest in terms of equity market
capitalization after China, Korea in the AXJ space and fourth
largest in terms of annual equity turnover after Korea, China
and Taiwan. This indicates the high potential for Convertible
bond market in India. (ref. Chart6)
Chart 6: Equity Market Size and Turnover (Source: S&P Fact Book 2007, ISMR Journal
(NSE) 2007)
• Interest Rate Swap Market: India has the third highest
IRS market daily turnover of USD 4bn. among the AXJ countries
after Korea and Singapore. (ref. Chart7)
Chart 7: Interest Rate Swap Market Turnover (Source: HSBC AXJ Guide 2007, CCIL data
2007, Reuters)
If we look at all the above factors we can notice that India
seems to be consistently among the top three- four among the
AXJ countries right after China and Korea on most of the factors.
Thus it is evident that the bond markets in India have a high
© The Finance Club, Indian Institute of Management, Shillong
Food for thoughT
potential for growth in the near future and banks may engage
in profitable domestic bond trading in India in the near future.
There are a number of macroeconomic factors which in-
dicate a bright future for the Indian debt market in the future.
The story of Equity growth has become questionable with the
SENSEX declining by more than half from the all time high in
Jan 2008 and the impact of the global financial crisis on the
markets. Secondly, events like the Blockbuster IPO of Reli-
ance Power which was oversubscribed 72 times, now trading
at much lower than issue price and cancellation of several
IPO’s has added to the skepticism towards equity investment.
Thirdly, overseas borrowing has become very expensive owing
to credit crisis and RBI. Finally, the government’s requirement
of long term financing for Infrastructure is not fulfilled by the
equity markets. Moreover with the global credit crisis, the gov-
ernment must turn to the domestic bond markets for funds.
The way ahead
The above factors indicate a very high potential for the
growth of Indian debt markets. A few large Indian names al-
ready active in off-shore bond market-ICICI, Reliance, Bank of
India, Canara Bank, SBI, Vedanta, IDBI. However a number of
gaps need to be filled before the dream of a strong debt mar-
ket could come true. The three key features that an investor
looks in any investment are: Return, Risk & Liquidity. The in-
vestment must be favorable to the investor in at least two of
the above aspects. Thus for the Indian debt market to reach its
full potential, some of the below listed measures may need to
be implemented:
• Increasing investor awareness about Government se-
curities as an option for investment and improving liquidity in
the secondary market that will provide them with an exit route
• Incentivizing and encouraging infrastructure projects
to raise funds through the debt route. This will help deepen the
market ( due to longer maturity periods of these bonds)
• Improving Transparency by trading bonds on the ex-
change rather than OTC, leading to higher competition, better
price discovery and better supervision and enforcement of trad-
ing norms.
• Leveraging existing equity trading Infrastructure can
be modified to work for debt trading.
• Disintermediation and removal of the system opera-
tor: Introduction of IT in the system to reduce the number of
middle parties like primary dealers to reduce cost inefficiencies.
Thus among the AXJ countries India is one of the most at-
tractive destinations to set up a fixed income division. In wake
of the recent sub-prime issue and its impact on the Indian mar-
kets, current investments in the debt market (especially deriva-
tive instruments and structured products) may be have been
surrounded by a lot of questioning and skepticism. But in the
longer run given all the above stated factors like high returns
and volatility and a deep government bond market, trading in
fixed income instruments in India will be profitable. The need
of the hour is to implement the necessary measures to increase
transparency and generate awareness about the debt market
among Indian investors. Once these are implemented, and the
macroeconomic conditions return to a slightly more normal
condition, it is not too difficult to foresee a bright future for the
Dalal Street in the Debt Segment
By Anuradha S
IIM, Bangalore
Page 22
 OpinioN

Nigeria
A World of oppurutunities

T he country Nigeria is associated only with oil, fight,

killing… and its only these bad things that come to
mind (at least that’s what came to my mind when I heard about
a chance to go to Nigeria). But after landing there I got a differ-
ent perspective altogether. The people are very happy, friendly,
warm and kind. Did you know that they are the happiest people
on earth!(2003 survey conducted by New Scientist) No doubt
the country is ransacked, even by the government but the peo-
ple here live with a hope that things will turn around and for
the better. Almost 80% of the revenues coming from oil go to
the government and it has done little to improve the livelihood
of the people. Some of the interesting things I noted are,
• They greet everyone and if you don’t greet back they
think that you are rude
• ‘Okada’(bikes) is a mode of public travel – mostly
Bajaj CT100
• They spend more and try to live their life to the fullest
• Most middle class families own a car
(mostly second hand)
• There is no railroad service
• Almost the entire country runs on generator
(hence diesel is costlier than petrol)
If you look closer at it, Nigeria itself is three countries by
demography and two by religion. The main religions are Chris-
tians and Muslims, and since this country is primarily import
driven the cost of living is on the higher side. The expats should
go around with caution as some see them as moving banks! One
of my friend told me that he was robbed at gun point and when
he went the next day to the police station to complain, he saw
the same there as a cop!!! But the good news is that they don’t
hurt you if you just give them what you have.
Then where are the opportunities? With high risk comes
a high return. Majority business here is NOT matured and there
is a lot of scope for growth. There is also room for mistakes
unlike country like India. The government is planning a lot to
ensure that Nigeria is on top 20 Nations by 2020, and there are
some steps taken towards the fulfilment of it. The economy
of Nigeria is one of the fastest growing in the world with the
International Monetary Fund projecting a growth of 9% in 2008
and 8.3% in 2009. Doing business in Nigeria (rank 108 in 2008) is
easier than India! (120 in the same period), according to “Doing
business database”.
Banking is the most booming sector with 15 of the top 20
scrip’s( in terms of market capitalization) are banks and these
the banks are posting continues two digit growth and they are
all in expansion spree.
Oil continues to be the sector which contributes to ma-
jority of the export revenue. According to Oil and Gas Jour-
nal (OGJ), Nigeria had 36.2 billion barrels of proven oil reserves
as of January 2007. The Nigerian government plans to expand
its proven reserves to 40 billion barrels by 2010. Nigeria is the
world’s eighth largest exporter of crude oil and the country is a
major oil exporter to the United States. In 2006, Nigeria’s total
oil exports reached an estimated 2.15 million bbl/d. Security is
of major concern for the expats working in the Oil companies
(especially in Port Harcourt). But still companies continue to
invest, primarily because it the world’s 8th largest producer of
the black gold.
Telecomm is one of the fastest growing sectors in Nigeria.
Major telecom companies like MTN, Glo, Starcomms are widely
present. Almost everyone has two connections! One CDMA (like
MTN) and other is the GSM (like Glo). The primary reason being
the communication across network is not good and it’s also
costly. You don’t need to give any documents/proof to get a
connection, all you need is 300 Naira’s (around $2) and you have
a connection that works! Internet is quietly picking up. VOIP
is the happening thing in the corporate communications and
companies are slowly moving towards it.
All in all the next phase of growth will be seen in devel-
oping and underdeveloped country so pack your backs and see
you in Nigeria!
(The author of this article did his Winter Internship with To-
laram Group and was posted in Lagos, Nigeria for two months This
article is his view on the economy of Nigeria.)

By PNV Kannan
command almost 50% of the total market capitalization. About
21 companies got listed in the year 2008. In 2006 Nigeria’s bank-
ing sector successfully completed a consolidation program un- IIM, Shillong
der the supervision of the Central Bank of Nigeria. In 2007 Ni-
gerian banks such as Intercontinental Bank and Guaranty Trust
were the beneficiaries of significant foreign investment. Most of
Page 22

Niveshak Volume 2 Issue 3 April 2009

 FinloungE

FinQ
1. Who am I????

a) I fled Nazi Germany to settle in America. During late 1970’s I served as the vice chairman of the board of American Stock
exchange. My core competency was hedge funds which is my pioneering concept.
b) I was proposed by Mr. John Maynard Keynes in 1944, but I never came into being. I am still being mentioned whenever there is
a meeting of IMF related to inflation. Can you please mention my origin place?
c) d)

e) I founded a bank (Indian Bank) which completed its 100 years in 2006. The bank founded by me nationalized in 1969. It also has
the reputation of being the first bank to be conferred with ISO 9002 certification. Please name my bank also.
f) I came into being under the rule of Philip the Good in Belgium. I was burned down in 1858. You can call me great great grand
father of Wall Street.

g) I am the first first private sector mutual fund of India. I got merged to Franklin Templeton.

2. What is common between Sir Benegal Rama Rau, K. G. Ambegaokar , H V R Ienga and Dr Manmohan Singh.
All of them differ slightly from Sir Osborne Smith, Sir James Braid Taylor, Chintaman Dwarkanath Deshmukh.
What is the difference?

3. Which was the first public sector mutual fund to be set up after the Unit Trust of India and which year?

All Enteries should be mailed at niveshak.iims@gmail.com by 10th May 2009 23:59 hours
One lucky winner will receive cash prize of Rs 500/-
Page 22

© The Finance Club, Indian Institute of Management, Shillong

 Team niveshaK

ARTICLE OF THE MONTH

The article of the month for March 2009 goes to Mr. Mayank Sinha and
Mr. Girish Rathor of IIM Kozhikode. They recieve a cash prize of Rs.1000/-.
CONGRATULATIONS!!

Fin-Q Winner for Last issue

Mr. Shyam Krishna of IIM Shillong. He receives a cash prize of Rs.500/-.
CONGRATULATIONS!!

All Are INVITED!!

The team Niveshak invites article from B Schools all across India. We are
looking for original articles related to finance & economics. Students can
also contribute puzzles and jokes related to finance & economics. Refer-
ences should be cited wherever necessary. The best article will be featured as
the “Article of the Month.” and would be awarded cash prize of Rs.1000/-

Please send your articles before 10th May 2009 to niveshak.iims@gmail.com. Do

mention your name, institute name and batch with your article.
Format: Font:- Times New Roman, Size:- 12, Length <= 5 Pages in word doc/docx.
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Number of authors 2 at max.

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Niveshak Volume 2 Issue 3 April 2009

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Finance Club
Indian Institute of Management, Shillong
Mayurbhanj Complex,Nongthymmai
Shillong- 793014