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Reliance – Flag Telecom .

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Vinod Khosla .

Indus Advisory Partners .

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Investment Services .

Insurance Services .

Credit Services .

Insurance Services Investment Services Credit Services .

Investment Services Why do we invest ? .

What drives us to seek investment services ? .

Transactions driver Precautionary driver Income driver .

Transactions driver to save and invest arises from the fact that the time patterns of flow of income and expenditure do not usually match. Most of us get our income monthly. . but we spend daily. That is the reason we use a Savings Account. Even for those of us who may be in business or profession our income does not come in exactly in keeping with our expenditure.

Patterns of flow of income and expenditure over one month Excess of income over expenditure Excess of expenditure over expenditure Income Expenditure June 1 June 30 .

it continues to increase as the family grows and its requirements increase. for instance. as we set up a family and home it increases. say for instance). In our early carrier our expenditure is usually low. and then it may fall sharply. That’s where we use the Fixed Deposit Account. it peaks at the time of children’s higher education and settling down in life.Similarly the time pattern of earning income during our lifetime does not always match the time pattern of our expenditure during our lifetime. and then it may decrease. The income normally increases steadily upto a certain age (retirement. .

Excess of income over expenditure Expenditure Income Excess of expenditure over income Excess of income over expenditure Age 25 Age 75 .

is the transactions driver. The driver which causes us to invest for this motive. we need to carry purchasing power from when we have more of it to when we have less of it. Investment is therefore used as a storage of purchasing power. in the short term or long term. .In both these cases. because the time patterns of flow of our income and expenditure do not match.

But for a difference : while the transactions driver makes the investor save and invest for a foreseen and planned need in future. if at all it occurs. It is very similar to the transactions driver. he would like to make a provision. . which may need him to spend. or even a desirable event.Precautionary driver to save and invest arises from the investor’s desire to provide for an unforeseen event. the precautionary driver is about an unforeseen need in future. It could be a sickness. He does not want to be caught on the wrong foot. with that in mind. anything. an accident. And. like an opportunity to purchase something. The investor only feels the existence of a possibility of a certain event occurring.

Investing for a rainy day ! .

When an investor is saving and investing driven by the first two drivers.Income driver is very different from the rest of the two. . he is trying to increase his future purchasing power. investment is for him like a fridge where he can store his purchasing power or money. But when he saves and invests for income driver. he is not trying to carry over his purchasing power into future. rather. his sole purpose in saving and investing is to increase his future income. In other words. he is trying to carry his purchasing power into future.

he creates a source of income for future.How does this happen ? When an investor saves and invests. or that he expects to have in future. .The income from this source adds to the income that he already has.

. . .the need to move to a higher standard of living.the need to carry purchasing power over time.the need to provide for a rainy day.It is these needs that drive us to seek investment services : .

Can a random basket of investment services provide a total investment solution ? .

Therefore the need to pick an investment service to match the driver. .

Insurance Services Why do we buy insurance ? .

What drives us to seek insurance services ? .

Life and Health Protection Pension .

and which may cause financial distress to us and/or our households. against certain adverse events that may occur in future. that is we and our households.Life and Health Protection We wish to protect ourselves. . This protection can come from transferring this risk of financial distress to another person for a price. It is this need to transfer the risk which drives us to buy insurance.

Any adverse event causes financial distress only when there exists a dependency relation between the affected member of the household and the rest of the household – that is only when the household depends on his/her income for sustenance. may be the cause of financial distress. In case of death. All these events are uncertain events. . we are certain that it will occur. Death in itself may not cause financial distress.The financial distress may be caused due to :    Death of the income earner.  Any other event with similar effect. that is. but we do not know when it will occur. And this makes a big diffference. Critical illness of the income earner. but the time at which it occurs. for instance. Sickness in the household. we cannot know with certainty when they will occur. if at all they occur.

. needs us to have an alternate source of income.Pension Pension is protection against a diametrically opposite risk as that in the case of Life Protection driver. While Life Protection motive drives us to buy insurance to guard against the risk of dying ( or falling critically ill ) too young. Living beyond the age at which we can work and earn. Pension is that alternate source of income. the Pension motive drives us to buy insurance to protect ourselves against the risk of living too long.

But we may live beyond this period. can be perceived and created in two ways. the period also gets fixed. Thus this approach to pension carries a risk : the same risk of living too long. as an alternate source of income. . But here the quantum of pension would depend upon the period for which it is drawn. by creating a corpus from which pension may be drawn over a period of time. If the quantum of pension is fixed.Pension. One.

for a price. If my chance of dying by age 50 is 30/100. Here again. This is the second driver of insurance – the pension driver. The risk of living too long is exactly opposite of the risk of dying too young. It is this need to transfer the risk which drives us to buy insurance. as in the case of Life Protection. we need to transfer this risk to another person. The same probability table – what the insurers call the mortality table – which tells me what is my chance of dying by age 50. my chance of living beyond age 50 is (100-30)/100. that is 70/100. tells me what is my chance of living beyond age 50.And we need to cover this risk. .

the need to transfer out the risk of living too long.the need to transfer out the risk of dying too young.It is these needs that drive us to seek insurance services : . . .

Therefore the need to transfer it. . and the cost of such transfer will be different. In fact the risk that she carries may be different.But every individual’s perception of risk is different.

solution is Off – the – shelf purchase of insurance products is inappropriate. Therefore a holistic plan for personal security is what is called for.One size fits all therefore inadequate. .

Credit Services Why do we opt for credit ? .

What drives us to seek credit services ? .

as happens in the case of credit cards : we do not need to carry cash in our pockets. .Convenience We may opt for credit for sheer convenience. we can make payments in lumpsum ( as by paying the credit card bill ) instead of making several small payments. etc.

By availing credit – buy now. pay later – we try to match the time patterns of income and expenditure. . in short term and long term.Financial Efficiency Financial efficiency could come in two ways :  By overcoming differences in time patterns of income and expenditure.

Here credit works exactly in the same manner as investment for transactions driver. While investment modifies the time pattern of income to match the time pattern of expenditure. credit modifies the time pattern of expenditure to match the time pattern of income. . but in the opposite direction.

if any. and borrow for the expenses. it makes sense to invest the surplus income.The second way in which credit can achieve financial efficiency is :  By trading off on the cost of credit and return on investment. If the post tax cost of credit is lower than the post tax return on the investment. .

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Insurance Services Investment Services Credit Services .

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.What is microfinance ? Microfinance refers to investment. insurance and credit services targeted at low-income clients who do not have access to these financial services as of now.

often household-based entrepreneurs. they are usually small farmers and others who are engaged in small income generating activities such as food processing and petty trade.The typical microfinance clients are low-income persons who do not have access to formal financial service providers. In rural areas. . Microfinance clients are typically self-employed.

. and include shopkeepers. street vendors. domestics. microfinance clients are more diverse. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.In urban areas. etc. artisans.

Access to conventional formal financial services providers. is directly related to income: the poorer you are. . Individuals in this excluded and under-served market segment are the clients of microfinance. the less likely that you have access. may be exploitative or may exclude a certain market segment. Moreover. for many reasons. informal sources of financial services may not suitably meet certain needs.

micro investment micro insurance micro credit .

there the market is. . Where the drivers are.Yes.

The problem is of scaling down the delivery model for these services. . The problem of critical minimum size.

minimum annual premium for insurance. and so on … the poor and vulnerable non-poor cannot meet this minimum requirement. . there is a minimum amount for investment.For instance.

This market segment needs the services in small sizes. and it can afford to pay the relative price. .

Yes. mainly in information storage & processing and communications makes it possible to scale down without increasing the cost of delivery. . Technological development.

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married. 1.Name: Gudpally Pultibai Hometown: Gudpally Village Children: Two sons First Loan: Rs.000 ($227) Loan History: 4 loans (2 IGL and 2 MTL).000 ($521) Business: Grocery Store Owner . 1 daughter.000 ($136) Business: Fishing Name: Suvarna Age: 32 Children: 2 daughters.500 ($34) Second Loan: Rs. Rs. 6. 23. 7th grade Hometown: Nandi Kandi Current Loan: Rs. 10.

000 ($136) Business: Buffalo and Agriculture .K. Name: Kondapur Saalibai Hometown: Kondapur Village. Andhra Pradesh. 4. Business: Bicycle shop owner. 6. divorced Children: Masan Jani. Medak District Children: One son First Loan: Rs. Pahima Age: 25 years old.000 ($91) Current Loan: Rs. Gau. 5 years old Hometown: Neredparla.Name: S. 1.945 ($44). Rs. 7 years old. Most recent loan: mid-term loan.

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Banker India March 30. 2007 .

Banker India March 30. 2007 .

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2007 .Banker India March 30.

2007 .Banker India March 30.

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Banker India

September 17, 2007

Banker India

September 17, 2007

Banker India September 12. 2007 .

2007 .Banker India September 12.

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2007 .Banker India September 10.