Friday, August 31, 2007

Micro-Finance for Rural Empowerment

Ever since the Grameen Bank of Bangladesh pioneered and succeeded in the concept of Micro-Finance, a lot of NGOs and other organizations across the world started implementing it in their countries. The waves of this occurred in India too.

In Micro-Finance, loans of lower denominations (Rs. 500, Rs. 1000 etc.) are given to people for a short term (3 months, 6 months, 1 year etc.) and the payment frequency is typically in weeks. These loans have an astounding repayment rate of more than 98% which even front-line banks aren’t able to match. Such loans are similar to the normal village lending we see in local markets and mandis.

A lot of organizations in India work towards giving micro-credits to rural entrepreneurs. Vikram Akula's SKS Micro-Finance has made its niche in the Indian sub-continent and has shown a phenomenal growth rate, changing lives of millions. A lot of NGOs are also in the foray. While there are criticisms against Micro-finance saying that it will take the rural entrepreneur to a perpetual debt trap, the interest rates charged are very high etc., the positives of Micro-finance can’t be ignored. It gives a villager the money he requires at the time he wants for starting his own small business or buy a cow and things like that. Some banks are even giving micro-loans to rural entrepreneurs considering it as part of CSR (Corporate Social Responsibility). This is indeed a commendable effort.

India, as a developing nation, needs to up-bring people in the rural areas. This is because, though India is growing at an amazing growth rate of 9% and about to touch a two digit one, the facts remain that more than 70% of the population lives in villages, depending primarily on agriculture, and the growth rate shown by agricultural sector was only 2.77% in the last financial year. The growth rate of India is majorily contributed by Services and Manufacturing sectors and this suppresses the insufficient growth rate of agricultural sector and the huge majority depending on that from coming to the limelight. This is definitely not a good situation. Because, a nation can be considered to be ‘developed’ only when it’s entire population achieves economic stability, not just the urban population or just lone sectors! Let’s hope that these small efforts done by Micro-finance institutions and banks would mark the beginning of a new economic revolution in India.

Thursday, August 30, 2007

Reverse Mortgage; a boon to the old

This year's Union Budget recommended to implement Reverse Mortgage in India. Reverse mortgage makes it possible for a senior citizen to lend his house to a bank for which he will get monthly payments from the bank till he dies. He can live in the house till his death and on the event of his death the bank will get the ownership of the house. In a way Reverse Mortgage is the selling of a house to a financial institution for which the financial institution will pay the estimated value of the house in monthly installments. Thus it could be considered converse of a housing loan, hence the name Reverse Mortgage.

The monthly payments are based on the estimated value of the house (considering the age, locality etc. of the house) and the expected age of death of the person. For old people who own a house and don’t have anyone to take care of them or don’t have sufficient income of their own for their living, this is indeed a boon.

On the other side, banks will get to sell the house after the person’s death by which they will get their money back. Thus it’s a very good opportunity for them too. And we can already see banks running for the pie.

Few days back, I saw a cartoon in Mathrubhumi, the Malayalam daily, on which the daughter-in-law and grandchildren of an old couple is taking good care of them for fear that the old couple might reverse mortgage their house and hence there is a chance that the daughter-in-law would lose the house! Guess this would decrease the number of old-age homes in India. And the saas-bahu serials in TV channels would also come to an end soon.

Wednesday, August 29, 2007

MF Entry Load

A sum equal to 2.25% of the investment amount is taken by Mutual Fund Houses of India as an entry fee for the investment made by investors. Majority, or even whole, of this amount is given as commission to brokers who act between investors and fund houses. The brokers market the fund, provide financial advisory services to investors and do the required paper work.

Possibility of making investments online eliminated the need of a broker. Still, the entry load is levied by fund houses, which seem kind of illogical. SEBI (Securities and Exchange board of India), the regulatory authority of securities market came out with a welcome move in this regard.

Business Standard says, “The SEBI on Wednesday brought out a concept paper proposing to do away with the entry load charged by mutual funds through direct route. If the current proposal is accepted, mutual fund investors will not need to pay entry load for applications filed online or through AMC collection centers. The proposal is open for public comments till September 12, 2007.”

This is indeed a great proposal from SEBI as investors are paying for nothing, when they make an investment online. But yes, this would be a major blow to the broker houses as they stand to lose a lot of money when people prefer online investments for saving the entry fee. Public comments can be send to SEBI on this proposal. More details here.

Tuesday, August 28, 2007

Mobile Bank

I was bit surprised when I saw this van on the by-pass in Thiruvananthapuram with 'Mobile Bank - District Co-operative Bank' written on its side.

The van, like other Mobile services such as Mobile Hospital, Mobile Shops etc., travels to the nuke and corners of the city and its suburbs to give banking services to the common lot. Felt it as a great concept as this would be really useful for people who can't access a bank's services due to various reasons; may be lack of accessibility or time. It also shows the customer focus of the bank.

Wonder when one such van from the bank that holds my salary account would come to my office so that I could do transactions without spending much time on travel and all. Indeed, to be copied by the great banks of India.