Saturday, October 24, 2009
Monday, October 19, 2009
Monday, October 12, 2009
Monday, September 07, 2009
It turns out that the concrete jungle of New York City was once a vast deciduous forest, home to bears, wolves, songbirds, and salamanders, with clear, clean waters jumping with fish. In fact, with over 55 different ecological communities, Mannahatta’s biodiversity per acre rivaled that of national parks like Yellowstone, Yosemite and the Great Smoky Mountains!The project uses detailed maps of the island created by British Army cartographers in 1782 together with a knowledge of the ecology and species around at the time to create computer-generated 3D images of Manhattan in the 1780's. There is a full 3-D topography of the island complete with vegetation going back to 1609. Heck, you can even look up specific addresses and see what it looked like way back when. Incredibly fascinating, and not just if you're addicted to Manhattan.
Obviously, they aren't too serious about the filtering because I am using a very simple proxy to route around the block. In the meanwhile, on telly, there is the shocking spectacle of horrible Indian soaps dubbed into Chinese. This is just so goddamn wrong...
Monday, August 31, 2009
With free markets in retreat, economic development risks losing one of its foremost drivers. People forget that economic growth in India and China alone, fostered by open markets, has lifted hundreds of millions out of absolute poverty over the past 15 years. A crisis is a terrible thing to waste, so this is a good time for capitalism's greatest beneficiaries to bring its sheen back. Philanthropy can play a pivotal role in catalysing markets and market-based solutions that promote inclusive economic growth in developing countries.Dr Reuben Abraham is a professor and executive director of the Centre for Emerging Markets Solutions at the Indian School of Business, Hyderabad.
Developing countries are plagued by instances of mispriced risk, where the perception of risk is often far greater than the reality, which drives up the cost of capital. Though market clearance – in which supply is equal to demand so the market 'clears' – is a central tenet of free markets, a nudge is often required to kick-start markets. Philanthropic capital with a longer horizon can very effectively provide this stimulus, demonstrating a market opportunity into which commercial capital then flows.
Small and medium enterprises (SMEs) are traditionally an economy's largest job creator, so any developing country aiming for rapid and inclusive growth requires a robust SME sector. Contrary to popular opinion in venture capital circles, real investment opportunities may well lie in ‘bread and butter’ industries with a high or exponential correlation to GDP growth and huge social impact (waste management, for instance, or logistics and warehousing). The first true exit for a venture capital firm in India is likely to come next year in a business with a high social impact: microfinance. The bottom line in these businesses is that social and financial returns are not mutually exclusive.
There are several factors that retard the growth of SMEs, including lack of policy, limited knowledge networks and poor management skills, but availability of finance is key. Realizing this, the Soros Economic Development Fund, Omidyar Network and Google.org have set up the SONG Fund at the Indian School of Business to invest in early-stage companies that will generate financial and social returns without compromising on either. There is enormous scope for long-term 'patient' capital to be deployed effectively. For instance, with 80 per cent of India's healthcare system in the private sector, our research reveals an opportunity to help build an asset management business around low-cost healthcare services.
Low-income housing is typically ignored in developing countries, and slums and shanties are a poor substitute. Market surveys in India have shown that there is a shortfall of 25 to 35 million houses in the $4,000 to $30,000 price segment. Our research shows that it is possible to generate internal rates of return of 40–60 per cent by building for the lowest end of the market. We have set up a for-profit housing company that will build houses for between $4,000 and $6,000, targeted at the working poor.
In doing so, we have identified several opportunities for catalytic philanthropic capital to play a role, besides the obvious as investors. There is a serious inability to access project finance, so anyone who can provide a first-loss guarantee can effectively catalyse the market and bring even smaller developers to the table. Similarly, end customers in the developing world can incur severe penalties for defaults and late payments arising from cyclical cashflow problems such as illness or unemployment. A payment protection insurance plan funded initially by philanthropists could offer incentives to mortgage providers and banks to offer loans.
The CARE Protected Note, developed by Derilab SA of Switzerland, offers investors the option to support a large low-income Pakistani school system that is based on a public-private partnership, and to participate in a structured product with capital protection at maturity. A yearly coupon will be paid to the CARE Foundation only if the school system grade average is greater than the regional average; if not, the coupon is returned to the investor. The CARE Protected Note offers the investor a tradable and liquid financial product, where investments in a liquid underlying asset generate positive returns. This mechanism not only provides incentives for all parties, and protection and returns to the investor, but also sources capital for charitable projects that is more sustainable than donations.
These three examples of innovations clearly show that the 'base of the pyramid' market segment needs more financial ingenuity, not less. Many more exist. Most just need a nudge from smart philanthropic capital to see the light of day.
1. SONG is an acronym for Soros, Omidyar Network and Google.
Wednesday, August 26, 2009
Tuesday, August 25, 2009
Ahmadinejad's government is getting nuttier by the day. In the meanwhile, I hope better sense will prevail and Kian will be released soon, especially since he was released from Evin prison just two years back after another brief spell of incarceration.
Thursday, August 20, 2009
Reuben Abraham, assistant professor and director of the Emerging Market Solutions Initiative [Ed Note: It should read Exec Director and Centre for Emerging Markets Solutions now] at the Hyderabad-based Indian School of Business (ISB), points out that business success must come first. "At its core, Fabindia is a sourcing business," he says. "Everything else that they do -- making weavers [into] shareholders, etc. -- is peripheral to their main activity."
"Capitalism at its core is basically agnostic," says Abraham of ISB. "It does not try to be inclusive or exclusive. Capitalism is about optimal allocation of resources. The more it is allowed to thrive, the higher the number of people who will be impacted positively by [its] growth. So, in that sense, being inclusive is perhaps a natural process. But for this to happen, what is really needed is more liberalization and fundamental reforms. For instance, until 1995 the fruits of telecom were not available to 95% of the country. Because of the reforms in this sector, [they are] now available to 50% of the country.... In this sector, capitalism has become a force for good. We could have the same thing happen over and over again in different sectors."
Corporations naturally go for high-margin customers in the beginning, Abraham notes, but given that there is a very small number of high-margin customers in India, they will have no option but to look at other segments of the population. "These are natural consequences of a well-regulated market at work. The problem really is: What is the optimal amount of regulation in a sector and who decides that? In my opinion, it is an iterative process. This is a journey that needs to be figured out by trial and error."
If regulatory reforms don't take place, "corporations will be forced to do inclusive capitalism [Ed Note: Not sure what this means]. Otherwise, there will be social unrest. The issue then will be about the level of commitment of the corporates given that they always have to walk the thin line between their responsibilities toward the shareholders and the society at large."
Reforms are the key, Abraham says. As an example, he notes that various studies show that urban slum dwellers are willing to spend as much as 30% of their household income on educating their children in private schools. "This means that demand clearly exists. The reason that supply does not exist to meet this demand is because of regulations that don't allow profit-making in education."
Tuesday, August 18, 2009
And while we're on the topic of lists, here are the top 20 movies made since 1992, according to Quentin Tarantino. Fabulous bunch of movies.
Saturday, August 15, 2009
As you can see, the share of coal is dropping and of renewables on the rise. The real increase, however, will be in nuclear as the nuclear agreement kicks in. For those of you who are curious, here are the all the numbers (rounded off).
Total installed capacity: 149,392 MW
Thermal -- 95,152 MW
Hydro -- 36,877 MW
Nuclear -- 4,120 MW
Renewables -- 13,242
Today in India, some poor neighborhoods are being "carpet-bombed" with loans, says Rajalaxmi Kamath, a researcher at the Indian Institute of Management Bangalore who studies the issue. In India, microloans outstanding grew 72% in the year ended March 31, 2008, totaling $1.24 billion, according to Sa-Dhan, an industry association in New Delhi. "We fear a bubble," says Jacques Grivel of the Luxembourg-based Finethic, a $100 million investment fund that focuses on Latin America, Eastern Europe and Asia, though it has no exposure to India. "Too much money is chasing too few good candidates."The Economist piece is not anecdotal and busts a few myths about the "miraculous curing powers" of microfinance. Some background first.
Here in Ramanagaram, a silk-making city in southern India, Zahreen Taj noticed the change. Suddenly, in the shantytown where she lives, lots of people wanted to loan her money. She borrowed $125 to invest in her husband's vegetable cart. Then she borrowed more. "I took from one bank to pay the previous one. And I did it again," says Ms. Taj, 46 years old. In four years, she took a total of four loans from two microlenders in progressively larger amounts -- two for $209, another for $293, and then $356.
At the height of her borrowing binge, she says, she bought a television set. The arrival of microfinance "increased our desires for things we didn't have," Ms. Taj says. "We all have dreams." Today her house is bare except for a floor mat and a pile of kitchen utensils. By selling her TV, appliances and jewelry, she cut her debt to $94. That's equal to about a fourth of her annual income.
Many of the problems in Indian microlending might sound familiar to students of the U.S. mortgage crisis, which was worsened by so-called "no-documentation" loans and by commission-paid brokers. Similarly in India, microlenders' field officers are often paid on commission, giving them financial incentive to issue more loans, according to Ms. Kamath. Lenders are aware that applicants often lie on their paperwork, says Ujjivan's founder, Samit Ghosh. In fact, he says, Ujjivan's field staffers often know the real story. But his organization maintained a policy of "relying on the information from the customer, rather than our own market intelligence."
It's tough to monitor how borrowers spend their money. Ujjivan used to perform regular "loan utilization checks," but stopped because it was so costly. Now it only checks in with people borrowing more than $310, Mr. Ghosh says.
Despite growing interest from private investors, 53% of the $11.7 billion that was committed to the microfinance industry in 2008 still came at below-market rates from aid agencies, multilateral banks and other donors. Given that there are other things that aid money could be spent on, and that the rationale for subsidising microcredit is its effectiveness as an anti-poverty tool, it is important for donors to know whether it has the advertised effects.So, the next time you hear someone mouth off about how micro-finance is going to eradicate poverty, hit that pause button. If something sounds too good to be true, it probably is.
Two new papers* apply this idea to measure the effect of access to microcredit. Researchers from the Poverty Action Lab at the Massachusetts Institute of Technology (MIT) worked with an Indian microfinance firm to ensure that 52 randomly chosen slums in the city of Hyderabad were given access to microfinance, while 52 other slums, which were equally suitable and where the lender was also keen to expand, were denied it. This allowed the researchers to see clearly the effect of microcredit on an entire community. Dean Karlan of Yale University and Jonathan Zinman of Dartmouth College carried out a similar exercise in the Philippines, this time at the level of the individual borrower. They tweaked the credit-scoring software of a microfinance firm so that only a random subset of people with marginal credit histories were accepted as clients. These clients could then be compared with those who sought credit but were denied it.
Broadly speaking, neither study found that microcredit reduced poverty. There was no effect on average household consumption, at least within a year to 18 months of the experiment. The study in the Philippines also measured the probability of being under the poverty line and the quality of food that people ate, and again found no effects. Microcredit may not even be the most useful financial service for the majority of poor people. Only one in five loans in the Hyderabad study actually led to the creation of a new business. Providing people with safe places to store their (small) savings may help them more in the long run.
Saturday, August 08, 2009
Like in the 1970s the Fed is denying the inflation risk due to its loose monetary policy. The longer the Fed waits, the higher the inflation will peak. When inflation starts to accelerate, it would cause panic in financial markets. To calm the markets, the Fed has to tighten aggressively, probably excessively, which would lead to a massive dollar rally. This would be the worst possible situation: a strong dollar and a weak US economy. China’s asset markets and the economy would almost surely go into a hard landing.He then looks at the Chinese market today.
Chinese stock and property markets have bubbled up again. It was fueled by bank lending and inflation fear. I think that Chinese stocks and properties are 50-100% overvalued. The odds are that both will adjust in the fourth quarter. However, both might flare up again sometime next year. Fluctuating within a long bubble could be the dominant trend for the foreseeable future. The bursting will happen when the US dollar becomes strong again. The catalyst could be serious inflation that forces the Fed to raise interest rate.Add demographics to this mix.
Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast.
The most serious damage that a property bubble inflicts is in changing demographics. High property prices bring down birth rates. When property prices decline after a bubble bursts, the low birth rate culture cannot be changed. Hong Kong, Japan, Korea, and Taiwan all went through property bubbles during their development. Their birth rates dropped during the bubbles and didn’t recover afterwards despite government providing incentives. China’s one-child policy alone will lead to a demographic catastrophe in two decades. The property bubble makes the trend irreversible: when the government abandons the one-child policy, there wouldn’t be meaningful impact on birth rate.The trouble is I see something very similar happening in India vis-a-vis asset bubbles. I think the current *recovery* in the equity markets and real estate is more likely to be linked to the weaker dollar rather than any fundamental change; corporate earnings, for example remain weak.
If you want to know more, go here.
Wednesday, July 15, 2009
Here is a book review I wrote recently for Insight, an in-house publication at the ISB.
A good financial crisis is a terrible thing to waste. Especially for historians.
I don’t always like Niall Ferguson’s interpretations of history, especially his seeming high regard for imperialism, but the fact is he is one of the most influential historians of the last decade. From his perch at Harvard, this British historian has written about everything including World War I, the Rothschilds, the British empire and the savagery of war in the 20th century.
In the Ascent of Money: A Financial History of the World, Ferguson provides an easy to digest financial history of the world. The book is a romp through history from Babylonian credit systems to Pizarro’s search for El Dorado, to the birth of modern banking in Northern Italy, through to collateralized debt obligations and the spectacular collapse of the financial sector in the last year.
In the process, Ferguson introduces the reader to colourful characters and interesting historical episodes. We get to meet a Scottish outlaw and murderer named John Law, who Ferguson argues was partly responsible for the French revolution by unleashing a stock market bubble that ended up destroying the French financial system. Ferguson suggests that the Dutch prevailed over the Habsburgs because having the world’s first modern stock market (and access to a thriving bond market) was preferable to owing the world’s biggest silver mine. Most of us believe that it was the Duke of Wellington’s heroics that defeated Napoleon at Waterloo. Ferguson argues that Nathan Rothschild played an equally important part. Apparently, Rothschild used his experience as a gold smuggler to make vast quantities of continental gold available to the Duke of Wellington; paper money raised in Britain was of no use to Wellington to fight a continental battle. Possibly as a result, the Confederacy approached the Rothschilds for financing their campaign during the American Civil War. Was it a genuine distaste for slavery or was it that the confederacy was considered a huge credit risk by all investors?
Similarly, how did Great Britain, one of the safest countries on the planet, secure even from the vagaries of weather and geology, end up becoming the most insured country on the planet (12% of GDP spent on premiums)? Turns out the answer has something to do with the decline of the welfare state. Ferguson ends with a chapter on the interplay between the G2 or what he calls Chimerica, the two pre-eminent financial powers of today. In the latest version of globalization, the counter-intuitive flow of capital from east to west, i.e. Chinese savings to American spenders, may well have been responsible for the mortgage market crash.
Ferguson’s strength lies in being able to link the past with the present, though I wish he’d have spent a lot more time on the past. Will the current version of globalization end up the way the last version ended, in 1914? What, for instance, will happen to Chimerica if China raises a blue water navy and decides to take over Taiwan? Is history condemned to repeating itself?
At a time when finance has been taking a lot of flak, Ferguson provides a robust defence and ends with this coda: “financial markets are like the mirror of mankind, revealing every hour of every working day the way we value ourselves and the resources of the world around us. It is not the fault of the mirror if it reflects our blemishes as clearly as our beauty."
Monday, July 13, 2009
Tuesday, March 10, 2009
Hat tip: Gaurav Sabnis
Sunday, March 08, 2009
This year, the nominees include Tiger Woods, Jessica Biel, Chris Martin, Michael Schumacher etc. The Indians on the list include Sachin Tendulkar, Mahesh Bhupathi, Kanimozhi Karunanidhi etc. As I was joking to my friends, I will learn to drive finally courtesy of Schumacher, learn to drive courtesy of Woods and perfect my falsetto with Chris Martin. And for those of you who made fun of me for being over the hill and an old fogie, I shall now have to refer you to the World Economic Forum.
In all seriousness though, I think this is a great honour and I look forward to working not just with the YGL's for 2009, but also with the WEF. I am also looking forward to the WEF gatherings, the first one of which is in May at the Dead Sea in Jordan.
Sunday, February 22, 2009
I looked up the book on Wikipedia and it seems like it's a cult phenomenon, albeit one I had never heard of. So, it is likely that many of you have already heard of the book, but if you haven't, do yourself a favour and grab a copy. To give you a taste of what to expect, here's a sample.
Friday, February 20, 2009
(Via Salil) Whether you agree or disagree with the content of his speech, Joe Garner makes some very interesting points on trust as the necessary underlier within the banking system, as indeed in society as a whole. I do wish he had shed more light on the lack of trust between banks though. Watch it.
Thursday, February 19, 2009
The IRS of the United States is not to be trifled with. In fact, one must never forget that Al Capone was not put away for murder, but for tax fraud. Swiss bankers, in particular those from UBS, found this out much to their chagrin earlier this week. UBS will have to reveal the names of Americans who have used Swiss banks to stash away their black money as part of a $780 million settlement. It is rumoured that the IRS is after 19,000 Americans who may have secret Swiss banking accounts. Of course, this move by UBS also probably means the end of banking secrecy in Switzerland or at least the end of the trust in the security of the Swiss banking system.
The boy's father said such "marriages" were a tradition and would help ease the bad omen of the tooth rooted in Sagula's upper gum.Well, at least they're admitting it's a superstition, I suppose.
The "bride's" father, Parakrama Munda, said: "This is just a ceremony to please the tribal deity - in the great epic Mahabharat a dog helped the Pandavas reach heaven." He said it was a superstition, like wearing a stone or a talisman. One attending resident, Dushmant Rout, said the "bride" had spent a few hours at the "groom's" house "but not inside the room... she stayed on the verandah".
Sunday, February 15, 2009
Friday, February 13, 2009
At ISB, we celebrated by screening a TED Talk with Steven Pinker. Here's another relevant one -- James Watson on how he and Francis Crick discovered the structure of DNA.
Screamed out in fright.
“Turn on the dark,
I’m afraid of the light!”
-- Shel Silverstein
Thursday, February 12, 2009
Economics outside the academy has become the continuation of politics by other means. If you wish to know what Mr Krugman thinks on any policy question, do not read his scholarly writings; see which policies are advocated by the progressive wing of the Democratic party. Mr Krugman agrees with liberal Democrats about most things, and for the rest gives as much cover as the discipline of economics can provide – which, given its scientific limitations, is plenty. He does this even on matters where, if his scholarly work is any guide, the economics is firmly against his allies. Liberal Democrats are protectionists. Mr Krugman is not, but politics comes first.Krugman responds accusing Crook of hysterics.
The syndrome affects economists on the right as much as on the left. Just as there is a consensus among economists that protectionism should be opposed, most economists believe that a powerful fiscal stimulus is both possible and desirable in present circumstances, and that the best stimulus would include big increases in public spending. Yet recently, Robert Barro, a scholar with conservative sympathies, wrote in the Wall Street Journal that this view was an appeal to “magic”.
The problem is not that Mr Krugman questions the consensus on trade (if indeed he does), or that Mr Barro questions the consensus on fiscal policy (as he certainly does). It is that both set the consensus aside so carelessly. In doing so, these stars of the profession destroy the credibility of their own discipline. Mr Krugman gives liberals the economics they want. Mr Barro gives conservatives the same service. They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk.
Crook responds to both Krugman and Barro, reproducing an exchange with Barro as well.
Wednesday, February 11, 2009
While we wait for the WSJ to launch a facsimile edition in India, here's the online version of WSJ India. Most of the stories seem accessible.