Reflections on India

So far I am finding India a very interesting place. The people are very gracious. Our hosts from Grameen and Ujjivan have been really generous with their time and have been quite helpful.

People dress nicely here in Bangalore, women mostly in brightly colored local wear with men in dress slacks and shirts. Interestingly you will find many people barefoot. For example, the bellman in the hotel is barefoot.

The staff at the hotel are very nice. They remember who wants black tea, who wants coffee, etc. I asked yesterday if they had a map of the area. I was thinking of those photocopy maps that a concierge would give out. When we got back from our day's travel, they had a beautiful map book of Bangalore for everyone in our group.

Food has been amazing here! Yesterday evening we went to Kanua restaurant. They serve Konkai food in the Mangalorean style which is southwestern Indian costal cuisine. The food was delicious. And the atmosphere was great. The restaurant was on the top floor of a building, open air 3 sides. The breeze felt wonderful. It took us a little while to find the place, but it was totally worth it.

Robyn from Grameen and Ariel, Marilyn and Nick from CG

Today we went to a little place just down the street from the restaurant called the Barbeque Nation. Lots of meat - though even this place offers a vegetarian option. There was just so much food. It was once again open air. Though here the music was Taylor Swift, Cat Stevens and John Mayer being butchered by a local singer. Then the staff broke into a Bollywood dance to an Indian wrap song. Very entertaining. After eating until we were stuffed, the staff reminded us that the table barbecue was only the appetizer. We were welcome to go to the buffet for main courses and desert. I could hardly walk out of the restaurant without even looking at the buffet. 

One other fun thing for me is that I am getting to know Nick, Marilyn and Ariel. They are all from Capital's LAO office, but I haven't had much opportunity to interact with them in the pst. Ariel is actually my daughter Ayana's age and grew up in Pasadena. So we know many of the same people. It is always nice to get to know people.  It has also been fun to get to know Peg, Robyn, Faisal and Gaurav from Graneen. Peg works from her home office in San Diego. Robyn works in the Grameen office in Seattle. Both Faisal and Gaurav work in Grameen's office in Dehli. 

Robyn, Charles, Ariel, Sydney, Marilyn, Faisal, Peg, Jill and Nick at Ujjivan

Ujjivan - Build a better life

Ujjivan (ujjivan.com/) is a for profit MFI in India. Unlike most MFI's, they focus on the 200 million urban poor of India. Ujjivan's founder is Samit Ghosh. Their mission is: To provide financial services to the economically active poor to enable them to build a better life.

Mr. Samit Ghosh grew up the son of a doctor who choose to service the poor coal mining districts. Mr. Ghosh received a good education and eventually went to Wharton for his MBA. From 1975 - 2005 he worked for Citibank, mostly in the Middle East, especially in Bahrain.

Mr. Ghosh noticed that consumer banking was not widespread in India. He began to research the work of Micro Finance Institutions (MFI's) in Bangladesh. He wanted to be able to open a mass market bank in India. So, in 2005 he set up Ujjivan as a for profit MFI in India.

Since most MFI's in India were in the Hydrobad area focusing on the rural poor, Ujjivan was set up in Bangalor to focus on the urban poor. However, from the beginning, it was Mr Ghosh's idea to cover all of India. So by 2007 Ujjivan had expanded to cover Bangalor, Delhi, Kolkuta, and Pune, giving them a wide geographic distribution. By 2011, Ujjivan had 351 branches in 51 states of India. 

Although Ujjivan has not had the same severe impact that many other MFI's suffered in the 2009-2010 Micro Finance crisis, they have had to make a number of changes. Being geographically disbursed was very helpful in the crisis. It allows them to reduce both political and regional risk. Avoiding the Hydrobad area was also helpful as that market was so over saturated. 

Note: Mr Ghosh recommends reading Michael Lewis's book Boomerang. 

By focusing on urban areas, Ujjivan managed to stay under the radar for most of the crisis time. But still they have been working on doing a better job of pacing their growth. Today Ujjivan is working on efficiency. They have cut back their branches to 302. They are adding system automation for their loan collections and credit checks. They are also working to introduce a document management system. The other big area of focus for Ujjivan is training and leadership development. Micro lending is a people intensive, high touch business. Mr. Ghosh believes that the only way to service people well is to have happy employees. Ujjivan actually placed in the top 20 of the "Great place to work" India. Not just in Micro Finance, but overall. One of the reasons for this is the high connection the staff have with the company's mission. They are excited about being able to make a difference in the lives of people around them.

After the micro finance crisis hit and banks stop lending to MFI's Ujjivan started working towards raising equity capital. Having capital makes borrowing much easier. They are focused on increasing their lending portfolio without necessarily increasing their client base. They are also looking to expand their service offerings. Ujjivan already offers life and health insurance. They are hoping to offer both savings accounts and remittance servies when government rules allow this. Ujjivan also plans to register as a bank to allow more flexibility in their services. 

Ujjivan has been selected as India's top micro lender for 2011. Some details about the business are:

    Interest Rate cap = 26%

    Funding cost = 15%

    Operating expense ratio = 14% (down from 16% 2 years ago)

    Administrative fee = 1% (this is a one time fee for customers)

    Capital requirements = 15% required, 20% preferred

    Repayment rate = 98.1%

    Branches =306

    Employees = 3000

    Customers = over 1 million

    Customer base = 1005 of their loans go to women

    

Ujjivan is trying to ge their operating expense ratio down to 10%. They are doing this through automation, reduction in client meeting frequency, reduction in physical branches, consolidating some functions, outsourcing data input, and leadership training to increase the effectiveness of their staff. 

Related, but independent from Ujjivan is the Purinaam Foundation. Purinaam's mission is to serve the poorest of the poor. Parnaam provides social services to the ultra poor. This is a grant based foundation.

Micro Finance in India

This is some background I got on the history of Micro Finance in India from Mr Ghosh of Ujjivan (more on that later) and Mr. Singh from the Grameen Foundation.

There are over 1.2 billion people in India today. 40-45% of the population is below the international poverty line, meaning that they earn less than $1.25 per day.

Bangalore is an interesting example of life in India. It is a modern city that is growing exponentially. It is a great place to live and work for people who are well educated. The problem is that for the poor, there is absolutely no safety net. This means no housing, no water, sanitation, education, no nutritional help for children. Nothing.

In 1975 the national government privatized all banks in India. They did this to try to ensure that banks would care for the whole of the country not just the rich. They required banks to open 4 rural banches for every 1 urban branch that was opened. But still banks ignored the poor. In fact, by 1985, it was impossible for even the middle class to get a personal loan. That means no loans for cars, houses, education, etc. Consumer banking just didn't exist. CitiBank was one of the first in India to start focusing on consumer banking for the middle class.

A couple of things changed. In addition to CitiBank and others starting to provide consumer banking, the government made a number of changes that open the market. People started buying houses and other big consumer staples. This meant that by 1990 with consumer spending and governmental changes, the Indian economy was really jumped started.

Finally, two other things changed. The government started to require that banks lend 40% of their loans to help the society. The banks did not want to try to service the poor directly, so they looked for agencies who could service the poor. At the same time, the micro finance industry proved to be very successful in Bangladesh. Clearly poverty has not been eradicated in Bangladesh, but there has been a clear improvement in the last 20 years through micro financing. So banks began to provide loans to Micro Finance Institutions (MFI's).

Most of these MFI's focused on the rural poor. There are over 500 million poor in rural India. The MFI's were also fairly concentrated geographically, with a very large number of institutions in the  Hydrobad area. There are over 35 large MFI's and over 300 smaller MFI's in this area. Micro Financing started to really take off in India.

Then came a period of uncontrolled growth in Micro Finance lending. With so many lenders concentrating in one area, people started to take on not 1 or 2 loans, but 5 or 6 loans all from different lenders. At the same time, private equity money started to flow into the MFI industry. This fueled the growth in lending and meant that some MFI's who were non profit NGO's were at times finding it hard to stay true to their vision. There was a real crisis in the micro finance industry between 2009-2010. People stopped paying their loans. Many MFI's went bankrupt.

Finally the government stepped in to require both interest rate caps and market requirement caps.  They also severely limited the services that could be provided by MFI's. MFI's are now extremely limited by these new rules. While it has helped to stabilize the MFI industry, it is making it hard for MFI's to have a sustainable model. MFI's are now looking forward to a new bill that is waiting parliamentary review that may raise some of the interest rate caps as well as allow MFI's to offer services such as savings accounts and remittances (so that migrant workers are able to send money home to their families).


What micro finance loans are:
Micro finance loans are generally non-collateralized loans from about $100-500. They are mostly given to women who tend to both pay loans back more consistently, and they also tend to use the loans to ensure the betterment of their whole household with a special focus on children. In India, loans are made at a high interest rate of around 26%. This is due to both the high cost of borrowing for the MFI's from the banks, and the high cost of servicing the loans. This is also a much lower rate than the poor usually are able to get from money lenders.

Loans are generally given to a group of women collectively. This means that the group is responsible for ensuring the payback of the loan, providing a self governing mechanism for repayment. It also means that if one person in the group has a cash flow issue, other members of the group can ensure the monthly bill is covered. The incentive for loan repayment is the promise of additional loans in the future. MFI's will generally start clients off with very small loans, and only increase the loan amounts over time when a client has proven to be successful in loan repayment.

What really happens when someone accepts a micro finance loan:
The traditional idea of a micro finance loan is that a small loan is given to someone who starts a business. Then they slowly start to gain wealth and over time move out of poverty. The reality is a little more subtle. First of all, once the money is given, people will use the loan for whatever they need. Education is a common reason for lending.

If a domestic worker cleans 3 house a week and earns 6000 rupees (INR) a month, she may borrow 10,000 rupees for her children's education. If she borrows that money from a money leander, she will pay 5-10% per month. This means she will be paying the money lender 1000 of her 6000 INR every month. MFI's are able to offer her this same loan for a lower amount. And in fact, some MFI's work with foundations who assist with the interest payment for educational loans.

The lack of education is one of the biggest reasons that people stay poor. If MFI's are able to provide loans that can be used for education, more people will move out of poverty.

Reflections on Bangalor

I heard so much about the over powering smells and the poverty in India. So I was surprised by how clean and modern Bangalor is. Clearly we are in a nice neighborhood. Walking a few blocks back from the hotel, I found beautiful, well manicured homes on quiet streets. The air is pretty clean. And the weather is beautiful - warm in the day, cool at night. It is really nice.

The traffic is heavy and loud. People are constantly honking their horns. And we did see plenty of the expected cows walking in the road. Also lots of dogs everywhere.

We will be traveling to a slum area tomorrow. So that will likely give us a different view of the city. Friday we will get a chance to see a rural area.

Safe Arrival in Bangalor

We had an uneventful trip to Bangalor. Robyn and Peggy from Grameen met us at LAX.  It was a long crowded flight to Dubai. I was fortunate enough to have an aisle seat with no one sitting next to me. I think it was the only empty seat on the flight. Given that extra bit of space, I was easily able to sleep most of the flight. We had a quick layover in Dubai, then off to Bangalor. A group from Grameen came to pick us up at the airport in Bangalor. They were very nice. Though our driver did prove what I had read about India to be true "You don't drive with you steering wheel in India, you drive with your horn."

Bangalor is in southern India

Still we made it safely to the hotel. The hotel is not fancy, but the staff seems friendly, the rooms are quite spacious and it is clean. They even turned the hot water on early so we could get a shower right away. And as you can see, my internet connection is working! I hear the southern Indian breakfast is fabulous, so I look forward to trying it.

Never far from home: Pinkberry in Dubai

I did get confused about the time. Here we are 2 and a half hours ahead of Dubai. Although apparently there are a number of countries that aren't on the hour from GMT, this is my first experience (here GMT +5 hours 30 mins). Although given how huge the country is, and the fact that India uses only one time zone, time must be a bit off for most people here.

Off to India, with a quick weekend with OWE before I go

I am heading to Bangalor, India tomorrow. I am traveling with the Capital Group and the Grameen Foundation. I am very excited to see the work they are doing in India.

If you are not familiar with Grameen they provide micro loans (usually a maximum of $200) to the poor in many countries. 98% of these loans go to women.

I am particularly interested in seeing Grameen's Human Capital Center which helps Micro Finance Institutions grow and develop their staff in order to help service the people. Capital has been involved in this project for several years. So a group of us are going to check out the project.

We will also see Grameen-Koota that has the specific focus of collateral free loans to women

This is going to be an exciting trip. It is my first trip to India. But before you start thinking what a great thing I am doing, I am currently publishing this from Terranea. A wonderful spa in Palos Verdes. I am here with all my friends from the Organization of Women Executives. Its a great group of women, and we are having a good time. Nice way to start a long trip.

Here are a couple more pictures from Terranea

Hard to see, but there are dolphins in this picture