IFMR Capital: The Money Conductors

The latest edition of the Forbes India magazine features a cover story on IFMR Capital. The story traces the origins of IFMR Capital, its evolution over the years and how its work is translating into financial access for high-quality partner originators that it works with.


It is our mission to reach out to Indians who find it difficult to get a housing loan or a business loan because they are not part of the formal system. Banks and financial institutions that have the capital do not understand these segments. Our job is to bring in capital to originators who provide finance to informal sectors,” says Kshama Fernandes, managing director and CEO, IFMR Capital.

Over the last eight years, IFMR Capital has facilitated capital to the tune of around Rs 30,000 crore to 100-odd originators, serving 25 million end borrowers.

Read the article here.


The Green Stool Innovation

Below is an excerpt from Bindu Ananth’s latest column on the Forbes India Blog.

On Wednesday, we brought together leaders from our Kshetriya Gramin Financial Services (KGFS) companies to talk about best practices from across our operations in Uttarakhand, Orissa and Tamil Nadu. One story really stood out for me – the green stool innovation.

When we were setting up branches in villages which had never been served by formal institutions before, we were very eager to imprint our values in all aspects of our operations. So, our wealth managers hired from the local villages wear uniforms to signal that they are professionals. All visitor cars need to be parked 100 metres away from the branch entrance so that there is no sense of outsider-insider within the branch premises. We insisted that our landlords build bathrooms adjacent to every branch so that we would be able to hire women wealth managers. One of the early things we also did was to have locally made benches painted bright green as the furniture in the branch. The bench seemed to us, to be the metaphoric leveller in a village context often characterised by caste and class divides. Until, one of our employees realised the awkwardness of the bench design.

Click here to read the full post.


The crucial link between financial access and decision making of the poor

A new paper by Anandi Mani et al in the August issue of Science has a stunning finding – that the cognitive impact of being poor may be equivalent to as much as 13 IQ points. The authors study shoppers in a New Jersey mall and sugarcane farmers in Tamil Nadu using an experimental design and are able to show that the poor perform consistently worse on standard non-verbal tests of intelligence when “stressed” than the rich. Very interestingly, in the case of the sugarcane farmers, the comparison is not between rich farmers and poor farmers but the same farmer pre-harvest and post-harvest. Before harvest, the farmer is a poorer version of himself (compared to after harvest) because of the liquidity crunch associated with the time before harvest. Think of it as the equivalent of the last few days of the month for the salaried class.

I think this study has very important implications for thinking about how good financial access will look like for the poor and what it will achieve. Too often, as practitioners, we emphasize the “big factors” such as branches, financial literacy, products, regulation and so on and when we think about the impact we have on our customers, we think about mega metrics like income and empowerment. This study tells us that if done well, perhaps the most important impact we will have is to allow customers to free up their “bandwidth” to focus well on the big decisions in their life – their childrens’ education or choosing where to sell their next crop.

Above excerpt is cross-posted from Bindu Ananth’s latest column on the Forbes India Blog. Click here to read the full post.


Shadow banking as the symptom and not the disease

A friend pointed me to an interesting new book recently, “Inside China’s Shadow Banking: the Next Subprime Crisis”. This is written by an investment banker turned shadow banker, Joe Zhang. His anxious nine year old asked him if he was going to become a “small loan shark” in this transition. The book is a fascinating account of businesses that operate at the periphery of the banking sector in China and the consequences of prolonged negative real rates of interest combined with a banking sector subject to stringent licensing (sound familiar?).

This book also got me thinking how the term “shadow banking” has acquired so much currency in recent years since the US credit crisis. This rather unflattering term is used to refer to an entire spectrum of financial firms including hedge funds on the one end in the US and unlicensed deposit-takers like Saradha Chit Fund in India and micro-credit firms in China on the other. Irrespective of exact identity, being a shadow bank clearly connotes weak to non-existent regulation and risks to customers. A throwback to Shylock, if you will.

Above excerpt is cross-posted from Bindu Ananth’s latest column on the Forbes India Blog. Click here to read the full post.


Housing Rental Markets for the Poor (and not-so-poor)

I read an excellent post by Ajay Shah recently that questioned the policy wisdom of emphasising house ownership over rental housing. His concerns stem from hampering the mobility of labour and worsening risk diversification in the portfolios of households. While these concerns are true for most households, they are much exacerbated in the case of low-income families.

Take a typical worker employed in the construction sector earning, say Rs. 4500 per month. He faces two significant risks to income: accident/health shock resulting in temporary or permanent disability and unemployment resulting in temporary or long-term loss of income. Given this inherent income volatility, the obligation of a fixed Equated Monthly Installment (EMI) over a long period of time to finance the house purchase seems unsuitable. While capital appreciation as a motive might make sense for households with more stable incomes and low exposure to real-estate otherwise, the volatility in this case becomes a real stumbling block. A rental contract provides the much-needed flexibility to reduce housing expenditure when shocks occur and also the ability to migrate when the nature of economic opportunities shift, as they are likely to over a period of time. My colleagues have an interesting paper that simulates household wealth under ownership housing and rental housing that makes this point clearer.

Above excerpt is cross-posted from Bindu Ananth’s latest column on the Forbes India Blog. Click here to read the full post.