NEW DELHI // In 2009, as India's microfinance market turned red-hot, three lending firms sprung up in quick succession down the road from Sanjay Sinha's office on the outskirts of New Delhi.
Mr Sinha, an Oxford University-educated economist, traces the logic that fuelled the firms' dreams of a quick financial killing by lending small amounts of money, on average US$220 (Dh735), to vast numbers of Indians.
"They must have thought, 'We'll acquire 100,000 clients in six months, get some investment, grow to half a million clients in another year, and by then we'd have made our fortunes for seven generations, because the private equity guys will come buy us out,'" surmised Mr Sinha, managing director of Micro-Credit Ratings International.
Late last year, however, that rosy scenario turned into a nightmare. The boom went bust, and the microfinance industry hit the skids.
In the southern state of Andhra Pradesh, which accounts for a quarter of the US$4.9 billion Indian microfinance business, the repayment rate on these small loans has plummeted from around 95 per cent to 10 per cent. Unable to repay their microloans, nearly 90 residents of the state reportedly committed suicide.
Back in Mr Sinha's neighbourhood on the outskirts of New Delhi, in the suburb of Gurgaon, all three lending companies shut their doors. "And if that's three firms just on my road, you can imagine what it was like across the country," he said.
In an attempt to fix the microfinance industry, which now services more than 27 million small borrowers across the country, new legislation is to be discussed during the coming session of parliament, which begins next week.
"Some of us have been pushing for this bill for ten years, and it is six or seven years too late," Mr Sinha said. "The microfinance crisis last year happened because there was no such bill."
The bill, currently in a draft stage, calls for bringing the industry under the purview of the Reserve Bank of India (RBI) and would require all microfinance firms to register. It does not impose a ceiling on interest rates, though it would cap the margin of profit that a microcredit lender can earn.
Despite the human tragedies spawned by the crisis, microfinance is seen as crucial to solving the problem of financial inclusion in India.
"If our banking system was successful," said RK Mukherjee, director of the Centre for Livelihood Enhancement, a New Delhi-based non-profit that studies how to alleviate poverty, "we'd have no need for microfinance."
In a much-quoted speech delivered in Mumbai two years ago, the RBI's deputy governor, KC Chakrabarty, pointed out that a majority of Indians fell outside the country's formal banking system, with nearly 60 per cent of the population not having a bank account.
RBI figures also point out that the banking system's reach is largely concentrated in urban India. Only 33,800 out of India's 650,000 villages - less than 5 per cent - have a bank branch.
Excluded from the formal banking network, rural Indians are forced to rely on exploitative local moneylenders that charge unreasonably high rates of interest.
A recent study by the Institute for Financial Management and Research, located in Chennai, found that as many as 80 per cent of all rural borrowers in Andhra Pradesh depend upon informal moneylenders for credit.
These moneylenders can charge interest on their loans of anywhere between 60 and 120 per cent, since they are not regulated. Microfinance is thus a cheaper alternative, with interest rates generally ranging from 26 to 32 per cent.
The beginnings of India's microfinance sector date back two decades, but the industry took off only in the past five years, especially after Mohammad Yunus of Bangladesh won the Nobel Peace Prize for his work in microfinance.
In 2006, the year Mr Yunus won the prize, Indian microfinance companies received private equity investments totalling $4 million, according to data compiled by Venture Intelligence, a research service focused on private equity deals.
In 2007, that figure went up to $58m, and the next year it rose even more steeply to $242m.
The latest crisis was precipitated, experts say, by microfinance's conversion from a socially conscious sector to one that offered attractive returns on investment. "This is the whole dilemma for our sector," said Vijay Mahajan, president of the Microfinance Institutions Network. "We're answerable to the pro-poor side but also to the financial types."
As the sector became a good avenue for investment, said Mr Mukherjee, its social agenda was eclipsed. "There was an intellectual debate to justify interest rates that were 32 per cent or higher, saying that nothing below that could work," he said. "I think we need to blame ourselves for that."
Admittedly, the cost of conducting microfinance in India is high. Villages are spread across a vast territory and numerous agents must be employed to service borrowers and collect loans. Mr Mahajan estimated that out of a 30 per cent interest rate on a microloan, 10 per cent goes to delivering and servicing the loan.
But Mr Sinha also attributed the microfinance crisis to greed, which is why he welcomes tougher regulation.
"Firms were competing with each other to get more clients, because that equals high growth, which then equals very high valuations [of the firms]," he said. "There was a lot of easy money floating around, and so firms started lending without applying any basic creditworthiness principles."
As companies raced to acquire more borrowers, poor villagers were allowed to take multiple loans. The money had been intended as seed capital to help these villagers generate their own income. Often, though, it was spent on a new television or roofing a house.
These loans then went bad, forcing some villagers into further debt. "The repayment rate has now improved a little in Andhra Pradesh, but it's still very gloomy," Mr Mukherjee said. "Many of the smaller firms have shut shop, their promoters have fled … and the villagers are going back to moneylenders. In many places, it's gone right back to square one."
There is no easy answer to the philosophical dilemma of microfinance, Mr Sinha said, but the new bill should help rein in the frenzied chase for profits.
"The sector simply overheated," he said. "And if the milk has boiled over, what do you do? You turn the heat down."
ssubramanian@thenational.ae
COMPANY%20PROFILE%20
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How to join and use Abu Dhabi’s public libraries
• There are six libraries in Abu Dhabi emirate run by the Department of Culture and Tourism, including one in Al Ain and Al Dhafra.
• Libraries are free to visit and visitors can consult books, use online resources and study there. Most are open from 8am to 8pm on weekdays, closed on Fridays and have variable hours on Saturdays, except for Qasr Al Watan which is open from 10am to 8pm every day.
• In order to borrow books, visitors must join the service by providing a passport photograph, Emirates ID and a refundable deposit of Dh400. Members can borrow five books for three weeks, all of which are renewable up to two times online.
• If users do not wish to pay the fee, they can still use the library’s electronic resources for free by simply registering on the website. Once registered, a username and password is provided, allowing remote access.
• For more information visit the library network's website.
The specs
Engine: 77.4kW all-wheel-drive dual motor
Power: 320bhp
Torque: 605Nm
Transmission: Single-speed automatic
Price: From Dh219,000
On sale: Now
Book%20Details
%3Cp%3E%3Cem%3EThree%20Centuries%20of%20Travel%20Writing%20by%20Muslim%20Women%3C%2Fem%3E%3Cbr%3E%3Cstrong%3EEditors%3A%20%3C%2Fstrong%3ESiobhan%20Lambert-Hurley%2C%20Daniel%20Majchrowicz%2C%20Sunil%20Sharma%3Cbr%3E%3Cstrong%3EPublisher%3A%20%3C%2Fstrong%3EIndiana%20University%20Press%3B%20532%20pages%3Cbr%3E%3C%2Fp%3E%0A
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
The biog
Name: Dhabia Khalifa AlQubaisi
Age: 23
How she spends spare time: Playing with cats at the clinic and feeding them
Inspiration: My father. He’s a hard working man who has been through a lot to provide us with everything we need
Favourite book: Attitude, emotions and the psychology of cats by Dr Nicholes Dodman
Favourit film: 101 Dalmatians - it remind me of my childhood and began my love of dogs
Word of advice: By being patient, good things will come and by staying positive you’ll have the will to continue to love what you're doing
The specs: 2019 Mini Cooper
Price, base: Dh141,740 (three-door) / Dh165,900 (five-door)
Engine: 1.5-litre four-cylinder (Cooper) / 2.0-litre four-cylinder (Cooper S)
Power: 136hp @ 4,500rpm (Cooper) / 192hp @ 5,000rpm (Cooper S)
Torque: 220Nm @ 1,480rpm (Cooper) / 280Nm @ 1,350rpm (Cooper S)
Transmission: Seven-speed automatic
Fuel consumption, combined: 4.8L to 5.4L / 100km
Biography
Favourite book: Zen and the Art of Motorcycle Maintenance
Holiday choice: Anything Disney-related
Proudest achievement: Receiving a presidential award for foreign services.
Family: Wife and three children.
Like motto: You always get what you ask for, the universe listens.
Full Party in the Park line-up
2pm – Andreah
3pm – Supernovas
4.30pm – The Boxtones
5.30pm – Lighthouse Family
7pm – Step On DJs
8pm – Richard Ashcroft
9.30pm – Chris Wright
10pm – Fatboy Slim
11pm – Hollaphonic
Uefa Nations League
League A:
Germany, Portugal, Belgium, Spain, France, England, Switzerland, Italy, Poland, Iceland, Croatia, Netherlands
League B:
Austria, Wales, Russia, Slovakia, Sweden, Ukraine, Republic of Ireland, Bosnia-Herzegovina, Northern Ireland, Denmark, Czech Republic, Turkey
League C:
Hungary, Romania, Scotland, Slovenia, Greece, Serbia, Albania, Norway, Montenegro, Israel, Bulgaria, Finland, Cyprus, Estonia, Lithuania
League D:
Azerbaijan, Macedonia, Belarus, Georgia, Armenia, Latvia, Faroe Islands, Luxembourg, Kazakhstan, Moldova, Liechtenstein, Malta, Andorra, Kosovo, San Marino, Gibraltar
Results
5.30pm: Maiden (TB) Dh82,500 (Dirt) 1,600m, Winner: Panadol, Mickael Barzalona (jockey), Salem bin Ghadayer (trainer)
6.05pm: Maiden (TB) Dh82,500 (Turf) 1,400m, Winner: Mayehaab, Adrie de Vries, Fawzi Nass
6.40pm: Handicap (TB) Dh85,000 (D) 1,600m, Winner: Monoski, Mickael Barzalona, Salem bin Ghadayer
7.15pm: Handicap (TB) Dh102,500 (T) 1,800m, Winner: Eastern World, Royston Ffrench, Charlie Appleby
7.50pm: Handicap (TB) Dh92,500 (D) 1,200m, Winner: Madkal, Adrie de Vries, Fawzi Nass
8.25pm: Handicap (TB) Dh92,500 (T) 1,200m, Winner: Taneen, Dane O’Neill, Musabah Al Muhairi
Company Profile
Company name: NutriCal
Started: 2019
Founder: Soniya Ashar
Based: Dubai
Industry: Food Technology
Initial investment: Self-funded undisclosed amount
Future plan: Looking to raise fresh capital and expand in Saudi Arabia
Total Clients: Over 50
UAE rugby season
FIXTURES
West Asia Premiership
Dubai Hurricanes v Dubai Knights Eagles
Dubai Tigers v Bahrain
Jebel Ali Dragons v Abu Dhabi Harlequins
UAE Division 1
Dubai Sharks v Dubai Hurricanes II
Al Ain Amblers v Dubai Knights Eagles II
Dubai Tigers II v Abu Dhabi Saracens
Jebel Ali Dragons II v Abu Dhabi Harlequins II
Sharjah Wanderers v Dubai Exiles II
LAST SEASON
West Asia Premiership
Winners – Bahrain
Runners-up – Dubai Exiles
UAE Premiership
Winners – Abu Dhabi Harlequins
Runners-up – Jebel Ali Dragons
Dubai Rugby Sevens
Winners – Dubai Hurricanes
Runners-up – Abu Dhabi Harlequins
UAE Conference
Winners – Dubai Tigers
Runners-up – Al Ain Amblers
THE CARD
2pm: Maiden Dh 60,000 (Dirt) 1,400m
2.30pm: Handicap Dh 76,000 (D) 1,400m
3pm: Handicap Dh 64,000 (D) 1,200m
3.30pm: Shadwell Farm Conditions Dh 100,000 (D) 1,000m
4pm: Maiden Dh 60,000 (D) 1,000m
4.30pm: Handicap 64,000 (D) 1,950m
'Dark Waters'
Directed by: Todd Haynes
Starring: Mark Ruffalo, Anne Hathaway, William Jackson Harper
Rating: ****
Meatless Days
Sara Suleri, with an introduction by Kamila Shamsie
Penguin
MATCH INFO:
Second Test
Pakistan v Australia, Tuesday-Saturday, 10am daily at Zayed Cricket Stadium, Abu Dhabi
Entrance is free
Adele: The Stories Behind The Songs
Caroline Sullivan
Carlton Books
MATCH INFO
Uefa Champions League last 16, first leg
Liverpool v Bayern Munich, midnight, Wednesday, BeIN Sports
Start-up hopes to end Japan's love affair with cash
Across most of Asia, people pay for taxi rides, restaurant meals and merchandise with smartphone-readable barcodes — except in Japan, where cash still rules. Now, as the country’s biggest web companies race to dominate the payments market, one Tokyo-based startup says it has a fighting chance to win with its QR app.
Origami had a head start when it introduced a QR-code payment service in late 2015 and has since signed up fast-food chain KFC, Tokyo’s largest cab company Nihon Kotsu and convenience store operator Lawson. The company raised $66 million in September to expand nationwide and plans to more than double its staff of about 100 employees, says founder Yoshiki Yasui.
Origami is betting that stores, which until now relied on direct mail and email newsletters, will pay for the ability to reach customers on their smartphones. For example, a hair salon using Origami’s payment app would be able to send a message to past customers with a coupon for their next haircut.
Quick Response codes, the dotted squares that can be read by smartphone cameras, were invented in the 1990s by a unit of Toyota Motor to track automotive parts. But when the Japanese pioneered digital payments almost two decades ago with contactless cards for train fares, they chose the so-called near-field communications technology. The high cost of rolling out NFC payments, convenient ATMs and a culture where lost wallets are often returned have all been cited as reasons why cash remains king in the archipelago. In China, however, QR codes dominate.
Cashless payments, which includes credit cards, accounted for just 20 per cent of total consumer spending in Japan during 2016, compared with 60 per cent in China and 89 per cent in South Korea, according to a report by the Bank of Japan.
Which products are to be taxed?
To be taxed:
Flavoured water, long-life fruit juice concentrates, pre-packaged sweetened coffee drinks fall under the ‘sweetened drink’ category
Not taxed
Freshly squeezed fruit juices, ground coffee beans, tea leaves and pre-prepared flavoured milkshakes do not come under the ‘sweetened drink’ band.
Products excluded from the ‘sweetened drink’ category would contain at least 75 per cent milk in a ready-to-drink form or as a milk substitute, baby formula, follow-up formula or baby food, beverages consumed for medicinal use and special dietary needs determined as per GCC Standardisation Organisation rules
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
THE SPECS
Engine: 3.5-litre V6
Transmission: six-speed manual
Power: 325bhp
Torque: 370Nm
Speed: 0-100km/h 3.9 seconds
Price: Dh230,000
On sale: now
The specs: 2018 Jeep Grand Cherokee Trackhawk
Price, base: Dh399,999
Engine: Supercharged 6.2-litre V8
Gearbox: Eight-speed automatic
Power: 707hp @ 6,000rpm
Torque: 875Nm @ 4,800rpm
Fuel economy, combined: 16.8L / 100km (estimate)
List of UAE medal winners
Gold
Faisal Al Ketbi (Open weight and 94kg)
Talib Al Kirbi (69kg)
Omar Al Fadhli (56kg)
Silver
Zayed Al Kaabi (94kg)
Khalfan Belhol (85kg)
Zayed Al Mansoori (62kg)
Mouza Al Shamsi (49kg women)
Bronze
Yahia Mansour Al Hammadi (Open and 94kg)
Saood Al Hammadi (77kg)
Said Al Mazroui (62kg)
Obaid Al Nuaimi (56kg)
Bashayer Al Matrooshi (62kg women)
Reem Abdulkareem (45kg women)
Race card
6.30pm: Maiden (TB) Dh 82,500 (Dirt) 1.600m
7.05pm: Maiden (TB) Dh 82,500 (D) 2,000m
7.50pm: Handicap (TB) Dh 82,500 (D) 1,600m
8.15pm: The Garhoud Sprint Listed (TB) Dh 132,500 (D) 1,200m
8.50pm: The Entisar Listed (TB) Dh 132,500 (D) 2,000m
9.25pm: Conditions (TB) Dh 120,000 (D) 1,400m