New and Newsworthy

Some encouraging news on the one laptop per child campaign: turns out kids really like them.

The best overview of the state of regulation for the Indian microfinance sector I have read yet.

Forbes publishes its list of the 50 Best MFIs in the world. Interesting reading, but considering the exclusive focus on financial indicators in the rating formula a more appropriate name might be the "50 most investment worthy MFIs in the world."

Taking the train may not sound so bad after reading this. According to the author of the article, "experts say it is a wonder that disaster has not yet struck [in the Indian airline sector]"

Municipal Finance

A major issue for city and state governments is acessing commercial markets for funding infrastructure projects. In India, the municipal finance space has been identified as underdeveloped. There are both public and private constraints for the Indian market.

In America, along with general uncertainty in the market, companies which guarantee state and municipal bonds are in danger of losing their triple A rating. If this were to happen, there would be a major cost to state bodies (as their cost of financing increases) as well as injecting the municipal market with additional risk. These bonds are generally of value to investors and fund managers because they tend to be low risk debt.

With all these developments, it is interesting that Warren Buffet is getting into this business. Is there something he sees that everyone else does not?

I wonder if any lessons can be drawn for the Indian market?

Wall Street Jounral Article (subscription needed)- Buffett to Start A Bond Insurer For Cities, States

If you don’t have a WSJ subscription, here are some other links. Bloomberg and Reuters.

Melting Ice

The end may be sooner than any of us think.

Economist Article on Dharavi

There have been alot of articles on the proposed plans for Dharavi. Here's the Economist's article on Dharavi.

Fact and Fiction

"Facts are meaningless. You could use facts to prove anything that's even remotely true!" - Homer Simpson (thats right folks, we're the only development blog that quotes the Simpsons)

A recent livemint Op-Ed on income inequality raises the idea that today's income inequality is not significantly out of line from historical measures of inequality in India. There are some serious flaws in this line of thinking. For one as my esteemed colleague Doug previously mentioned, cherry picking stats just dont tell the whole story. Looking the inequality figures in the 50s and 60s one can easily see this is not true. (also regional inequality was much lower then

Two, anyone who thinks income inequality can be solely represented by a simple GINI and a few stylied facts needs to go check their old economics textbooks. The message since liberalization is clear. Absolute poverty has decreased significantly. Though this magnitude had been debated, most agree it is in the low 20% headcount ratio range. And inequality since liberalization has increased significantly. Whether the statistic is polarization ration, GINI, etc they all tell similar stories.

Inequality is a major issue and should be high on the GoI priority list. To their credit it seems the Planning Commission keeps an eye towards this, and so-called inclusive growth strategies seem to conceptually place inequality at the center of the story.

If Indian inequality has a 'historical norm', then how would he explain the relatively low inequality in the years after independence upto the 80s? There is a rich literature on Poverty and Inequality in the various reform period and Plans. Sen and Himanshu do a nice job if you dont mind the analysis a bit technical. Before liberalization though growth was low, and poverty was high - inequality was low. This seems to have escaped the 'historical analysis'.

Also, our exalted chairman of the planning commission made some great remarks on the recent Human Development Report.

"He made it plain that only the non-prescriptive parts were acceptable to the government, and sounded downright sarcastic when, tongue-in-cheek, he praised the "coloured graphs"." -from article

Did the HDR last year not have colored graphs? But Mr. Ahluwalia raises some valid points about India and climate change that have yet to be addressed by the international community.

Climate Change, Slimate Change

I wanted to point out the opposition to climate change and climate action in general. Sometimes when I read this stuff I almost become convinced and then I am reminded of the ostrich with its head in the sand. Climate change may or may not be as drastic as scientists and the media say...but how about pollution? Is pollution bad? 

The one lakh car

I think the car is a great idea. I am from California and if someone tried to take my god-given right to drive a car, I might even be inspired to go out and vote in the next election...I know what it means to have your first set of wheels...freedom and a sense of I don't know how to describe it...I obviously have too much time on my hands...but here is the thumbnail analysis of Tata's new venture. 

India has 1.2 billion people.

Let's say that of these people 100 million make at least 30,000 Rs./month

So you have a car costing 100,000 Rs.

Assume a 5 year loan at 10% and a 10,000 down payment

the person has expenses of :

8,000 in rent,

10,000 in food and incidentals,

3,000 in utilities,

leaving 9,000 in disposable income.

Running the numbers, the loan payment is going to be 2,000 Rs./month.

This is based on 25% of salary going to rent every month, 33% going to living expenses, 10% going to utilities (It is imaginable that the required income falls to around 25,000 Rs./month in some circumstances and then there is the second car syndrome).

India is completely unprepared for the one lakh car and here is why...Today only 8 of 1000 people have cars—about 9.6 million cars, but there are 65 million scooters/motorcycles who could potentially trade up. It isn't unrealistic that the demand will run more than 90 million—let's say that all 65 million people who currently have motorcycles or scooters trade up to cars over the next 5 years...and we assume most of these people are going to live in the larger cities (I have heard rumors that Chennai is predicted to have 3 million vehicles in the city already)—worse case scenario...If we distribute the 65 million cars over  India with Bombay and New Delhi getting 15 million each and Chennai, Bangalore, Hyderabad and Calcutta splitting 20 million... 

Chennai almost doubles the number of vehicles to 5-8 million (let's say 5 million conservatively as the number of rickshaws and scooters will fall) and doesn't have time to improve the size or number of the roads. I don't even want to think of Bombay and New Delhi...and 65 million cars will emit 130 million tonnes of CO2e (if all the cars are diesel which will emit about 2.1 tonnes compared to 3 tonnes per vehicle for gasoline). Then you have the contributions of NOx and Particulate Matter, both known carcinogens and attributed to increasing the incidence of emphysema, asthma and bronchitis...more health problems and higher social costs.

Plus every Indian city becomes one big parking lot...lowering productivity, increasing commute times...

Of course there are some alternatives at least where pollution is concerned, complementary policies to alleviate some of the impact environmentally:

Bio-Fuels/Mixed Diesel

                   or

 PM filters with Low sulfur Diesel

There is the possibility of using bio-fuels or mixed diesel formulas, which would reduce both the CO2e and NOx/PM output of these cars by about 10% or a water-based diesel (proprietary mix called PuriNOx which reduces these pollutants by up to 40%). But both of these fuel types add to the cost. In the US the cost is $0.20-0.60 per gallon and they are relatively difficult to find as they are not mainstream yet (CDM project anyone? Chennai how about a switch to bio-fuels in all city vehicles?). The key to this solution is India acting now...policy encouraging the planting of wasteland with jatropha AND a policy ensuring that farmers don't switch to jatropha en masse causing a food shortage. 

Then there are the Diesel Particulate Filters, but this is a retrofit technology and costs about $5000-10,000 per engine (good-bye one lakh car), yet these reduce PM by almost 90% and if used with only low sulfur diesel the benefits are phenomenal (CDM project anyone?). 

Luckily, production will not be able to meet this demand...20 million cars per year is unachievable (I hope). But even if the number is only 2 million (from Tata, Ford, Honda, Nissan, Toyota, Renault and the others...) on top of the 1.3 million cars currently sold a year in India, we are looking at about 20 million cars by 2012 (The article claims a total of 300 million car owners by 2020 but this would require double-digit growth a year starting in 2008).

Whatever happened to public transportation? I know that public transportation in India needs to be improved (okay understatement) and yes the rickshaw drivers are little better than thieves (at least in Chennai where the fares become more arbitrary the more times you ask for a price). But how about investment in Public Transportation? How about Private/Public Transportation? Clean efficient trains run on electricity, clean buses that don't have people hanging out the windows and doors...maybe a monorail or subway. 

India has the opportunity to learn from all the mistakes the West has already made—and foreign companies would kill to sell this technology here. Indian companies would benefit from technological partnerships and the competition. The health benefits alone would likely pay the extra costs...But unfortunately this will probably not be the course India takes...until the traffic is so bad that people demand change. 

WWF and Lafarge

I have been highly critical of the WWF and the NGO community for only taking the moral high road, something that is much easier than action. But at the same time I have to praise these actions when it is appropriate, and I have new found respect for the WWF. The WWF recently worked with Lafarge...and the WWF has made a commitment to actively working with industry to create a sustainable corporate image.

Kudos.

the case study can be found here....

Market-based Mechanisms for Development

I got to thinking about the CDM and market-based mechanisms in general. Now I am not an economist and I will admit I know just enough to make myself completely wrong, but economic theory tells us when we don't know a price on something, a market should develop a 'fair' price. Or at least establish what the users feel the product is worth. 

And I began to wonder what this said about the CDM and Sustainable Development. We know that there is a market and willingness-to-pay to meet regulations...because there is no choice. But what exactly did the framers of the Kyoto Protocol flexible mechanisms expect the market to value sustainable development?

So far, it has been a market failure. The development dividend has been next to zero. There are a couple of projects which possess development benefits, but they are few and far between, especially here in India. The problem is, in my opinion, is that there isn't a willingness-to-pay within those industries that are currently regulated. Some of this is because of the reasons I posted yesterday, no customer accountability, but I think the greater issue is that these industries don't feel it is in their mandate to promote development. I think even more the reason is that they have no idea how to promote sustainable development.

It just reiterates the words of Chandran Nair. Maybe development agencies should offer their services to these industries? 

Just a thought.

More opinions from the Carbon Desk

I recently posted on the report of the WWF and the additionality of Clean Development Mechanism projects, an opinion that might have been premature. The report and others like a paper published by Axel Michaelowa for Climate Strategies questions the additionality of up to 20% of the emissions reductions from the CDM and especially in India. I claimed that the additionality factor was time, when the project would have taken place as opposed to if the project would have taken place.

The articles got me thinking and looking at what some of the projects really were saying about why they wouldn't have been done without revenue from the sale of the carbon credits. I have actually changed my opinion on the subject. I have to agree with these reports. The projects aren't additional. These are projects that probably would have been done without the revenue from CDM. But some of the projects seem to be good projects. One was a wind power project, others were process changes in heavily polluting industry with environmental and health benefits for the local community...

But at the same time Axel Michaelowa makes a disturbing point on the question of additionality. The only truly additional projects are those that have no financial benefit aside from revenues from the sale of carbon credits. Which means HFC23 reduction projects...and N2O reduction projects. In other words, the low hanging fruit are the projects that actually meet the qualifications of the CDM.

What makes this disturbing is that these are the least beneficial developmentally. It might be time to reevaluate what is additional and what isn't additional.

There are two types of additionality...and it might be time to decide which is more important or if one is more important. I have come to the conclusion that maybe it doesn't matter. It is cynical but maybe it is the truth.

I want to see the CDM become more developmentally focused, but haven't fully figured out how. The problem is that the companies who are required to off-set emissions don't care where their off-sets come from. A cement company is a cement company...a bag of cement is a bag of cement. It is a commodity and as a commodity it is interchangeable with any other bag of cement.

When was the last time you thought about the environmental record of a cement company when buying a bag of cement? I have to admit that every time I have bought a bag of cement I have always purchased the cheapest one. The question is how do we decommodify cement, glass, electricity and Certified Emissions Reductions? I have no idea how we can do the first three, but I have some ideas on the last one.

First, provide easy access to these sorts of projects. Reputable NGOs need to approach companies based on their core competence...if an NGO has experience in creating renewable energies in rural areas why not use that experience and the CDM to facilitate these projects?

Second, place a face on every emissions reduction.

Third, provide complete transparency in how, why and how much each off-set cost.

Fourth, begin to question where your cement comes from, where your glass comes from...we can't control the decisions made Upstream by companies with no direct interaction with customers, but we can affect the people who sell their products. Ask who made the glass, the cement, the metal in your car...even if it is only yourself. Make conscious decisions and make small changes....

Sermon over, choir dismissed.

Al Gore and An Inconveinent Truth

I haven't seen the whole movie, I will be the first to admit that, but what I have seen is preaching to the Choir. The movie is great, it is well edited and the story is almost as good as the message...but how many of the people who saw this changed their behavior? I don't know the answer to that...How many of you who have seen it have changed your behavior?

If you haven't done anything I'll encourage you to do one thing...switch your light bulbs.

If you live in India, you have plenty of options...Bajaj makes one, so do at least 3 other companies. Use them in your side table lamps, bathrooms, bedrooms...yeah, the quality isn't quite there yet. But you get used to it. You adjust. Adaptation will be the core of saving the planet...adapting to life without cheap oil, electricity and some of the things we take for granted. But until the big things start to work, the little things will have to do. It's like Smokey the Bear says...Only you can prevent forest fires...and only we can prevent climate change.

Podcasts

I have been searching podcasts lately...and being fairly surprised at the number of quality podcasts available. Here is a list of some of the ones I like best:

Environment Yale
Ethical Corporation
Inside Renewable Energy
Tyndall Centre Podcasts

There are also some great talks given by business leaders of today...check out iTunes University. There is a great talk by Yvon Chouinard (owner and founder of Patagonia) and his experience in business, life and the environment. Free from the iTunes Store.

Corporate Responsibility

Ethical Corporation recently published an opinion by Chandran Nair from the Global Institue for Tomorrow. The insights from the article is especially poignant in light of development. In the Non-Profit World we often see ourselves as 'watch dogs' for industry and corporations. Criticisms are thrown around like spaghetti noodles in a frat-house, but there are often few solutions offered. I agree that NGOs have a role in exposing the injustices in the world, but they also have a role in offering solutions. I think this is especially true when applied to problems which have already been identified and in some ways embraced by industry. The problem with industry is that they often don't 'get it'. 

They don't get it because they have multiple objectives and function in an imperfect world. Yet there are ways to have companies get it, but NGOs have to take the lead. Development and public goods are the core competence of NGOs and Development agencies...it is time to leverage this core competence. NGOs have the the knowledge, institutional memory and the experience, it's time to use it.

So what can be done?

First, the serious players must begin to bring content, focus, commitment and actions back on the agenda. This means linking stakeholder engagement to quick outcomes, not never-ending reports, analysis and more conversations that have to be politically correct.

Second, companies should decide what issues they want to participate in, defend their stand and leave out PR spin until actions have been taken. But be sincere and respect the views of others.

This sort of focus should not be left to PR or corporate affairs. It should only be left to sustainability, environmental or compliance managers if the board is committed to listen when they return with a “this is what we should do over the next 12 months” message.

Third, NGOs should realise that they do not have the knowledge edge and that preaching is getting tiresome. Instead of moral campaigns, these groups should come forward with practical ideas they are willing to test out with companies. Partnerships can enable NGOs to take ownership of ideas they offer to business and work with the “C” in CSR – corporations. It may be more demanding than taking the moral high ground but has a much better chance of bringing about change.

The Band Aid and microfinance

Recently, I heard another person derisively refer to microfinance as “just a Band Aid.” My initial thought was frustration at how people can be so dismissive of palliative measures, as if some panacea will only come if the incrementalists stop acting. My second thought was, “What do these people have against the Band Aid.”

According to that most esteemed source Wikipedia, “The Band Aid was invented in 1920 by Earle Dickson, an employee of Johnson and Johnson, for his wife Josephine who was always cutting and burning herself while cooking.’’ Generically known as an adhesive bandage its function is to “protect the wound, e.g. from friction damage and dirt. Thus, the healing process of the body is less disturbed. Often they have antiseptic abilities. Some can even speed healing and minimize scarring.”

I don’t think an analogy of the benefits of microfinance and the Band Aid is much a stretch. Just as the Band Aid allows for wounds to heal more safely, so to does microfinance allow people to better deal with misfortune by giving them the ability to borrow against future income. Just as the Band Aid minimizes scarring, quality microfinance can minimize the damage of an income shortfall by allowing people to stay out of the more onerous debt that often results from borrowing from moneylenders.

And of course, it is true that like the Band Aid is not the cause of healing, microfinance is unlikely to be a driver of growth or the cause of the end of poverty. Yet this limitation is no reason for ridicule. It is important that we recognize that microfinance is only part of a solution to the problems of poverty and inequality and that there is nothing wrong with being “just” a part.

This entry was written by YRT on behalf of Dan Kopf.

CMF Releases a Working Paper on a Study of Identifying the Poorest of the Poor

If you start field research in rural India, you immediately start questioning how Below Poverty Line (BPL) rationing cards are distributed. BPL cards are, in theory, distributed to households below poverty line and entitle them to purchase subsidized food and fuel at ration shops. In reality, however, you observe in rural areas that people who owns tractors or motorcycles have BPL cards. After a little bit of investigation reveals that political power highly influences the chances of obtaining one.

If BPL cards do not reach the intended segment of society, any poverty alleviation programs for which their recipients are based on the possession of the card inevitably fail to generate expected outcomes.

This study investigates whether the BPL rationing program effectively targets the poorest of the poor, compared to a more in-depth Participatory Rural Appraisal (PRA) conducted by an MFI in West Bengal.

The study finds that a PRA is a better, though more time consuming, approach to identifying target populations. This can be an important finding for government agencies, international institutions, or aid agencies that attempt to achieve more efficient and effective aid programs.

Muslims Need Not Apply

That's the message being sent by the corporate sector in India to job applicants. Researchers at Princeton University and the Indian Institute of Dalit Studies sent 4808 fictitious resumes to 548 job ads placed in English newspapers throughout the country and recorded which of the made up applicants received callbacks. The content of the resumes was the same but names of the fictitious applicants were either typically upper-caste, typically lower-caste, or typically Muslim. (If this sounds familiar, it's because a very similar study was carried out by researchers in the US to estimate the level of discrimination against African-Americans in the US labour market.)

The results were striking: while nearly all of the phony upper-caste applicants received callbacks, only 67% of the lower-caste ones and a shocking 33% of the Muslim ones did.

Maybe reservations for the private sector isn't that bad of an idea after all.

New and Newsworthy

US Immigration officials aren’t the only ones collecting fingerprints these days. One school in Maharashtra is now requiring both teachers and students to confirm attendance through a biometric device. Before writing this off as yet another overly intrusive and expensive misapplication of technology, remember that teacher and student absenteeism is a major problem in public schools in India and that having teachers “clock in” has been proven to increase teacher attendance.

One Indian takes Chester Bowles’ old adage that “government is too important to be left to politicians” to heart. Shyam Valmiki, a resident of Jhansi town in UP, set up his own personal “government” which managed a team of employees and issued birth and death certificates. The scam was only discovered when “government” employees complained to the actual government office about a pay discrepancy. Hat tip to Marginal Revolution for the pointer. The article doesn’t mention whether citizens were more satisfied with the real or fake government.

Former president Kalam calls on farmers to stop selling land for SEZs. I wasn’t aware they had much choice.

CMF Releases Case Studies of Microfinance Clients

Ever wonder how microfinance clients manage their money or how a micro-enterprise really works?

Shani Schecter, a recent intern with the CMF, spent the summer searching for answers to these questions. Rather than ask several hundred microfinance clients a series of questions from a structured questionnaire, Shani spent two month shadowing six microfinance clients, watching as they managed their businesses and listening to their stories. The output of her research is a fascinating peek into the lives of six typical microfinance clients. Check it out here.

Mobile Networks Make Markets More Efficient

...according to new research by University of California grad student Jenny Aker. Aker looks at the impact of the expansion of mobile coverage on grain markets in Niger and finds that the presence of mobile coverage leads to a reduction in price dispersion across markets and to lower variation in prices across time.

Aker is not the first to show that mobile phones lead to better market outcomes. In a widely cited paper published this year, Rob Jensen showed that mobile coverage caused a reduction in the variation of the price of fish along the Kerala coast (online version not yet available). Nevertheless, Aker's work is important because she shows that mobile coverage not only leads to reductions in variance between different markets at the same time, but also within the same markets over time.

'Vulture' Investors Not so Bad After All?

Today's issue of The International Herald Tribune has a fascinating article on 'vulture' investors -- funds which purchase debt of third world countries for pennies on the dollar and then sue in Western courts to try to recover the money. 'Vulture' investors take advantage of others' generosity by buying up the debt of countries which are currently being considered for debt forgiveness. Once the countries' other debt is forgiven and the seniority of the vultures' debt rises to the top, they swoop in for the kill.

Most people in the development community would place vulture investors just above Pol Pot in a ranking of moral worth. Yet, as the IHT points out, there is at least one positive effect of the vultures attempts to recover their debt: they put the spotlight on corrupt leaders. In their zeal to prove that the countries whose debt they own are capable of footing the bill, vulture investors spend a lot of time and effort to uncover instances of corruption by the countries' leaders.

New and Newsworthy

37.5% of all Congress candidates standing for the Gujarat election have pending criminal cases according to a recent report by the Association for Democratic Reforms. (The other parties don't fare much better.) 5 out of the 81 crorepatis standing for election don't have PAN numbers.

Good news for Indian farmers, bad news for consumers: food prices are hitting new highs.

Yet more good news for Indian farmers: ITC announces that it will expand its e-Choupal procurement network.

When it comes to bednets, subsidies don't necessarily mean waste. Jessica Cohen and Pascaline Dupas of the Poverty Action Lab find that women who are randomly given free bednets are just as likely to use the bednets as those who paid for them. (This is a very interesting and important result, but before signing on wholesale to the idea that subsidies are always a good idea check out this post on earlier research which found that when it comes to clean water subsidies do create increased waste.)

Have a question about grape cultivation? Send an SMS. IIT Bombay launches new SMS service to provide Maharashtrian farmers with instant access to ag info.

When is Money-Lending Immoral?

Moneylenders have never received such good PR as they have in the past few months. First, the RBI claims that they perform an essential “gap-filling function” (which, IMHO, they do) and calls for the role of the moneylender to be legitimized (which, IMHO, makes a lot less sense – see earlier post). Now, in a recent article The Economist argues that those who dare to criticize moneylenders are “credit snobs.”

While I agree with the central conclusion of The Economist article – that money-lending to the poor, even if it is pricey, short-term, and profitable, is not inherently immoral – I feel that they are glib when they extrapolate from this logic to argue that all money-lending is Ok. There are definitely some cases where money-lending is unequivocally bad. Here are a couple:

When money-lending is used as pretence for extreme monopsonistic behaviour Often, moneylending is just a device used by cartelized traders to justify gouging local farmers. In Everybody Loves a Good Drought, P. Sainath describes how the cartel of middle-men who control the market for chillis in Ramnad, Tamil Nadu collude to manipulate the market and keep prices low. At the beginning of each chilli growing season, the middle-men give loans to the farmers in exchange for the promise that the farmers will sell them their entire harvest. This might seem like a straightforward, if somewhat cruel, deal. After all, the farmers can always choose not to take the loan, right? Wrong. The cartel of middle-men refuse to deal with any farmer that has not taken a loan, effectively shutting him out of the market.

When moneylenders require borrowers to become bonded labourers. You shouldn’t be able to sell yourself, and especially not your children, into slavery. This seems pretty obvious yet the practice is much more common than many might think.

Certified Emissions Reductions and the WWF

A recent report published by the WWF questions the financial additionality of up to 20% of the current Clean Development Mechanism projects. They claim that these projects would have happened regardless of financial incentives offered by the sale of CERs. Their argument is that these projects would have happened anyway...

I'm not convinced. The normal course of business is to maximize profits and minimize costs. To expect companies, especially high growth companies here in India, to invest money on reducing emissions with no financial incentive is...naive. The reality of the situation is that yes, these projects probably would have happened anyway. And yes, these projects in some places reap windfall profits for both the CER seller and buyer. But the question is 'when would they have happened?'

And for me there lies the additionality of many of these questionable credits. It isn't financial and it isn't environmental, it is the potential to make money, and for many of us in the development field that is somehow 'immoral'. But the question we have to answer is 'does the end justify the means?'

Maybe. Maybe not. But for the moment I have to believe that action is more important than inaction. Yes there is going to be more pollution in developed countries and yes we are in some ways letting polluters off-the-hook. I am aware of all these arguments and personally I agree...but at the moment taking the moral high ground isn't going to stop polluters from polluting.

Inequality in India

Livemint published an article yesterday with the highly misleading headline "Between ’97 and ’05, equality grew in India". According to the author...

The India of 2004-05 was more egalitarian than the India of 1997. That’s the message between the lines in the United Nations Development Programme (UNDP) human development reports (HDRs) for these years.

Before taking this as proof that concerns over rising inequality are misplaced, take a look at this graph compiled by the authors of the Indian Economy Blog:

(The most recent statistic on inequality are not included in the graph, but, at 36.8, would fall just above the last value plotted on the graph.) As is apparent from the graph, the Gini coefficient for 1997 was an outlier and thus comparison between 1997 and the most recent value doesn't make too much sense. (For a more comprehensive overview of how inequality in India has changed since economic liberalization, click here.) The Livemint article mentions this fact, but it is buried deep in the sixth paragraph of the article.

I'm usually very impressed by Livemint's coverage of economic issues which makes me wonder: is this just a case of sloppy reporting or of intentional bias?

CMF News Flash: Weekly Group Meetings May Be Unnecessary

In this paper we use data from a field experiment which randomized client assignment to a weekly or monthly repayment schedule and find no significant effect of type of repayment schedule on client delinquency or default.

From "Repayment Frequency and Default in Microfinance: Evidence from India" by Erica Field and Rohini Pande. The full version is available here.

Weekly repayment schedules are a standard feature among nearly all non-SHG microfinance lending in India. Borrowers have never really liked taking an hour out each week to attend group meetings, but MFIs have been reluctant to decrease the frequency of group meetings out of a fear that doing so would lead to a drop in the fiscal discipline of borrowers and, consequently, of repayments. This paper proves that in the case of the MFI the researchers worked with, VWS, these fears are misplaced: borrowers repaid their loans just as well even if they met only monthly.

Improving India's Education System

Shekar Shah, regional adviser for South Asia at the World Bank, has just written a great blog post on Pratham's amazingly successful Read India campaign. The entire post is worth reading so I'll just include the link here.

Banks Enlist the Help of Dabbawallas

The dabbawalas have been working with the bank by distributing its forms among their customers and providing them with details about the products and services of the bank by circulating their pamphlets, Paul said.

Dabbawalas have around 2.5 lakh customers, including a lot of students, out of which around 10 per cent have opened their accounts with Corporation Bank, courtesy the dabbawalas acting as business facilitators.

From DNA News. The phrase "business facilitator" is not used in the general sense of any agent acting on behalf of a bank in this article, but rather refers to a specific type of outsourced banking agent whose role has been defined by the RBI. The details of what exactly “business facilitators” are and what they can legally do on behalf of banks can be found here, but basically “business facilitators” are allowed to disseminate information about bank products and process applications.

The “business facilitator” model and its close sister the “business correspondent” model have generated a lot of hype since their creation by the RBI about a year ago but to date this is one of the first examples of the models being (seemingly) successfully implemented.

Scariest Thing I've Read on The Web Today

40% of Indians shun doctors who treat HIV patients
..
59% wrongly believed that there is a cure for HIV available today

From a survey by conducted by the philanthropic arm of Estee-Lauder. Click here for coverage.

To Control or not to Control ?

More on the capital control debate. Some interesting comments on it all.

The IMF chief has warned about India imposing capital controls.

Perhaps, shaken by the market response to the promissory note regulation by SEBI. Chidambaram, has repeatedly made comments to the media that there are no capital controls on the horizon.

A old editorial by Arvind Subramanium in the Business Standard, now here at his Peterson Insitutite website makes a great point. Whatever the intent of the administration is, do not let the market reaction dictate the policy. "So, if there is one advice to give policymakers on capital account issues it would be this: Don’t panic and retreat in the face of market reaction."

And since we are on the oh,so general topic of macroeconmics, why not include a comment on AID!!

Have you ever looked at the many aid indexes and wondered to yourself, "hey this ranking of aid and commitment/philanthropy/world cup finish/diplomacy/bleeding hearts - i mean its just not doing it for me anymore!!"

Well the United Nations is there to help. Heres a new ranking of countries which looks at the quantitatively intense indicators of - "humanitarian response" and "impartiality and implementing humanitarian law". Wow, and here you thought they couldn't rank anything else.

The purpose of the new report is "not to be “a name-and-shame exercise”, according to Silvia Hidalgo, director-general of Dara, but rather to be “a vehicle...to improve the quality of humanitarian aid”

Indeed. Im sure no one is going to mind a little shame on the side either. Im looking at you Austria.

*New readers of this blog to note - Im the sarcastic one.

Notes from CARE Microfinance India Conference

As most readers of this blog are probably already aware, the CARE Microfinance India conference was held two months ago in Delhi.

The CARE conference is the preeminent conference on the Indian microfinance sector. This year, the speakers included P. Chidambaram and Vasundhara Raje (the Chief Minister of Rajasthan).

For those who weren't able to make it or would like a refresher of the conference events, Minakshi, Shwetambara and I here at the CMF have come up with some rough notes on the various panels included in the conference.

Microfinance for School Builders

Opportunity International, a dgMicrofinance Cooperating Organization and leading innovator in the microfinance industry, launched this year Microschools of Opportunity™, a new initiative that provides loans to "edupreneurs" who open schools in poor neighborhoods where children cannot access public school for a variety of reasons.

From Development Gateway. (http://topics.developmentgateway.org/microfinance) This sounds like a wonderful idea. The positive externalities arising from construction of a new school are obviously quite large and, based on my own personal experience in India, it seems like this is a sector with high growth potential and in which access to finance is a significant obstacle.

Markets in Bones

India has long been the world's primary source of bones used in medical study...Now, 22 years after India's export ban, there are signs that the trade never ended. Black-market vendors in West Bengal continue to supply human skeletons and skulls using the time-honored method: Rob graves, separate soft flesh from unyielding calcium, and deliver the bones to distributors — who assemble them and ship them to dealers around the globe.

From "Inside India's Underground Trade in Human Remains" by Scott Carney. Aside from the obvious, what surprised me most in the article was the difference in the prices of skeletons overseas and in India: according to Carney, a full skeleton costs $70,000 $3,000 in the US yet only $45 in India. (Note: earlier figure incorrect, thanks to Scott Carney for the correction)

Its a Soverign Wealth World After All.....

OK, ill admit it. I cant get enough on the Sovereign Wealth Fund (SWF) news. While it seems there is a lot of hype, there is no denying (just like the song) that there is something happening here, but what that is - well, thats not exactly clear. But some recent developments....

We know SWFs are not new (see Sweden). We know they are getting more sophisticated then just boring old debt and equity placements (see China and Blackrock). We also know that sometimes they can grab an interesting headline (see Abu Dhabi and Citigroup).

China seems to be creating a distinct strategy. Its an interesting idea, but one that Ill need to some time on to see how it works out.

And if you want to read something less dry, heres a New Yorker piece on the topic.

Stay tuned to this blog for more.....

Is the $100 Laptop Dead?

The Wall Street Journal ran an interesting article on the $100 laptop project last week. The main thrust of the article was that the One Laptop per Child project, which has overseen development and production of the $100 laptop, has suffered severe setbacks and is nowhere close to meeting its target of distributing 150 million laptops by the end of 2008. The reason for the demise of the One Laptop per Child project? The private sector, feeling threatened, decided to do it on their own.

Dr. Negroponte, the head of the One Laptop per Child project, may feel let down but this seems like a success to me.

How much does the urban middle class know about microfinance?

As someone who specializes in the field, I’m always a little bit surprised when I discover how little my friends who don’t work in development know about microfinance. Some may argue that the question is irrelevant but, without trying to sound too Marxist, I would argue that it’s important to pay attention to what the middle and upper classes know and think because they determine the agenda of the media.

So what exactly does the urban middle class know about microfinance? Have they heard of Grameen style lending or of Self-Help Groups? And for those who are at least semi-aware of the phenomenon, what do they think about it? Do they think interest rate caps should be put in place? What do they see as the primary benefits (and negatives) of microfinance?

I suppose it's a bit ambitious to expect people to comment on posts on a blog four days old so these questions are pretty much rhetorical, but if anyone has an answer I'd love to hear it.

Moneylenders and microfinance

The RBI has finally hit on a novel solution so that India can proudly say that its rural farmers are no longer indebted to usurious, unscrupulous moneylenders: call the moneylenders something else – “accredited loan providers” to be exact. That is the conclusion reached by the RBI’s Technical Group to Review Legislation on Money Lending in their report released three months ago. The report recommends that most restrictions on the practice of moneylending be removed and that moneylenders, or “accredited loan providers” in RBI’s lexicon, be given increased access to bank loans. The RBI hopes that by legitimizing the role of the moneylender it can both increase access to finance (since moneylenders themselves will be given more loans from banks and thus have more money to pass on to their borrowers) and reduce the most egregious cases of interest rate gouging and abusive practices by moneylenders.

Joking aside, the proposal is an interesting and creative one. Yet what worries me is that it involves huge reputational risk, for both the RBI itself and banks which would be induced to lend to moneylenders, and the gains, in terms of financial inclusion, are uncertain at best. One can only imagine the beating the RBI would take in the press if the proposal were to be adopted as law and a farmer lent to by an “accredited loan provider” committed suicide. (Indeed, the RBI is already taking a beating just for floating the idea.)

Similarly, it’s not clear if legitimizing moneylenders and inducing banks to lend to them would really translate into more or cheaper credit to those who depend on moneylenders for loans. Nobel laureate Joseph Stiglitz has shown that due to the monopolist nature of the money-lending market, subsidies to moneylenders may only result in an increase in profit to the moneylender. (no free online version: K. Hoff and J.E. Stiglitz (1997) "Moneylenders and Bankers: Price-increasing Subsidies in a Monopolistically Competitive Market", Journal of Development Economics, Volume 52, Number 2, pp. 429-462(34).) Furthermore, it's not certain that Indian moneylenders are strapped for cash in the first place or that banks, even with the prodding of the RBI, would be willing to lend to moneylenders at all. (Banks, after all, are not too big on lending to businesses with few tangible assets and whose profits they are unable to monitor.)

Is it just me or is the RBI staking way too much on a gamble with a very low potential payoff?