At the time of the listing of the 250th depositary receipt, there were 171 Indian companies, the highest in the bourse of the central European country, reflecting its position as the leading exchange for international securities, according to data published by the stock exchange
New Delhi: Indian companies made the highest contribution to the Luxembourg Stock Exchange’s ‘milestone’ of reaching 250 issuers of Global Depositary Receipts (GDRs) in July this year.
At the time of the listing of the 250th depositary receipt, there were 171 Indian companies, the highest in the bourse of the central European country, reflecting its position as the leading exchange for international securities, said the stock exchange in its latest publication available with PTI.
Majority of the Indian companies which have listed their GDRs are in construction, software and biotechnology sectors, it said.
GDRs are instruments used mainly by companies in emerging economies to access international capital markets and the Luxembourg Stock Exchange has a long history of working with such companies.
Taiwan occupied the second position after India in approaching the Luxembourg bourse for GDRs with the figure of 48.
The Luxembourg Stock Exchange has also since 2009 run two specialist indices: “Lux GDR India” index and “Lux GDR Taiwan index,” the movements of which reflect the trends of the home markets in India and Taiwan, the bourse said.
For GDRs, the Luxembourg Stock Exchange takes the second position worldwide behind the New York Stock Exchange (306 issuers) but ahead of the London Stock Exchange (196 issuers) and Nasdaq (106 issuers), it added.
High input and capital costs and uncertainties in the global economy are the major factors constraining growth of the manufacturing sector, a survey conducted by CII-ASCON has revealed
New Delhi: Growth in India’s manufacturing sector is expected to further moderate during October-December over the same period last year on account of high input costs and uncertainties in the global economy, reports PTI.
The sector’s growth was moderated in the April-September period compared to the corresponding period of the previous year.
“High input and capital costs and uncertainties in the global economy are the major factors constraining growth of the manufacturing sector,” CII-ASCON survey said today.
Out of the 85 sectors covered in the survey for the October-December period, the percentage of segments reporting excellent growth of more than 20% is expected to decline to 7%, it said.
Further, slowdown is also expected in large number of sectors falling in the moderate category of growth between 0%-10%.
“Most of the sectors (55.2%) are expected to grow at a moderate rate during October-December,” it said, adding the number of sectors recording excellent and high growth was expected to decline to moderate growth category.
It also highlighted some of the issues faced by the industry, including rise in the cost of raw materials, high cost of credit, infrastructure bottlenecks and land acquisition issue.
“These issues need to be addressed at the earliest to help the industry overcome the ongoing decelerating growth phase,” it said.
Fresh perspectives and radical (systemic) changes are required for developing an enabling micro-finance regulatory and supervisory mechanism that can really work on the ground for the benefit of large numbers of low income people
Moneylife reported last week that charges of serious misreporting and mismanagement have again surfaced in the public domain with regard to Indian micro-finance. Specifically, the article reported that Sahayata Microfinance Pvt Ltd, which was the darling of so many investors, lenders and stakeholders had apparently gone astray - with its now suspended CEO and senior management supposedly involved in serious misreporting and mismanagement. (http://www.moneylife.in/article/award-winning-sahayata-microfinance-is-the-latest-to-go-astray/21549.html)
As several previous Moneylife articles have noted, the dominant model in Indian Micro-finance is the commercial model where the MFI is registered as an NBFC with RBI and taps commercial funding (debt and equity) through different means. This model is based on fast tracked growth and generally carries a standard loan product - delivered to clients through joint liability groups and/or agents-based on weekly repayments and having (mandatory) loan related insurance. The emphasis is on-efficiency, standardized processes, large outreach and enhanced profitability – all elements of hardcore commercialization, strongly supported by agencies such as CGAP.
While there could be some modifications to the above model to suit different contexts, the above description is true, by and large, of most NBFC MFIs. The dominant NBFC MFI model is also based on the notion that, to reach and include vast number of unreached and excluded people (including the poor), MFIs must tap commercial funding in a big way from lenders and investors – Mr. Vijay Mahajan’s (Chairman, BASIX, Chairman, MFIN and Chair, Executive Committee, CGAP) statement to this effect, when SKS was to tap the capital markets, strongly resounds in memory. To do this successfully, the model also believes that commensurate (market) returns must be provided to the commercial investors. It is important to note that much of the basic tenets of this (commercial) model have evolved from the global development of new wave micro-finance – which was spearheaded by several stakeholders including CGAP, especially since 1997 onwards. This is a description of the commercial model as I understand it. And as long as the game is played fair and square (no frauds, no multiple/ghost/over lending, no tweaking of performance results etc), I have no problems with the commercial model.
That said, let us get back to the 2010 Indian micro-finance crisis. A critical point to be noted here is that the fastest growing MFIs, who perhaps contributed to this crisis in India, are primarily NBFCs MFIs that come under the purview of the Department of Non-Bank Supervision (DNBS), RBI. These NBFC MFIs grew at a phenomenal rate, adding several million clients and dollars to the gross loan portfolio over the period April 2008 to March 2010. The following basic facts are discernible from the data (www.mixmarket.org):
Please note that the phenomenal growth spurt was led by 5 large Andhra Pradesh headquartered MFIs (SKS, Spandana, Share, Basix and Asmitha), who added 2049 million US $ and 9.59 million clients between April 2008 and March 2010 – which is very significant indeed. This is equivalent to each of these 5 large Andhra Pradesh headquartered NBFC MFIs, adding a gross loan portfolio of Rs.78.55 crores per month, month after month, quarter after quarter, year on year for the 24 months in question (Rs.1 crore = Rs.10 million and exchange rate assumed is Rs. 46 per dollar).
And as noted in box 1 below, the department of non-bank supervision RBI is supposed to supervise every NBFC that has a loan portfolio of over 100 crores closely. As noted above, each of these 5 AP headquartered MFIs were adding (on an average) almost the equivalent of 78% of that threshold value of (Rs. 100 crores portfolio) every month during the period April 2008 to March 2010.
At this juncture, it seems pertinent to look at what Dr. Rangarajan and others have had to say about the business model of the NBFC MFIs and also apply the same to this analysis.
"The business model of microfinance institutions is faulty. They must revisit the model to support the income earning ability of the borrower," Prime Minister's Economic Advisory Council Chairman Dr C. Rangarajan said at an event organized here by Skoch Consultancy. Rangarajan said multiple lending done by MFIs is inconsistent with the very repayment capacity of borrower. He said MFIs have been indulging in multiple lending and large parts of the loans are given for consumption purposes and this model of business has landed them in trouble. "Income earning capacity must be criteria for granting loans... The provision of credit for consumption must be a small part of the total loan," Rangarajan said” (http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/mfis-business-model-faulty-pm-panel/articleshow/7225090.cms)
Others have tended argue for the same and I reproduce a quote from Dr. Al Fernandez’s post on the CGAP blog. As Mr. Fernandez argues,
“The State of the Sector report 2010 (N. Srinivasan) indicates that out of 60 MFIs which reported on profitability, six had ROAs over 7%; thirty five had ROAs over 2%. In contrast the public sector banks in 2009 had average ROAs of 0.6% with the best being 1.6%, while the best private bank had ROAs of 2%. The yield on portfolio confirms this picture; in the case of 23 MFIs it was above 30 % (the highest being 41.29%). The report also says that economies of scale have not led to lower interest rates or lower yields. This implies that MFIs maximized their profits and competition did not decrease rates as it was expected to. The largest MFI recorded a 116% jump in net profit at Rupees 81 crores ($18 million) in the second quarter ending September 2010 as against the corresponding period last year.” (http://microfinance.cgap.org/2011/01/06/shgs-for-the-poor-mfis-for-the-non-poor/)
The cornerstone of these arguments is essentially this:
Many MFIs engaged in excessive and multiple lending for consumption purposes and often granted loans without assessing the loan absorption capacity of the clients. Implied in this statement is the fact that many MFIs (in their desire to reach scale and show better results) pushed loans indiscriminately to low-income clients for consumption purposes without any sensitivity to their debt servicing ability and tried to grow (very fast) showing unnatural profits so as to attract capital at high valuations. This is evident from the Indian micro-finance experience and also as noted in a CGAP paper (CGAP, JP Morgan, occasional Paper: Microfinance Global Valuation Survey 2010, March 2010). Thereafter, they had to justify these high valuations by providing better returns to investors. And investors likewise, as they had paid huge premiums, wanted to recover their investment fast and hence, were perhaps pushing the MFIs to grow faster. Hence, as diagrammed in figure 1 below, there appears to have been a mutually reinforcing cycle of multiple/over/ghost lending, fast growth, high profits, very high share valuation, equity investments, faster growth, greater profits, more returns, turbo charged growth and so on.