Aug 5, 2016

Money, Credit & Banking in Rural India

Excerpts from a conversation with a person who works as a cleaning staff in Dubai. Actual conversation happened in Hindi. 

Me: So how do you save money in India?
Him: I transfer money to my uncle’s bank account. He takes it and gives it to my father. He keeps it.

Me: So, a person keeps the all the money of earning members in your family?
Him: Yeah, and he lends out money at 2% interest to our immediate & extended family members & friends when someone needs it

Me: (My finance mind starts to work) Well, why don’t you open an NRE account? You get 4% interest tax free on savings account and 7.5% on fixed deposit (Thank God, I didn't advise Stocks & Mutual Funds)
Him: Banking doesn’t work for us Sir. Our financial needs are different

Me: Can you explain?
Him: Sometimes for my daughter’s school fees, I need some money urgently. Maybe for some agricultural expenses, I may have some unanticipated need. If I go to banks, they ask for many paperwork.  Not at all easy.  Not fast.  

Me: So, your family based financing model works for you in these situations?
Him: Mostly yes. The lending is not based on my savings. It is based on need

Me: So, how does your family system ensure that the people whom you lend to, return the money back with interest?
Him: Sometimes people make delays in payments. But, no one defaults. We don’t lend to everyone. It is within a circle of extended family & friends in village.

Me: But does this lending business make profit? Lending at 2% won’t make much money.
Him: Sir, this is not done for profit. This is a system to manage our financial needs of everyone in the family with the little money that we save. If everyone puts money in their individual bank accounts, when need comes, no one in the family can raise a huge sum quickly

Me: So, is this how most of the savings are done in your area?
Him: Yes. Wherever these kind of arrangements are not there, commercial money lenders exploit people.

As I sat bank and thought about that, I felt it made eminent sense. Modern banking works on the basis of “individual”. And all economic theories over that are fundamentally based on the concept of maximizing profit. When the capital available with individual is limited, and the needs are very much basic like health, education & food, you cannot really work on the basis of a person-based banking. A collective usage of capital, even though the returns are limited works best to satisfy the needs of an extended group of people, who otherwise might not be eligible for normal bank credit. The extended group factor is another way of ensuring low probability of default as the defaulter will have much more to lose in an extended family setup.  As profit maximization on lender’s side is not the objective, he doesn’t jack up the lending rates, doesn’t go after new customers and so on. Probably this is the reason why modern banking is yet to take a strong foothold in rural India. Rural India will get financial inclusion when some business model emerges to tap into this kind of credit functioning. I can think of Co-Operative banking prevalent in some parts of India as a close-by model. But that’s a bit higher on the value chain where the needs addressed are for starting a business, setting up a shop, buying a vehicle etc.. This is a problem where needs are much more basic and the time to raise money is quite limited.

Aug 2, 2016

Travelogue - Cyprus

Let me start with a caveat. We could not even cover one-third of Cyprus. The country, even though it looks to be a tiny island in Mediterranean, has a lot to offer for more than a week. We were there just for 4 days including the travel dates.

We landed at Larnaca on a Wednesday morning. Took our rental car and drove straight to our wonderful hotel @ Latchi  .. The cross country drive from South East of Island to the Western side took about 4+ hours ( 170 odd KM ).  Cyprus represents a unique fusion of Greek, Turkish & Continental European cultures. Its cuisine is distinctively Mediterranean. Not just fish & squid, but the European influenced beef & pork as well.  You drive on the left side of the road ( i.e, British system ) .

One of the many view-points in Cyprus
Cypriot beach areas are of two-three distinct kinds . If you are a party-hopper , would suggest you to look for options near Aiya Napa  . Cities like Larnaca & Limassol offer good beaches, but often crowded as per reviews. If you are looking for a reasonably quiet & calm place, I would suggest Paphos / Latchi / Polis areas ( where we stayed ) .  

Legend says that Aphrodite and Adonis met in the beaches of Cyprus. There is an area which is kept as Baths of Aphrodite. Interesting thing is that there are many nearby areas which has the Geological formations similar to the Aphrodite rocks.  But when you have an interesting story in mythology, why not market it and make a hype  :)

The specialty of many of these beaches is that these are pebble filled beaches.You take a dip and lie down on the shore, there is virtually no sand that sticks on to your body. The salt content of the water is very high. In general, Mediterranean has high rates of evaporation thereby making the water much more saltier. So, when you swim, if you are not wearing goggles, you'll experience a strong burning sensation in your eyes because of the high-saline nature. This feeling is much more than any of the beaches that I've been to.  But doesn't make the experience bad.  Infact, I'd rate Cyprus beaches perhaps as the best that I've been to.
Blue Lagoon @ Latchi - Best place to swim in Cyprus

Donkeys are valued very much in Cyprus. There is a Donkey sanctuary, a soap that the locals produce out of Donkey milk and lot of other handicrafts centered around Donkey.  Cyprus being a mountainous terrain, locals used donkeys to transport the cultivation into different parts of the island. Donkey's importance is highlighted in many of the wineries that you come across. We visited one in the quaint surroundings of a village

Modern day Cyprus is a financial & legal center which gained fame as a base of many investment funds,but which came crashing in the infamous Cyprus financial crisis a few years back. It is a classic case study for anyone interested in Macro-Economics as to what would happen when banks become much more financially large than the country's economy itself.

The scars of the financial crisis still remain. As you exit Larnaca, you see a notice stating that Cypriots are allowed to take out only 1000 Euros when they go out.  But you can see plenty of signs indicating that the economy is picking up. Many Property Ads, Villas under construction, latest BMW models in Limassol, restaurants & hotels filled with tourists even in the blazing July climate and much more.  It is not a cheap place to holiday either .

Cyprus is a divided nation. Those scars still remain. We didn't go to Nicosia. But from what we heard, it is a very different world on the other side of the border.

Cyprus is perhaps one of the few small-islands which has something to offer on history , culture, partying, cuisine. What you have on offer is not a deep historical or profound cultural experience like Rome and Berlin.  You should not expect depth in anything, but those glimpses itself would leave plenty of pleasant memories for a lifetime :)

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May 5, 2016

Travelogue - Budapest

Two of the things that I definitely wanted to visit in Budapest were statues. One was of a person whom I googled up couple of weeks before - Imre Nagy. The other one was of Ferenc Puskas, one of the greatest footballers ever.

Imre Nagy Statue Overlooking Hungarian Parliament 
Imre Nagy was out of a peculiar novelty. One of the best political satires of all time in Malayalam - Sandesham - has a reference to him amidst a political conversation . Something that highlights the ubiquitous political awareness of a keralite in the early 90's.

Ferenc Puskas who led the invincible Magic Magyars of 1950's is part of football folklore. Someone who failed at perhaps the most important game of his career - World cup final 1954 .  Hungary of today seems to have totally forgotten him. There is a stadium dedicated to him in the city. But other than that, Puskas seems to be totally forgotten. We had quite a bit of difficulty in tracing out the exact location & identifying the correct tram & metro tracks. It was pretty disappointing that the city does not have anything better to celebrate the Magic Magyars
Ferenc Puskas statue at Becsi Ut, Budapest

 The turning point in Puskas & Nagy's lives was the soviet invasion of  1956. Puskas returned to Hungary only in the 90's .  Nagy was incarcerated & executed , and secretly buried , only to be  re-interred in the late 80's after the soviet withdrawal . Nagy was a communist, who fought along with Bolsheviks, but later-on fell out of favor with the Soviets because of his disagreement with the Stalinist policies .

Glittering Hungarian Parliament overlooking Danube
Hungary as a nation suffered under two of the most notorious regimes of 20th century - Nazis & Stalin. Many of the survivors from the concentration camps of Nazis ended up in Gulags of Russia. This history is captured in detail in Terra Haza ,a Nazi & Soviet torture cum prison complex converted into a museum. It is a testimony to the fact that extreme policies on any side of political spectrum can be extremely dangerous to the humanity. It is also a reminder to the society that one should not color a political philosophy as good or bad. In this case, many of the victims were members of the Hungarian Communist party ( Like Nagy ) and perpetrators were also from a section of communist party who agreed with the Soviets.
Beer Bike / Pedal Bar on Budapest Roads

Present day Budapest is a thriving Metropolis .  I could spot offices of many modern technology companies like Flextronics , Microsoft  & Samsung.  Heard from a fellow traveler who came all the way from Durban to attend a tech conference that the Government is grooming up this place as Silicon Valley of the Europe. Public transport is excellent . The oldest subway in continental Europe is an engineering marvel just like Moscow Metro .  Trams criss-cross the city. It is a reminder to modern day city planners that a city need not be very rich to develop public transport infrastructure.
Szechenyi Baths, Budapest

The home town of Harry Houdini, really has a magical charm. Perhaps most evident in the night-time view of the parliament building & Buda Castle from the Danube.

Hungarians has a special way of relaxing. The public baths are a common sight. People from every strata of the society come to places like this for a relaxing day. These are mixed baths . I guess places like this are much needed in Indian society . It removes ones inhibitions . And it promotes a habit between men & women to see each other respectfully, irrespective of what an individual is wearing.

Goulash / Beef & vegetables soup &  Chicken Paprikash  are the speciality dishes in Hungary. Indians would definitely like these.  A bit spicy & really tasty

Budapest is like a phoenix raising from ashes. A city that has been unduly oppressed for long seems to be finally getting its due in the 21st century  

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