Microfinance for Macro Change Emerging Challenges – Dr.Deepali Pant Joshi

The book combines the detailed painstaking research of a noted scholar with the practical experience of the policymaker it furnishes and extensive analysis of the remarkable traits that have ensured the success of microfinance. Microfinance for Macro Change. Dr.Deepali Pant Joshi, the author of the book under review is an executive of the Reserve Bank, a Fellow of Harvard University and is an authority on development economics. Poverty reduction has been the main plank of the Indian planning process for over six decades and access to finance by the poor and vulnerable group is undoubtedly an overriding factor. The aim of financial inclusion is to enlarge the role of the organised financial system to cover those segments with low incomes. Microfinance is a crucial motivator in this and acts as a tool in improving productivity of the poor. This will spring from the evolution of a market serving the requirements of the poor. Microfinance is the provision of a wide range of financial services, credit and insurance to low income households and their micro enterprises. The poor can create projects that generate income and lift themselves up by their bootstraps. The S H G- Bank linkage programme is a laudable initiative to deliver the financial services to the poor on a continuous basis. There has been a strident growth in this and today the number of SHGs finance is over 30 lakhs. This programme confers gains on banks through externalisation of part of the credit cycle. It ensures screening of borrowers, gauging credit requirements, appraisal as also enforcement of contracts. The volume under review is an authoritative treatise on microfinancing and surveys it at length, raises several questions and answers them with assurance. The first chapter furnishes a lucid background of how microfinance has become a paramount agent in poverty reduction. The next chapter deals with different delivery models assessing their success and drawbacks. Nabard sponsored SHG- bank linkage programme is dealt with in the next chapter. Chapter Four highlights the role of RRBs and DCBs in delivery of micro- credit to the poor. How microfinance has changed the life of women through " SEWA" with examples of foreign experience is the subject of the next chapter. Concrete examples from a number of developing countries how microfinance has strengthened the poor are provided in Chapter Six. The subsequent chapter reveals how the frontiers of conventional finance are being expanded. The concluding chapter tackles the challenges, issues and concerns. The book is an admirable and succinct analysis of the gamut of microfinance dealing with objectives, participants, roles and comparative advantages. The author has argued vehemently for expansion of the financial frontier to cover the remotest rural areas. This can be done by systematic mapping of financial services for the poor, improving knowledge industry, co-ordinating at national and international levels. The book has a bibliography and a number of tables detailing relevant parameters. Dr.Rangarajan, former Governor of RBI has contributed a Foreword and declares that the book is a useful addition to the literature on the subject. The book is useful for planners, bankers, students of economics and those dedicated to alleviating poverty.

Book review by P. P. RAMACHANDRAN

Beat inflation with bonds

With inflation galloping at 12 percent, fixed deposits (FDs) offering a meagre 7-8 percent returns do not meet the needs. Such fixed interest instruments tend to give negative real returns, and the worst affected are fixed income earners who have no indexation facilities. In view of this, a committee of the Reserve Bank of India (RBI) has proposed the introduction of fully inflation (price movements) indexed bonds (IIB) for institutional investors with maturities of 10-12 years. This is intended to ensure inflation-linked returns to investors as both the principal amount and interest payments are indexed to inflation. The interest rate is usually lower than that of fixed rate bonds with comparable maturity. Though, as the principal amount grows, the payments increase with inflation. In India, a variant of indexed bonds, called the Capital Index Bond (CIB) 2002, was issued on December 29, 1997 wherein only principal repayments at the time of redemption were indexed to inflation. Based on the experience and feedback from market participants, a new version of IIB has been designed with both interest payments and principal repayments linked to Wholesale Price Index (WPI) for all commodities, and hence protected from inflation.

Over-regulation likely in financial sector: RBI Deputy Governor

The financial industry of the country is likely to see over-regulation in the coming years. In fact, regulation is the reason why the Indian financial sector is surviving, said K.C. Chaktabarty, Deputy Governor of Reserve Bank of India, who was in the town to participate in the financial leadership summit organised by the Indian Institute of Management Lucknow. The programme was part of the three-day annual management festival celebrated by the institute, called Manfest 2011. Chakrabarty, in his speech, said the financial market cannot be made totally free in an environment where there is lack of transparency and understanding about the sector is less among its consumers. Chakrabarty said 40 per cent population of the country is still without a bank account. “But by 2030, all Indians will have a bank account,” he said. K.C.Chakravarty, who was also one of the panelist spoke about financial inclusion and regulation. He quipped, "If you are an economist and have committed any sin, then in your next life, you would be a central bank governor of a developed country." Financial market, he said, will have to be subservient to real market in 2030. "Financial market is surviving in this market only because of regulators," he said, stressing that financial regulation will remain vital to the economy. "If there is one country that has the opportunity in the 21st century it is us. We must seize the opportunity," he said.

RBI’s takeover of J&K Bank’s overdraft role raises questions

A new wave of anxiety has suddenly engulfed Jammu & Kashmir. The news that the Reserve Bank of India (RBI) has taken over from J&K Bank some of the jobs the latter would do for this state is official now. To most Kashmiris, this step constitutes ‘nationalization’ of their most important institution. And the message that they see in this is not financial but significantly political.
On Friday, all speculations about this matter were put on rest when RBI came up with an official press release mentioning the signing of the agreement between J&K government and itself, making RBI take over from J&K Bank the role of providing overdraft facilities to J&K state. A big majority of J&K’s people see any such step a dilution of the state’s special status. They also see it as ‘nationalization’ of the state’s key institutions. And that is a grim message. A lot of state’s indigenous institutions have been ‘nationalized’ over the years. The problem is that such ‘nationalization’ creates greater centralization, challenging J&K’s quest for political autonomy even further. At the end of the day, Jammu & Kashmir’s case for restoration of political autonomy in practical terms is not about a political luxury, it is about need. Centralisation of powers is always bad for people’s welfare. In J&K’s case it is a recipe for long term instability and political chaos, rather than political reconciliation. This latest step has even the potential of putting spikes in the ongoing peace process being steered by the special interlocutors.  No matter the merits of ‘financial discipline’, steps like these will not help in bridging the trust deficit between Srinagar and New Delhi. These steps also raise serious questions over National Conference’s ability to safeguard the state’s special status, howsoever symbolic that might be.

Variety of factors behind price rise: Chidambaram

Attributing the price rise to a variety of factors including the international trends, Union Home Minister P Chidambaram today said "it is difficult to explain" to the people the reasons for price hike. "Sometimes, price of certain commodities, such as sugarcane, goes up when their their procurement price is increased. Some commodities such as petrol reflect the international prices whereas the others are based on demand-supply gap, like onion," he said here. In his address at the release of the book 'Global Crisis, Recession and Uneven Recovery,' written by former Governor of Reserve Bank of India Dr Y V Reddy, Chidambaram, however, said the aforesaid issues could not be explained to the people. On recession and the global crisis, he said India had managed to see off the situation, thanks to the planning and steps taken by Prime Minister Manmohan Singh, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia and Reddy, who was the RBI Governor during those times. He also said India's central bankers, including Dr Reddy, and previous RBI chiefs were persons of outstanding integrity. The book is a sequel to his 'India and the Global Financial Crisis: Managing Money and Finance,' and provides a policymaker's understanding of the progression and impact of the financial crisis and the lessons it offered, a release said.

RBI tightens Tier I, II bond issue norms

The Reserve Bank of India on Friday said banks would not be allowed to issue Tier I or Tier II bonds with an option of offering higher coupon after some years, known as "step-up option". The change is in line with the new definition of regulatory capital under the Basel Committee on Banking Supervision, the Reserve Bank of India (RBI) said in a statement on its website. Such instruments can be issued with only 'call option'...," the RBI said.

Workshop on Knowledge Discovery Tools and Techniques

BKC Knowledge Network, formed in 2007, provides a platform for Library & Knowledge professionals in the emerging business district to network and share resources wherever feasible. Members include RBI, MMRDA, IL&FS, Bank of Baroda, NABARD and ICICI Bank. With a successful session on ‘Open Indexing Initiative’ by Dr. Manjunath, Librarian, IGIDR in April 2010, the BKC Knowledge Network initiated its second event by organizing a one day workshop on “Knowledge Discovery Tools & Techniques” at Reserve Bank of India, Bandra-Kurla Complex.