ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Banking and Finance 2007Subscribe to Banking and Finance 2007

Commodity Futures in India

The turnover of the commodity futures market has grown exponentially in a short span of time. With a skewed market participation that largely favours speculators, the futures market leaves a lot to be desired as an effective instrument of risk management and price discovery for the benefit of the growers, traders, processors, and other stakeholders in the physical trade. Policymakers have overlooked wider considerations involving the discipline of checks and balances. Owing to the massive size and non-zero-sum game character of these markets, they are likely to introduce a series of unsettling macroeconomic effects, such as a possible redistribution of incomes from the small players to the big speculative financial market entities. The article concludes with a reference to the factors that could have been behind the snags afflicting the present commodities futures policy, and suggests how the needs of the real economy can be satisfied by strengthening the forward trade that is firmly anchored in the physical trade of the farm commodities under reference.

The Microcredit Alternative?

Microcredit has been receiving a significant amount of attention all over the world, especially in developing countries. It is felt that by providing microcredit to the "poorest of the poor", the gap in the formal rural credit sector can be filled. A majority of such projects are now being controlled by non-government organisations in the hope that they will be able to overcome the weaknesses in the banking system. However, while small-scale rural credit is necessary, overall credit policy must build on the strengths of the banking system in India as its mainstay.

Consumer Protection in Indian Microfinance

This paper first outlines a case study of the episode in 2006 in Krishna district of Andhra Pradesh when the state government temporarily closed down all the branches of microfinance institutions there. The case study helps provide insights into the kind of consumer protection issues of relevance to Indian microfinance. The article then examines two developments - a code of conduct promulgated by Sa-Dhan, the main network of Indian MFIs, and the draft microfinance bill. The first entails self-regulation, while the second introduces for the first time external regulation of the sector. Among other things, the bill seeks to enable MFIs to offer savings and not just credit. The article looks at the savings promotion objectives of the bill, including two important aspects in which the bill might be improved.

Global Imbalances, Reserve Management and Public Infrastructure in India

If there were no policy interventions of any kind in the foreign exchange markets, and all markets were present and deep, it is far from clear that the size and direction of global imbalances would be any different than they are today. What would be different is the manner in which surplus savings are being managed. The real problem today is not a macroeconomic one to be alleviated by a complex policy coordination of monetary and fiscal policies. Instead, it is a microeconomic problem of how to best manage national savings.

A Microfinance Institution with a Difference

Sanghamithra is a microfinance institution set up to promote self-governed institutions of the poor and be totally unlike the typical MFIs that are known to focus exclusively on financial sustainability and use strong arm methods for loan recovery. It works with self-help groups (11,000) and watershed management associations, in tandem with non-government organisations and other agencies to foster social and economic inclusion and self-reliance.

Banking Reforms in India

The public sector banks have shown a remarkable transformation in the post-reform period. Profitability is comparable to international banks, efficiency and stability have improved and there is a convergence between PSBs and private banks. But the PSBs will be severely tested as disintermediation proceeds apace on both the asset and liability sides. Their survival depends on their ability to rise to the challenges ahead. Both unions as well as government in its capacity as owner have an important role to play in ensuring that PSBs are well prepared to meet these challenges.

Microfinance for Poverty Reduction: The Kalanjiam Way

The Kalanjiam programme is a unique credit programme that goes beyond the narrow "financial delivery" approach. As this article explains, initiatives under this programme are flexible and tailored to the needs of the poor; the attempt is also to address existing "leakages" in the earlier system of moneylending so as to improve the borrowing capability of the poor. Working through self-help groups, the kalanjiam way also seeks to instil democracy by encouraging a grassroots leadership to emerge and ensuring the community ownership of public works.

Inclusive Financial Systems

Besides facilitating overall economic growth, finance can help individuals smooth their income, insure themselves against risks and broaden investment opportunities. Empirical evidence shows that inclusive financial systems significantly raise growth, alleviate poverty and expand economic opportunity. This paper lays out several principles that should be kept in mind when designing such systems, supported by a case study of ICICI Bank.

Banking and Financial Policy: An Independent View

The Independent Commission on Banking and Financial Policy has produced an excellent report that puts the banking and financial policies of India under a microscope. The analysis is not always on the mark but the report needs to be studied and debated in detail.

Microfinance Development Strategy for India

Due to the nature of the expansion of banking services in the country and constraints on banking entities, microfinance and microfinancing institutions have gained immense relevance today. The microfinance activities of banks have grown to new heights.

How Do We Assess Monetary Policy Stance?

This paper develops a measure of the monetary policy stance from the detailed reading of various monetary policy announcements in India from 1973 to 1998. According to the proposed measure, the stance of monetary policy has been mildly contractionary over this period with its emphasis on inflation control. The constructed measure of monetary policy stance is then linked to output and prices in a three-variable vector autoregression framework, which indicates that, for the period of study, the potency of monetary policy seemed to have been more effective in price control vis-a-vis stimulating output growth.

Private Equity: A New Role for Finance?

India's experience with private equity is illustrative of the rush of this form of finance to the developing world. The acquisition of shares through the foreign institutional investor route today paves the way for the sale of those shares to foreign players interested in acquiring companies as and when the demand arises and/or FDI norms are relaxed. This trend of transfer of ownership from Indian to foreign hands would now be aggravated by the private equity boom. Private equity firms can seek out appropriate investment targets and persuade domestic firms to part with a significant share of equity using valuations that would be substantial by domestic wealth standards.

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