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

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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.

Indian Banks' Diminishing Appetite for Government Securities: A Change of Diet?

Indian banks' holdings of government securities - measured in rupees - have fallen for the first time in almost 40 years and are now close to the statutory minimum. Such holdings remain, however, large and draw attention to their risk as interest rates are increasing. This paper reviews the reasons why such holdings are so large and measures their interest rate risk using duration/convexity and value-at-risk methods. The first key finding is that, at end-March 2004, some public sector and old private banks were vulnerable to a reversal of the interest rate cycle, while foreign and new private banks had built adequate defences. The second key finding is that recent changes in regulation such as the move to Basel I and the road map to Basel II are important as they make Indian banks' capital more sensitive to interest rate risk.

Hedge Funds

Owing to the substantial risks involved, hedge funds are normally open only to professional, institutional or otherwise accredited investors. This paper outlines the structure of hedge funds, the investment strategies pursued and possible returns.

Corrective Steps towards Sound Banking

The Indian economy is facing some serious macroeconomic problems due to rapidly rising inflation and interest rates, a growing trade deficit and an uncertain global environment, which involves risks of sudden adjustments in the currency value and corrections in financial markets. In this situation, questions about the banking sector's ability to respond effectively to the unwinding of macroeconomic imbalances remain. This paper suggests some necessary short- and medium-term corrective measures to stabilise and improve the soundness of the Indian banking sector to face these challenges.

Commodity Derivatives Market in India

The modern commodity market finds its origin in the trading of agricultural products. This article traces the evolution and development of the commodity derivatives market in India. The article then goes on to outline its infrastructure and how it is regulated.

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.

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