Recasting India (11 page)

He also has nothing left to do, says Thyagarajan. “I have no ambition. I never did. I don't even today. The company will fulfill its own destiny and go where my colleagues take it.” When pushed, he says he wants to start an institute dedicated to mathematics research, another devoted to the music of renowned maestro Lalgudi Jayaraman and a think tank to solve bureaucratic red tape. He is personally writing a simplified version of India's tax code. “But,” he says, “it will be ridiculous if you write all this. You are really pushing me and that is why I am answering. Otherwise no one wants to know about me.”

R
ETICENCE IS A TRAIT THAT LENDER
B
INDU
A
NANTH SHARES WITH
RT. The 37-year-old also hates wasting time, so she tries to get to airports at the last possible moment to board flights with minimum delay.

The only place where she is patient, she says, is her IFMR Trust. Six years ago, when she started the private trust (profits don't go to owners, or in this case, trustees, but are reinvested in the company), she had a novel idea. If Muhammad Yunus, the Nobel laureate microfinance expert, defined his model as “banker to the poor,” Ananth positioned hers as “wealth manager to the poor.”

Is there a distinction? Ananth thinks so—and on that idea she has gathered 445,000 borrowers across the states of Odisha, Uttarakhand and Tamil Nadu and in 2013 lent Rs 400 crores.

What differentiates Ananth from other microfinance lenders, many of who are much bigger than IFMR, is her philosophy. The heart of her lending model is intensive data gathering and analysis. The usual lender basically looks at some rough criteria, what Ananth calls “colour of credit cards-style” credit determination, or what your local bank would call KYC (Know Your Customer). The RBI defines KYC as a two-part process—identity and address.

Ananth says in her version of lending, to some of the poorest people in the country or to some with volatile income, like a farmer whose earnings might be concentrated in one part of the year (with the sale of crops) while there might not be much intake at other times, this kind of data is not quite enough.

“We seek to know almost everything about the customer. How many people are there in their family? What do those people do? What kind of assets do they have? What kind of lifestyle do they lead? What do they spend their money on? Who spends the most money in the household? At what periodicity is the money spent? The list is exhaustive. This data collection is the core of what we do,” says Ananth. The data sheet also has the age and occupation of family members, a household balance sheet, including all assets (physical and financial) and liabilities (formal and informal), a household income and expenditure statement and goals for the household, including retirement.

The data is then fed into software that formulates a finance or “wealth” plan for the client. Ananth, an alumna of the Indian Institute of Rural Management and Harvard's Kennedy School of Government, says her work is about training her field staff to sell a bouquet of services, not just give a loan. The idea is to look for clients who need services rather than for borrowers in a particular geographical area. The basis of most banking is geography. Banks target areas where they can tap into a large number of potential customers who have the ability to pay for their services and don't worry too much about the minority who cannot.

Microfinance institutions often do the reverse. Theirs is an access pitch, so to speak. They reach out to customers who are often very poor and live in very remote areas, and they charge high interest rates for this service.

IFMR's pitch is entirely different. The idea is to bring a branch to the clients and ensure that a client cannot only be given a loan but also sold insurance and pension schemes—whatever they need. The rate IFMR charges, around 12 percent, is roughly a third or at best half of what traditional microfinance lenders charge in India.

“The basis of most banking is geography, and we want to break that approach,” says Ananth. “Our customers should feel that they are getting all the services through one representative who is a personification of a bank branch.”

The finance scholar David Roodman,
⁴
a microfinance expert, has written that in Ananth's vision, IFMR is not a bank, a mutual fund or an insurance company, but acts as an “agent of all three.” He calls it an “institutional platypus … a taxpaying not-for-profit.”

Anil Singh Rawat is an IFMR client in a tiny village on the northern hills of Uttarkhand. He runs a roadside restaurant there, what is known as a
dhaba.
“There are very few banks here,” he says, “and they take too much time to clear a loan. These people [IFMR sales representatives] sit and talk to us for a long time. I feel that they really want to know what I need.”

In the early part of her career, Ananth worked with the Indian private banking giant ICICI Bank and was in many ways the protégé of Nachiket Mor, a former deputy managing director of the bank and chairman of its Foundation for Inclusive Growth. Mor was also the first chairman of IFMR and was instrumental in ICICI Bank's being one of the primary early investors in Ananth's ideas.

Ananth says sometimes she is accused of not growing fast enough, but that is exactly what she does not want to do—grow too swiftly and give up her core mission. “Banking is most empowering when it is a very specifically targeted service, but more often than not, that is exactly what it is not. It is formulaic and has a one-size-fits-all approach, which I think is the problem.”

In her world, a client does not just need money; a client needs financial security that could sometimes come with a strategic life insurance or pension investment for recurring income.

It is a fascinating third approach to the duality of Indian finance—especially after the discrediting of the microfinance industry, including suicides in the state of Andhra Pradesh.

It is a mindset shift from, as Ananth recently wrote, a “buyer beware” model to a “seller be sure” model.
⁵
In a subtle way, she is shifting the onus onto herself and her organization to deliver the right package that is customized to the needs of her customers.

What makes Ananth's work fascinating is that usually such intricate customization, indeed even the term “wealth management,” comes at the higher end of private banking. Bindu Ananth is taking that to the grassroots.

In their own way, both RT and Ananth are showing that lending to the poor can be a sustainable, socially useful and profitable business. Breaking many myths about the credit worthiness of the poor, their unique models are showing the way for financial inclusion in a country where the state could not, even if it wished to, ever provide monetary support to everyone who needs it.

 

There was a time when it was Zafar Sareshwala's mission in life to get Narendra Modi arrested. Today there is perhaps no one among Indian Muslims who supports the former chief minister of the western state of Gujarat, and now, months after this piece was begun, the fifteenth prime minister of India, more emphatically than this scion of an old Ahmedabad business family. By his own count, he has “appeared hundreds of times in the press, both print and TV, clearing misconceptions about Modi.” A quick Google search throws 10,400 results for Zafar Sareshwala—nearly all of them have him playing this debunking role.
¹

“I have always asked—what do you want? A better future or the idea of revenge, hate?” says Sareshwala, 50, owner of Parsoli Motors, the marquee BMW showroom in Ahmedabad, in addition to his family businesses in real estate and finance. “There is more to Modi than the riots.”

This transformation has been neither simple nor swift (for Sareshwala it was taken a decade). But his change of heart is the biggest example of a slow change in perception driven by economics that was at the heart of Modi's campaign to become prime minister of India. This change in perception, which was kickstarted by Muslim entrepreneurs in many cases, finally resulted in Modi's Bharatiya Janata Party (BJP)—which won a historic victory in the 2014 elections—getting double the number of Muslim votes than it did in the 2009 election.
²

Do all Muslim voters or entrepreneurs supporting Modi believe, as Sareshwala does, that Modi cannot be held solely responsible for the 2002 riots in which around 1,000 people—three-quarters Muslims and the rest Hindus—died?
³
Not quite. Some believe he could have done more. Some believe that he could have at least made a formal public apology, but they all have one thing in common—they believe that Modi is an agent of change, a man who can deliver growth and prosperity without favor or prejudice, and that his economic ideas will help everyone rise. That's why, for entrepreneurs, economics has been the most critical bridge between Narendra Modi and Muslims. And as India's economy slowed in the last few years, dropping to under 5 percent annual growth from a high of 9 percent, it made Modi's promise of jobs and a better life—literally encapsulated in his campaign slogan
acche din aane wale hain
(good days are coming)—resonate even among skeptics. Economics and the promise of enterprise won over many Muslims. The Centre of the Study of Developing Societies has noted that in states like Uttar Pradesh and Bihar, where Muslims account for nearly a fifth of the population, the BJP won an unprecedented 93 parliamentary seats out of 120.

There are many reasons for this—some that explain how Muslims inside Gujarat see Modi, which affects Muslims across the country. In Gujarat, 2013 marked the first decade in which the state's biggest city, Ahmedabad, had seen no incident of Hindu-Muslim violence. That was a first in a state that has a history of communal bloodletting (1969, 1982, 1986, 1987, 1990, 1992, 1998, 1999, 2002) since independence. That coincided with more and more Muslims voting for Modi. In 2012, Modi's hat-trick win in Gujarat saw around 31 percent of Muslims voting for the BJP. Different calculations by separate researchers show that in those elections, in areas where Muslims were either an absolute majority or were most influential, the BJP won 8 of 12 such constituencies according to one assessment, and 11 of 18 according to another; this was in spite of the fact that in 2012, the Congress Party won 61 seats in Gujarat, its highest tally since 1990. In the 2013 civic elections, where the BJP won 47 of 76 municipalities (and the Congress Party won only nine with smaller parties like the BSP [Bahujan Samaj Party] and NCP [Nationalist Congress Party] winning more seats than the Congress Party), the BJP put up 24 Muslim candidates and 3 Hindu ones in Muslim-dominated Salaya in Jamnagar, a town in which 90 percent of the population is Muslim—and all 27 seats were swept by the party. Between 2009 and 2013 the BJP put up 297 Muslim candidates in various elections in Gujarat, of which 142 won.

How did this come to pass? Not just through the peace dividend, though that was an important factor. Data shows that the average Muslim has done well in Gujarat. According to the Sachar Committee Report (2006), the most definitive report on the state of Muslims in India commissioned by the (then) Congress-ruled central government, monthly per capita income of Muslims in rural Gujarat was Rs 24 higher than that of rural Hindus. The average urban income of Gujarati Muslims beat the all-India average by Rs 71. The literacy rate among Muslims in the state was nearly 9 percent higher than the national average. Muslims account for about 9.1 percent of the population in Gujarat but have bought 18 percent of the two-wheelers (an important marker for development) during the last decade; about 11 percent of the employees of the Gujarat government are Muslim, and 10.6 percent of the state's police officers are Muslim. In fact, Gujarat has more Muslims in police service compared to the percentage of Muslim population than does any other state. Compare this to states like Kerala, Assam and Bengal, some of the regions with the highest Muslim populations. The Muslim population of Kerala is around 24.7 percent and Muslims account for 11.6 percent of the police force. Around 25.2 percent of Bengalis are Muslims but the number in the police is 8.4 percent, and Assam has a Muslim population of 30.9 percent with the police force being 21.5 Muslim.