Microfinance has become one of the hottest growth sectors in India attracting Private Equity Companies eager to take advantage of India’s Growth Story.A Number of For-Profit Microfinance Companies have grown exponentially in recent times with funds raised from Foreign PE Firms.The Business Model of these Financial Intermediaries is highly profitable with 25-40% Interest Rates being charged from India’s Poor Population who don’t have access to credit facilities.Borrowing from Banks at 10-12% and lending at 25% gives a huge spread which more than covers the cost of operations in dealing with a huge number of very small borrowers in far flung areas.The recent IPO of SKS Microfinance was a huge success instantly makings it promoters instant millionaires.The stock which was expensively valued nonetheless managed to climb by almost 40% in the last 2 months.It brought into focus the whether making such huge profits through essentialy usury from the poor was ethical or not.

India does not have a lot of good information on the Internet about various common things and it is frustrating and time consuming to go about in choosing the right option.I tried to buy insurance on my 3 year old car and there was not a lot of good blogs/websites which would indicate how to go about buying the cheapest car insurance out there.Most of the websites and insurance comparison websites that have come up are in general biased and promote companies in order to generate commissions.So I decided on doing investigation on my own and finally managed to get extremely cheap car insurance which even surprised me.So even though this blog does not deal with personal finance issues much,I though I would write my experience so that others could benefit without without wasting time and money.

India is one of the largest consumers of Gold in the world with a strong cultural and religious affinity for this “barbaric relic”.Giving of gold jewellery during marriage is sort of compulsory and is even bought as an investment.The high prices of gold has failed to dampen the enthusiasm for gold amongst India’s increasingly wealthy classes.While Silver is also bought during some auspicious days such as “Dhanteras”,Gold rules the roost as far as precious metals are concerned.Traditionally Gold has been bought from jewellers in the form of jewellery by Indians,however sophistication of the Indian Financial Industry has increased the gold buying options for Indian investors.Here is examining some of the pros and cons of different investment options .


The best way to buy gold in India is through Gold BeEs ETF for low expenses and liquidity.However if you want to buy physical gold then your trusted family jeweler may the best choice as Banks and Reputed Retailers of Gold charge an exorbitant 8-10% transaction cost one way on gold.Can’t understand why the Banks have to fleece the customers in case of selling Gold.But knowing Indian Banks who love Regulation in fear of competition amongst each other it does not come as a big surprise.

Indian IPO Rules allows the Merchant Bankers of the Issue to give favored institutional clients a part of the IPO even before the issue starts.This has the advantage for both parties as funds get a guaranteed portion of the IPO and Bankers can tout the quality of the company.However you would have to question these “Anchor Investors’ on how they invest in such IPOs.Prestige Estates a Realty Company coming out with an IPO is another low quality company to come out with a high valuation.So finding 21 Anchor Investors is a surprise.Despite the Real Estate Market being avoided by Fund Mangers due to questionable practice,23 Funds have found it worthwhile to add Prestige Estates to their portfolio.Makes you wonder if Institutional Investors are Plain Incompetent ,Compromised or Both

In the last 4-5 years, the real estate investment community seems to have been a victim of optimism bias. This is most exemplified in the severe under estimation of time/duration required for construction/operation of project investments. For fund managers who have made investments in major parts of Asia (China, Vietnam, India, Indonesia) in the last 4-5 years, under estimation of timelines is the one area in which they all concede to have erred. The experience has shown how easy it is to fall into the optimism bias trap and start believing that once the finance is secured and the contracts awarded, things just roll on in an automode. Following are some of interesting reasons (these are all true) by which projects have gone significantly delayed

It is believed that the only section of the population that isn’t susceptible to the optimism bias are people with major depressive disorder. Probably funds should consider hiring some of them.

India’s Central Bank RBI had proposed to deregulate the savings rate on Bank Deposits as part of the Financial Reforms.Note Savings Rate is the only regulated interest rate in the Banking Sector.This has led to a huge windfall for Indian Banks.With a savings rate of around 3.5% and lending rates of 12%,Banks manage to reap profits from this huge spread in the rates which is commonly known as the “Net Interest Margin” or NIM.Indian NIMs are very high compared to that of other countries because of this discrepancy.Indian consumers are known to deposit most of their savings in Banks as Stocks and other Assets are considered untrustworthy.Banks with high proportion of their deposits in the form of these savings deposits have much higher profitability.Note RBI has increased the returns on the savings deposits recently by shortening the length of the cumulative returns.

Indian Banks don’t want competition in this space as they will lose the supernormal profits that they make because of this regulation.Private Banks are at the forefront of this opposition which is ironical as they should are the first in welcoming deregulation and competition