Do not blame MFIs

Over the last month or so there has been huge debate around how and to what extent Micro finance institutions (MFIs) in India be regulated. Quite surprising to note that despite having SEBI and RBI as active watchdogs of Indian economy, we are debating on issue of regulation which otherwise should have been like a breath within a living being.

Criticizing MFIs for charging higher interest rate needs to be scrutinized from the perspective of cost of servicing such a credit- which has no collateral, is small in ticket size, lent to borrowers with no credit history and in most cases the first charge on assets is hypothetical. MFIs need to hire enough manpower to service the loans and ensure collections.

Note this- Manpower cost as a percent of revenue is 24-28% for MFIs compared to 12-15% for public sector banks and 5-8% for private Indian banks.

I am silent on lending practices and NIM of 2 X approx. compared to traditional banks.

A Case for Contract Sales Outsourcing Companies

Will you consider outsourcing sales function of your organization? If yes, what will prompt you for such a decision? Do such service providers exist? Premised on the principle of core competence, contract sales organizations (CSOs) take on the onus of managing your sales process and help you achieve your sales objectives while you may focus on your core strengths.

Consider the case of a start-up company in software application space intending to sell its product on SAS model. One of the key determinants of success for such a company is its ability to sell effectively and efficiently. Should a start-up consider outsourcing the sales process?

Digging deep into what constitutes a sales process, three key elements- Resourcing, Distribution and Execution, help decide what to outsource and what is to be managed within. 

‘Resourcing’ pertains to hiring right sales personnel, their payroll management, attrition management and career development. ‘Distribution’ details distribution model, its length, distribution hierarchy and reward structure. ‘Execution’ is deployment of resources to task of distribution and sales management. No matter how good or effective is the distribution channel, a sustained relationship with members of distribution channel including customers is critical. 

Usually companies are seen (atleast a majority of them in India) outsourcing only ‘Resourcing’ to Professional Employer Organizations (PEOs) or staffing companies. While hiring, payroll and statutory compliance is PEOs’ responsibility, internal sales team take on the onus of driving the outsourced resources to pre-defined sales objectives. PEOs end-up charging for such services anywhere between 5-8% of the total salary cost. 

One of the key motivations to outsource ‘Resourcing’ to PEOs is cost optimization without losing control on quality of personnel and their productivity. Hence, outsourced resources operate as extended arms of the internal sales team. Companies in India are known to outsource its IT functions, logistics to an extent, payroll management, customer service, marketing and PR activities. 


A 100% outsourcing of the complete sales process is what I still need to come across. What would stop companies to do consider outsourcing? Do we have vertical specialist CSOs to whom a core function like sales can be outsourced to?

Why is high-growth phase of Indian economy short lived?

Ashima Goyal's article on Dyamics of Inflation and Output provides an good insight into how inflation and growth are related and what impacts them. I agree intuitively with the logic that inflation in India is supply determined while output is closely correlated to demand.

Increase in crude oil prices or monsoon failures in India, all have lead to increase in prices of products for consumers. Inflation starts to increase and Index of Industrial Production (IIP) shows a decline. At that instance RBI steps in to actively manage inflation rather than worry about fall in industrial growth. This is where political economy seems to dominate policy making rather than pure economics.

I believe something in policy-making goes wrong at times of high-growth. Else why is GDP growth not sustainable at or above 9%? Within 6 months of a high-growth phase, coupled with two or more instances of increase  in interest rates by RBI, IIP begins to fall.Uncertainty with regards to monsoon adds to the volatility further.

Answers may lie in understanding the transmission of monetary policy, premised on existence of bank lending channel.

Firm-level financial data sources

Two major sources of firm-level financial data for firms in India, atleast the ones that I am aware of are: Prowess from CMIE and Captialine from publishers of Captial markets magazine.

In terms of usability, Prowess scores ahead of Capitaline, however, my feedback may be biased since I have not used Captialine database since 2003-04.

Where can research students access these databases? For full time students at universities (not sure about Deemed universities) and autonomous institutes like IIMs, IITs etc. its easily accessible as most of these institutes have subscribed to either of the two or both, in most cases.

For part-time or offsite students, despite being enrolled with a university/institute (that has subscribed to the databases), access is a challenge since remote access is not permitted.

Options left are either pay huge sum for subscription to these databases or approach universities'/institutes' librarians requesting access to these databases. While most of them say No, some may permit you with a nominal security deposit and user fee.

Are there any other sources from where we can get firm-level data for Indian firms?

Interesting Readings

How will you measure your life by Clayton M. Christensen

Vijay Govindrajan on breakthrough innovation. Before reading this I believed that all players except a few in the Indian mobile market were more of China's bad gifts to Indians and such players are not sustainable in the long run. Now, I look forward to IPO of Micromax. Very rightly put "Nothing like Anything"