The Grey Economy

The more you shop in Delhi the sooner you realize that the vast majority of consumer retail activity here, whether measured in customers, transactions, or even in absolute Rupees, is unreported, untaxed, and handled in cash. In the absence of major department stores or supermarkets there exists here a vast grey economy of bazaars and vendors with obscure names and self-made products. Transaction records are kept with pencils and notepads, with hastily scratched, illegible notes often serving as a buyer’s only receipt. Brand names like Subway and Citibank stick out like Western oases in a sea of carpet shops and vegetable carts. When locals talk about where the “posh” neighborhoods are, they inevitably mention places within spitting distance of an American fast food joint. For most shops in the markets, there are no posted business hours, no answering machines to explain where a store is located or who to call for customer service. My roommates' and my experience with this strange system has included delivery men who show up in the middle of the night, electricians who come and go without telling you what they are doing, and Internet technicians who tell you “it’ll take an hour,” only to have it take six. But for all its unpredictability, one constant exists. Networks of family-like relationships built over time exist between vendors of different sorts across the city – every baker knows a candlestick maker, every candlestick maker moon-lights as a travel agent, and every travel agent has a cousin who sells washing machines. We once asked a young clothing vendor with a good command of English for pricing guidelines on refrigerators here (hoping to get an independent opinion). He just smiled and nodded his head, “Yes, come with me, I’ll take you to my Uncle’s shop.” All of this leaves the wandering ex-pat wishing for a Wal-Mart or Ikea - some form of centralized distribution house for consumer goods, where prices are clearly marked, time is used efficiently, and customer service actually means addressing someone’s needs rather than trying to distract him or her with unwanted items or cheesy sales pitches. The great part about this is I’m fairly certain that more than a handful of these merchants hawking handkerchiefs and two-wheelers are the same ones benefiting from the micro loans provided by the companies we back…yes, there’s a nice touch of irony to it…so its with a mixture of amusment and admiration that I consider the economy that microfinance (at least urban MF) helps to fuel. But for all my criticism about its quirks, business does get done here. An extremely wide range of goods and services are available for very low prices, new companies (beyond just those in the bazaars) are being started, and the individual entrepreneur, rather than the state, is making decisions about production, pricing and marketing. This informal economic system, while far from perfect, provides a livelihood for millions in a country where not long ago, softball socialism was the rule. Despite a generation of attempts to foster economic development with protectionist policies, the growth story today in India is about what is happening in spite of the state, not because of it. Quite separate from the Bombay set (where the Sensex has enjoyed a monumental recovery since its fall last May) are the businessmen representing the other 90% of the country. “Bottom of the Pyramid” entrepreneurs, both the poor and the less poor, avoid formal documentation because the taxes and stacks of paperwork required are an enormous burden to small businesses. If every customer who comes to your shop to buy a phone, gas stove, or Internet connection has to fill out paperwork, provide photographs and purchase government licenses for you to make a sale, you’ll never make a living. When compliance here becomes too costly and intimidating for the poor and uneducated, savvy entrepreneurs move out of the light of bureaucracy and follow profit into the shadows. As I am witnessing in my own work here, the legacy of forms and formality left over from the British Raj has itself been a driver of growth for urban microfinance, as poor and often illiterate borrowers run away from the heavy documentation of banks and into the arms of MF groups. It took more than a week, multiple visits, two forms of ID, a letter from my boss, a copy of my contract, ten of my personal signatures and 6,000 rupees for this educated, employed American with more savings than a small Indian village to get an ICICI checking account. God help the basket weaver who wants a working capital loan. All of this brings me to mention the annual Indian Microfinance conference which I attended with my colleagues from Lok Capital this week in Delhi. Besides hearing speakers from various MFIs, NGOs, rating agencies and social investment firms, there were opportunities to meet with the entrepreneurs themselves who are leading microfinance into its next stage. While the approaches and business experience of these promoters vary greatly, there seems, among most, a common understanding that for microfinance to meet the estimated demand in India of roughly 300 – 400 million people, foreign investment is required and MFIs must be profit-oriented finance companies, not simply grant-based charities. That most microfinance providers agree on these points is somewhat of an achievement considering the sector’s origin. But that is where the agreement ends as opinions diverge on how profitable microfinance should be (where is Gordon Gecko when you need him…?), whether equity finance should be utilized (gee…I hope so), and who should bear the cost of growth and expansion (that’s us! the VC!). But there are trendsetters from Vikram Akhula’s SKS to the new mobile payment vendor FINO, pushing for standardized collection processes and training methods, and working to integrate new cost-saving mobile technologies. A last note, a few pictures below, one of Delhi’s India Gate, a monument to Indian soldiers lost in foreign wars and one from the furniture market. Notice the haircut going on in the front right…speaking of which, I think its time to get one, I guess its back to the furniture market…

One Loud Country Tonight

Just as I was getting more familiar with Delhi the city took on a new look and feel. Last week marked the beginning of the festival season, a time when the weather cools down, weddings are held and several Hindu and Muslim holidays are observed. The largest holiday, and the one that kicks off the season, is Diwali – a tribute to Lakshmi, the Hindu goddess of wealth, and a celebration of escape from the Hindu cycle of rebirth. For many Indians, particularly children and the working classes, Diwali is a time to put down school books and tools, go shopping, hang lights in the trees, burn candles, shoot fireworks, and spend time with family. For more devout Hindus, the holiday holds a religious significance on par with Christmas for Christians. More on the origin of Diwali here. On several major streets neighborhood associations have hung banners asking the public to "Say No to Crackers." Not a jingoistic mantra against corn-fed boys from Virginia, rather a request that people not purchase fireworks as many of the ones sold in India are made using child labor. On Saturday night I was invited to join a co-worker and his family for their Diwali celebration. After a day of shopping in Nehru Bazaar (my first real experience with an Indian open-air market, full of spices and carpets and meandering cows) my friend drove me over to his place, periodically dodging the laughing children who ran into the streets, setting off ‘roman candles’, ‘jumping-jacks’, and all manner of ear-shattering fireworks illegal back in the States. I was introduced to his wife, sister and mother, and learned the rules of cricket from his father while watching Australia defeat England. After I observed their family give “Puja,” or Hindu prayers and offerings to the god Ganesh and goddess Lakshmi, we had a traditional dinner of mostly satvic foods, accompanied by the constant clatter and boom of fireworks across Delhi. "We are one very loud country tonight," my friend nervously joked as the blasts interrupted our conversation, sentence after sentence. Our apartment continues to come together, slowly but surely. It is big and beautiful but still very empty. I now have a bed and a night stand, but there are a host of items, from broken light switches to faulty plumbing, that must be addressed. The Diwali holiday made it difficult to get anything fixed over the weekend, but thankfully our landlord has agreed to send over workmen on Tuesday to finalize repairs. The next priority will be hiring a maid to sweep and mop the floors as dust in Delhi accumulates like snow in Tahoe. I had to pull out the Claritin pills to get a full night's sleep...just another challenge to life here. Another post in a few days, a discussion of the Indian consumer retail sector from my experiences trying to outfit an apartment...

Hello Delhi

After several months of planning and two very long flights, I arrived at Indira Ghandi International airport in New Delhi, India just after midnight on Tuesday Oct. 11. Following a two hour wait to have my passport stamped, I pushed my stuff on a airport cart out into the dusty Delhi night and a government-affiliated taxi driver pointed the way to his car. If you've never been to a third world country before (and before Wednesday that included me) arriving in India is a shock to the senses. The first thing that hits you are the smells, some good, some bad, all very pungent. On the highways, burning rubber mixed with engine exhaust fills your nostrils, but on entering the city, a mix of smoking kabobs, saffron and even wilting flower petals can be smelled and seen lining the crowded streets and alleys. The city is made all the more bewildering upon arrival by the dark night sky. Trucks decked out with Hindu symbols zoom past and stray animals look for food among small tent cities of the poor which are propped up against the walled enclaves that serve as neighborhoods along the highway. But despite the areas of poverty there are also nice palm-covered neighborhoods, sharply-dressed policeman and little children smiling at you as you drive by. The place is teeming with life and activity. U.S. cities seem only half-full compared to Delhi. There are two main forms of transportation here if you have at least 30 Rupees (USD 50 cents) to spare. Taxis, like the one I hired out for my first few days, look like British versions of the bubble-domed bug car from the movie Herbie (at the beaten up end, not the shiny beginning). The cheaper, and more frequently used method, are auto-ricksaws, three-wheeled green and yellow motor carriages driven by thin, grimy old men smoking cigarettes and eeking out a living one fare at a time. Everywhere you look there is traffic. Not Beltway gridlock or 70 mph California freeways, but rather a sea of little cars, motorcycles, buses, craft and wares-loaded bicycles, cows, caged chickens, children on foot and an army of auto-rickshaws that all weave their way through cracks in the metal and flesh, never fully stopping, and only really yielding when the oncoming object is much larger. Rather than waiting their turn, drivers just honk and honk and then finally dodge each other like Blue Angels pilots, turning safely at the last moment before a crash looks inevitable. It's terrifying at first and thrilling once you see it all seeming to work, with vehicles and pedestrians all anticipating each other, as if following some unwritten rules of the road. My place of residence while I hunt for an apartment is the first floor of a guest house provided by the founder of Lok Capital (www.lokcapital.com), Rajiv Lall, who I shared lunch with on Friday after I arrived. The house is south of the city center and takes roughly thirty minutes to get to and from but is comfortably furnished and staffed with three servants that take care of everything. In a scheme that seems to follow a caste or age seniority system, the oldest man's job is to cook (breakfast and dinner) while another makes tea and brings me the newspaper each morning and a third cleans the place and does my laundry. Three grown men, whose job for the week is to wait on my every need. I'm all for specialization of labor, but this is a little different from what Henry Ford had in mind. While none of them speak English, they are all very polite and we communicate through smiles and broken "Hinglish" (Hindi mixed with English "yes's, no's and thank you's"). But to an outgoing, self-starter American, it feels strange and unnatural to be waited on hand-and-foot and to sit down to elaborate spreads, only to dine silently alone at a big dining room table in a big house. My office is nice and in an upscale central area of the city, near the Delhi Golf Course. While the space is smaller, the computers, equipment and furnishings are all on par with those from my old investment bank in San Francisco, and it includes a large conference room and balcony where lunch is brought in daily. I've spent the last four days following around Indian apartment brokers from neighborhood to neighborhood and meeting with fellow ex-pats to line up housing, and while the details of my flat shopping aren't worth delving into, one benefit has been that I've quickly gotten a sense of both the city layout and the Indian art of price negotiating. If you've got white skin here you might as well have dollar signs imprinted on your forehead and you have to assume that every price you are quoted, whether for a rickshaw ride or an apartment, is roughly 30% more than what a local would pay. A couple of nice highlights from my first week here: On Thursday night I was invited over to dinner at my co-worker Shakshi's apartment, where she and her husband explained Bollywood movies and music to me and hosted me for home-cooked Indian food and Kingfisher beers. Friday night my boss from Lok Capital asked me to attend, in his stead, a small dinner and conference at the very posh Claridges hotel in central Delhi (www.claridges-hotels.com/Delhi) where professors from the Asian Institute of Management were giving a presentation on the Indian economy. And finally Saturday I met up at a Middle-Eastern restaurant with my friend from the U.S., Priya Parker, who introduced me to several other young U.S. ex-pats living here in Delhi, including people from the U.S. Embassy, Bain Consulting and American Express. A last minute addition to my first post...the photo at the top of the page was taken inside an auto rickshaw with some of my new housemates - there are four of us in all. They are European ex-pats I met through Craigslist who also just moved here. We met up and found housing together over the weekend - more on our new place next week after we move in, but it's a 4 bedroom flat in South Delhi with a huge gameroom and rooftop terrace, perfect for entertaining. Thats all for now. Bookmark this site (www.bankerinindia.blogspot.com) and check back once a week if you're interested in hearing more. I'll try to keep my updates brief, and since I've got a fairly diverse audience I will also try to write about different things each week. Sometimes I will just describe daily life here and other times I'll try to give a picture of the economic changes taking place and my work in microfinance. Until then, "Namaste" -M