Thursday, November 8, 2012

ENTREPRENEURSHIP: FUNDING

In between the extremes of private equity and microfinance, the common man is still deprived of money to start a simple business
 
So where do we go from here? Well, the halo over both private equity and microfinance is essentially a reflection of the failure of conventional banking in India. For years, industry craved to get the right kind of support system from financial institutions to fund their expansion. While initially it was the tentacles of license raj and small scale industry policies which prevented India Inc. to achieve the critical scale, later it was the paranoia of reducing the Non Performing Assets (NPA) that prevented many banks from increasing their exposure to industry. Add to these, was the domestic high interest rates at a time when interest rates are plunging all across the world. This eventually forced the industry to look towards the private equity partners for assistance. And the rest is history. Today the upper layer of Indian Inc. hardly bothers to run after Indian banks for their funding as they can go for external commercial borrowings, private placement of equity and initial & secondary public offerings. If at all there is need for further funds, the foreign banks with bigger money bags are there to satiate the appetite of India Inc.. Incidentally, today when the likes of Tatas have to raise money, the like of SBI clears a loan of $1 billion for the Tata–Corus deal in just five minutes, lest some foreign bank do it faster. So while private equity has been able to make Indian companies get less worried about funds-in-need, the question is whether it is same for all or only for ones in the upper layers? Are private equity players too following the same trodden path as has been followed by India’s financial institutions, i.e. lend only to those who already have it?

In the book, Creating a World Without Poverty, Muhammad Yunus writes, ‘None of us likes the idea of apartheid. We object when we hear about such a system in any form, anywhere. We all understand that no one should suffer because s/he happened to be born in a certain race, class or economic condition. But our financial institutions have created a worldwide system of apartheid without anyone being horrified by it. If you don’t have collateral, you are not credit-worthy. To the banks, you are not acceptable on our side of the world.’


Source : IIPM Editorial, 2012.

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