Happy New Year 2019

Happy 2019 card


Ready, Set, Grow : eShe Magazine Profile

Women’s magazine eShe carried a profile about MIRR Investments founder Namrata B Durgan in its June 2018 issue. eShe is a Delhi-based monthly magazine which “looks at the world through ‘the female gaze’, and through the lives of its women, their joys and challenges.”
The magazine’s name is derived from the Hindi word “Ishi” which is another name for Goddess Durga.
The profile on Namrata covered how she was inspired to launch MIRR Investments to help Indian women discover financial freedom.

Screenshot from 2018-06-01 15-26-26Screenshot from 2018-06-01 15-26-49Screenshot from 2018-06-01 15-27-04ESHE MAGAZINE - JUNE 2018 COVER

Empowering Financial Freedom for Rural Women at Avani

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A visit to a ground breaking development project in the Kumaon region shows how rural women are eager to learn more about financial freedom.

When we talk of financial freedom for women, we automatically assume that urban women would be the first to comprehend the various financial options available to them. But as I discovered on a recent visit to the Avani community development project located in the Kumaon region of the Himalayan state of Uttarakhand, rural women are actually more keen to learn how they can maximise their investments for a rainy day.

Established in 1997, Avani – named after the Hindi word for Earth – creates opportunities for viable employment through a self-sufficient and environmentally sustainable supply chain. Though both men and women are involved in the activities of Avani, the focus is largely on women, who constitute 85% of the participants in the various programmes, from textile production such as wool, silk, linen, yarn and pashmina to the production of natural dyes, among other activities.

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My visit to Avani was an eye-opener as I saw the resilience of the women who were so dedicated to their work while balancing their duties at home. When I gave a group of women a presentation on the benefits of S.I.P (Systematic Investment Planning) and the wonders of compound interest, they realized how this was a better way of investing than the usual fixed deposits that they were used to.

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“Time, patience and discipline – these are the three mantras you need to follow,” I said in my presentation explaining that taking care of investments was like taking care of one’s health. They found it amusing when I shared that it’s false to think that all urban women are aware about investing despite earning more money than them.

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When I saw how easily they climbed down mountain trails, carrying heavy loads of pine needles on their heads, I used that as an example of how capable they were compared to me who needed help to walk the same mountain paths. “Financial planning is also about negotiating tricky paths,” I told them. “Just like you are aware about the pitfalls and know how to walk mountain paths, you can have a similar approach to ensure your financial planning is safe and fruitful.”

That inspired them to think how they would first set aside even a small monthly sum of just Rupees 200 for their SIP, before they spent on their domestic budgets.
In fact, when I was walking in the forest, I came across some women and started having a general chat about my visit to Avani. Intrigued, they started asking more questions and I ended up giving them a presentation on financial management, right in the lap of nature!

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India’s rural economy is considered a strong growth engine. According to a 2013 Accenture report, since 2000, per capita Gross Domestic Product has grown faster in India’s rural areas than in its urban centres: 6.2 per cent CAGR (compounded annual growth rate) versus 4.7 per cent.
Between 2009 and 2012, spending in rural India reached $69 billion, significantly higher than the $55 billion spent by the urban population.

Clearly, the opportunities for financial planning and empowerment abound in rural India. And as I discovered during my memorable visit to Avani, it is India’s rural women who can lead the way towards financial freedom.

– Namrata B Durgan, Founder, Mirr Investments

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The Impact of Demonetisation


Irrespective of the political divide, the announcement on Nov 8, 2016 by Prime Minister Modi to demonetise Rs 500 and Rs 1000 currency notes has led to heated debates at private gatherings, social media and WhatsApp groups. Bringing forth the citizen’s divide in a stark manner, “damn if you agree and damn if you don’t”.

Besides the citizens, the political class too is deeply divided. Political expediency demands that they support the government’s move against black money drive but question it’s ill-planned execution. Those in opposition have argued that the demonetisation drive will not stem out black money from the system. But one argument that holds sway is the almost total elimination of counterfeit currency, at least for the moment.

Cashless state of existence

Of the Rs 16.4 trillion ( Rs 16.4 lakh crore) currency in circulation, Rs 500  and Rs 1000 form the bulk of the currency notes in the financial system.

ü  They amount to a little over 86% of the total money in circulation i.e. Rs 14.2 lakh crore, in 2015-16.

ü  The Rs 500 notes amount to Rs 7.9 lakh crore and Rs 1000 notes amount to Rs 6.3 lakh crore as per the Reserve bank of India.

The sucking out of 86% of the total currency in circulation is bound to have its naysayers and apologists. The sheer scale of it dwarfs similar attempts made across the globe in the past. Only time will tell, whether the exercise was one of futility or a turning point in the history of India.

ü  The bulk of transactions in India are still carried in cash. As per an estimate in 2012 by the Fletcher School at the Tufts University in the United States, “India is cash intensive, even for a developing country”.

ü  The value of notes and coins in circulation in the economy, as a percentage of GDP is 12.2% for India (world norm is just 5% Currency to GDP ratio). Higher than Russia (11.9%), Brazil (4.1%) and Mexico (5.7%)

ü  The ratio of money held in bills and coins (Mo) to the amount held in demand deposit and savings account (M2) in India is 51%, higher than Egypt (29.3%), South Africa (8.9%), and Mexico (8.7%).

ü  Despite a leading exporter of technology services, a well-developed financial market and a fiercely competitive telecommunication market – less than 2% of Indians have used a mobile phone to receive a payment, compared to over 60% of Kenyans and 11% of Nigerians.

ü  Of the total consumer payment transactions, 86.6 per cent of the  transactions by value were carried out in cash in 2012. Card transactions in comparison stood at 4.1 per cent of the total transactions, and 6.8% for the electronic /ACH transactions.

But then an exercise of such magnitude is bound to have its own set of challenges. Besides economic, political risks too are huge. A forced system reboot will have its own consequences but it may fast track the effort of the government to direct its citizens to opt for non-cash payment modes. A cashless or less cash society was necessary to control terror funding and reduce the availability of avenues for black money generation.

Though the obvious effort, as perceived by the public, is the stemming of black money, there are other benefits that will accrue due to this surprise move of the government. The effort of the government seems to be multi-pronged.

India’s Shadow Economy and Elimination of Counterfeit Currency

ü  As per official estimates, the fake currency circulating in India is around Rs 400 crores. Demonetisation hits the counterfeit currency racket the hardest, and puts a brake to terror funding from across the border. Only in the months ahead will the true impact of demonetisation on terror funding and counterfeit racket be known.

ü  As per World Bank estimates, India’s shadow economy accounted for 23% of GDP in 2007.

ü  Between 2002-2011 Indians illicitly sent assets abroad worth US$343bn (16% of GDP)

Recapitalisation of Banks

The money coming into the system, if not taken out, will enable the government to recapitalise the banks. Flush with liquidity, banks would thus be able to lend more to stimulate economic activity.

Improvement in fiscal position

ü  Direct tax collections to rise as funds earlier unaccounted for, now enter the banking system and are taxed.

ü  Increased tax collections would give the government more room to fund infrastructure without having to compromise on its budget targets.

ü  Post 30th Dec 2016, RBI will have to account for the currency notes that have lost their legal tender and have not been deposited with the banks. This reduction in liability of the RBI can lead to it issuing more currency, thus stimulating economic activity, without worrying about the inflationary impact of such a decision. With only 1% of the Indian populace paying taxes, the move is expected to increase tax revenues for the government.

Rate reduction

As the economy/demand falters, consumer price inflation is further expected to ease from a 14-month low of 4.2% in October 2016 ( a new low since August last year). The RBI, in such a scenario, would be better positioned to cut rates and the transmission of rate cuts to consumers too is expected to be quicker, this time. Bonds are expected to further rally in a downward rate cycle.

Real Estate Valuations

Real estate prices in India, despite the recent correction, are still very expensive by most standards. And they are expected to further correct post the demonetisation move of the government. However lots still needs to be done on this front due to the builder/neta nexus over the years. Besides the stated focus on benami properties, the govt needs to also focus on the lending mechanisms of the public sector banks to this sector. If the government is serious about cracking down on this sector, prices will further drop.  This scenario will however, have its own set of problems.

ü  Were NPAs of this sector to rise due to the slowdown and fall in prices, India will be faced with another problem due to the nature of dual financing to this sector (most buyers are not aware of this potential problem). Dual financing is where the same property/asset has been offered twice as a collateral.

ü  Example: A builder may have mortgaged the land, on which the project is being constructed, to a bank to raise funds for construction. And you as a buyer too would have taken a home loan against the apartment booked in the same project. Were the builder to default on the loan outstanding, the first charge is created in favour of the bank that first gave the loan to the builder. You as an apartment buyer would thus be helpless to claim your right – leading to total legal and financial mess for the individuals who had booked their homes with the concerned builder.

In brief:

Year 2016 has been a year of surprises! First there was Brexit, then the Donald Trump victory and the Indian demonetisation announced on the same day. Were the demonetisation effort to fail, India my not be so lucky as the timing of this move may have come at an inopportune moment. The capital goods production has been falling for the last eleven months on a year-on-year basis.

Demonetisation is a high risk gamble taken by Modi. While the short term distress in the economy is understood,

Ø  Cash clean-up will impact real estate and jewellers the hardest as a major part of their business is in cash

Ø  Rural consumption is expected to be hit hard thus impacting the overall sentiment in the financial markets

Ø  As payment cycles get stretched, agriculture, SMEs, MFIs could be potentially impacted

Ø  The saving grace for industrial production in India has been consumer goods, but that is now all set to change.

Ø  With 86% of all consumer payments conducted in cash, disruption here is immense. GDP growth to be impacted for at least the next few quarters.

The long term impact may surprise us with the positives of this move.

Ø  As the formal economy prospers, government’s tax revenue to improve significantly.

Ø  A huge positive for the banks especially private sector banks as legitimate sources of money come back into the system.

Ø  Though India’s tax to GDP ratio at 16.6% is low compared not just to OECD average of 34% but also emerging market economy average of 21% (Source: TOI/Mint), tax compliance to go up significantly due to a combination of demonetisation, GST and host of other steps being planned by the government.

Markets will likely be cheaper over the next few quarters as corporate earnings are expected to disappoint on the back of delayed spending. In the debt space, yields have come down sharply as there is now increased scope for rate cuts both by RBI as well as in the transmission of lower rates by the banking system. Credit selection would thus become critical in the current environment.

On the global front, the combination of US election outcome and expectation of Fed rate hike in December is leading to a big bond selloff impacting global markets and emerging market currencies. Rate hike in the December FED meeting is seen as highly likely. India remains relatively un-impacted by US elections as Indian 10 Year bond has seen a rally owing to demonetization measures taken by the government. Cash crunch due to demonetisation has led to lower demand in many sectors of the economy.

In conclusion, the ultimate impact of demonetisation will only be revealed over time once the initial chaos settles down.