Microfinance in Rural India

A recent article in WSJ reports that credit bubble is being created in Microfinance.
A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum

Social benefits to rural population compare to greed of richer: Though there is a possibility of bubble it is still beneficial to rural population which has nothing to lose.

1) Surge in microfinancing will allow more rural population to start their own small entrepreneurial venture allowing them to have an opportunity to come out of poverty.
2) Easy access to credit may allow people to borrow more than what they can afford leading to higher default rate. It may be risky bet for financiers, but it is not bad for poors since if they default on their loans they are at the same position where they were before.
3) I believe microfinancing originated with the idea of helping poor people first then anything else (making profit). SKS Microfinance has been able to do both successfully. It seems that entrant in this industry seems to forget that this is not the same industry where normal business principal can be applied.

There are around 150 millions rural household in India. With average loan size of $300 per household, total microfinancing business size will be around 45 billions dollars. A 10% default rate will be $4.5 billions at risk which is a very tiny number compare to trillion dollars mortgage mess and other crisis.
A nice article on Economist
Microcredit may not work wonders but it does help the entrepreneurial poor

The Bush Economy

Nice article on WSJ

http://online.wsj.com/article/SB123215327787492291.html

The article talks about the mistakes made during Mr. Bush's presidency. Also talks about the Fed funds rate which was kept low for long and compare against what it should be per Taylor's rule.

China's Urbanization

Source: Mckinsey

Where investment banking headed?

What a terrible week it was!! Panic all around. Hard to say what will be the future of investment banking.

A couple of good articles to read

On Wall Street as on Main Street, a Problem of Denial

Old-School Banks Emerge Atop New World of Finance

Another article from Economist talks about impact from the fallout of Lehman Brothers

The fallout from the bankruptcy of Lehman Brothers

Fannie Mae

A lot is going with Fannie Mae/Freddie Mac this year. I think the year has been FNM/FRE year.

Treasury secretary's plan for Fannie Mae/Freddie Mac couldn't subside the fear in the market. LEH is following the Bear's path and few other firms showing signs of same trouble. The following article in WSJ provide good insight on soundness of Treasury Secretary's plan.
How Paulson Would Save Fannie Mae

Hope some rescue plan can be derived today for LEH. Waiting to see what happens before asian markets open.

Oil prices really dropping?

How real is the recent drop in oil prices? According to an article “Nothing to smile about” in the Economist, there is nothing to cheer about the recent drop in the oil prices. The real rate of interest is negative due to lower nominal rate and higher inflation. There is no incentive for oil producers to pump more oil in this negative interest rate scenario. The money produced by pumping more oil is not going provide positive return. The oil producers are better off by letting the oil in the reserve and pumping it when prices are high enough. During the time when inflation is so high, the lower oil prices remain distant dream.

End of road for car leasing?

The trouble for Detroit's Big Three continues, the car makers are now trying to minimize losses by ending loss making lease business.

http://online.wsj.com/article/SB121737722208895269.html?mod=hpp_us_whats_news
WSJ article (Refer link above) mention reasons behind this step.

1. Banks are turning their backs on leasing as falling used-car prices make the business less profitable.
2. Declining resale values of trucks and SUVs that were leased two to three years ago, before gasoline prices shot to $4 a gallon. When leases expire, the auto makers' finance units must sell the vehicles and recoup some of their costs. But with today's fuel prices, used trucks and SUVs are selling for far less than the Big Three had anticipated. So they're losing money when they sell those vehicles.

Ford last week wrote down $2.1 billion in pretax profits as a result of unprofitable leases (a key factor in the company's $8.7 billion loss for the period). GM reported $2 billion loss (out of total of $15.5 billion for the latest quarter) due to declining residual value.

Auto Alternative
http://online.wsj.com/article/SB121737803358095319.html?mod=article-outset-box
The article above mention some good alternative to the lease option.

• Buy the car, Look for deals on domestic models, priced to move inventory.
• Lease from a foreign auto maker, such as Toyota or Honda.
• For those with spotless credit, get an independent bank to finance the lease.

Auto makers are looking to make alternatives as attractive as possible or in some cases they are planning to make buying more attractive than leasing (Ford aims to make vehicles like the F-Series trucks and Explorer SUVs "lease proof" by making terms on leases so tight that the monthly payments are too high to justify.).