Financial education

Have you heard of the term “financial education”? Nor have I. A google search term brings up a few links that talks about federal agencies, financial aids and some sophisticated terms that a layman would loathe to consider. And these are centered around US only.

But why are we concerned? Do we have enough money that we need to plan? I would say that a proper plan is necessary for anything and everything, even if its going out to watch a movie..but there is nothing called movie education!! Then why financial education in the very place? We are not bankers!

A financial education is as important as the need to know the road signs. The other option is to stay cocooned in your own world, without any concern of what’s going on around you. Stock Markets? That’s a gamble! Mutual funds? I don’t understand..

Today’s India cannot afford to live without financial education. The presence of ubiquitous promising you the world, insurance policies that will secure your post-death experience (wow); loans that will make you a home owner (???), car owner (!!). A result of this is that the fine print is skipped, misunderstood, leading to hassles, cries and problems all over.

The fault likes with India’s education system. While we were young, we got the impression that having money is “bad” and being rich is akin to looting the unprivileged. Being poor was “cool”. Watch the hindi movies of pre 80s, you will get the hint. India was grappling with the communist philosophies that didn’t allow growth for 4 decades post independence. Communism failed, and high fiscal deficit forced India to open up, and changes have been happening ever since.

India’s financial system got more sophisticated, and NSE is now the world’s third largest stock exchange in terms of volumes. But the sophistication is centered on the people in the financial arena (who make sure others didn’t understand them). Today most people fail to comprehend the basics of finance, but they deal with money every day. (Remember the high rates of interest charged by the money lenders a couple of decades ago, today they have assumed the form of credit card institutions, notably banks).

Financial education must be imparted at a very early age. I hardly had any idea till I actually handled my own money (that was just because I put in some effort to understand). Many in my workplace still don't! In India, even today, money is considered sacred (and any manipulation of money a heinous crime). Children are never taught how to handle money.

With India going forward, it is only imperative that the intellectual levels of the mass has to increase. Schools should take initiatives to increase the level of awareness, for as they say “catch them young!”.

Where does the direct model work?

Selling direct has always been the hallmark of Dell. From a school dormitory, the company has come a long way to being a $ 60 billion enterprise.

Currently, I am reading the book “Direct from Dell”, by the CEO himself. He saw the advantages of going direct, in reaching out to the end customer by passing the middlemen. It was an unconventional approach then. But it worked, and as he mentions, it was too obvious that this would work, for what more could people ask for, when they were getting better value at a lower price?

Catching on the wave of Internet, Dell has expanded all over the globe, with region specific customizations. I had heard, read and understood the Dell model a few years ago, but I used to wonder why wasn’t it in India, the fastest growing economy in terms of IT?

I realized that going direct may not be the ultimate way of selling a product. And the fact remains that not all products can be sold direct to the end customer. When a customer feels okay to wait for 4-5 WEEKS before getting a desktop/laptop, this model can find an acceptance. This model can even work for some other white goods as well. But I understand that in this model, production starts after the product has been customized, so you have tailor made products, albeit with a delay. Not all products can (or needs to) be customized!

People have the urge for seeing and touching the products before buying them. In such a situation, the Internet or telephone is an impersonal channel. Emotional that the people are, they would not like being treated as just another call or an order no..they like to see someone in person, who would remember their name, or their last purchase..something a cookie (on the Internet) cant do that well.

In India, people in general have a general trust on the owner / dealer, rather than the brand. Poor levels of service, coupled with lack of information leaders to greater dependency on the dealer. So the role of the sales channel becomes all the more important.

How many people know about a call center, and what good it can do? And to top it all, waiting for twenty minutes listening to “your call is important to us” is far from satisfying. They would rather take their product and dump a defective product on the seller’s table; implying that it’s their headache now, since they have taken money!
A direct channel can work where the customer doesn’t mind making an advance payment, by her credit card on the Internet / telephone. It gets even more difficult when the concept of going online has only caught on at the elite level. For the majority in India, its just another piece of sophisticated equipment which they don’t understand, leave out exploit the opportunities it provides.

Going towards sophistication, a direct model can work when the consumer KNOWS what she wants to buy. For a complicated equipment like a computer, it may not be an easy task. Peer pressure reins supreme, rumors fly, and one might end up buying something they may not have wanted. But everyone knows some expert in the area, and their recommendations will be worked upon. Often sales persons double up as consultants, which is why the sales channel becomes all the more important.

Possibly these are the reasons for the late entry of Dell into the Indian market, which is quite different from the rest of the world. I found that www.dell.co.in does not have adequate varieties like the www.dell.com does, probably because of limited manufacturing capabilities. With increased awareness (read sophistication), Dell will get more popular in India, provided they keep prices low enough to grab attention!

subprime market - jittery effect

With inputs from:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/17/MNHSRK67M.DTL&tsp=1

A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders due their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

The great mortgage crisis of the summer of 2007 has slopped over into nearly every nook and cranny of the financial markets, laying low stocks that until a month ago had been on a great bull run.

On Thursday, U.S. stocks took off on a wild ride, the Dow Jones industrial average falling as much as 343 points in midday trading before recovering and finishing at 12,845.78, down just 15.69 for the day. At the day's lowest price, major market averages were 10 percent below highs posted a few weeks ago, a fall that would qualify as a correction.

Despite Thursday's rebound, stocks remain vulnerable, analysts caution.

The reverberations from the collapse of the subprime mortgage market have yet to fully play out, they say. The global investment market is more tightly interlinked than ever before. Troubles in one corner, such as mortgages, have profound ripple effects on investments such as technology stocks, gold and oil, which seem far removed.

"This is classic financial contagion," said Russ Koesterich, a portfolio manager at Barclays Global Investors in San Francisco. "You've got people in multiple markets. Losses in one force them to capitulate in others."

So far, the main actors in the stock market sell-off have been institutional investors and big money managers, many of whom specialize in risky and complicated investments. Retail investors have mostly sat out the selling spree of the last few weeks, market watchers say.

The root of the problem lies in tectonic shifts in financial products in recent years.

Exotic financial products created from mortgages in the last decade or so are being tested for the first time in a market crisis, pushing investors into uncharted territory. No one knows the full extent of the losses caused by the failure of a mushrooming number of subprime mortgage borrowers to pay back their loans.

A mortgage made in, say, San Jose gets sliced and diced - some of the interest payments are packaged as securities and sold to an investment fund in New York, and part of the principal is put into a security sold to a bank in Germany. When the borrower stops paying the monthly mortgage, the investors lose income. What's more, they can't sell those exotic mortgage securities because no one knows what they're worth.

"People have been moving into new territory," said Zachary Karabell, a portfolio manager with Fred Alger Management in New York. "It's a complex system that nobody fully grasps."

The mortgage investors suddenly face a desperate need for cash - perhaps to pay back margin loans they took out to buy the securities in the first place or maybe to pay off big clients who are yanking their money as fast as they can.

What makes this crisis so hard to measure is that trillions of dollars worth of U.S. mortgage securities have been sold around the world, in many cases to hedge funds, those secretive, largely unregulated investment vehicles that don't have to disclose their finances.

In recent years, institutional investors largely stopped paying attention to the risks of buying mortgages made to people with bad credit records. Suddenly, they have become allergic not only to subprime mortgages but to almost any kind of risk. That means all borrowers - from a consumer who wants a home equity loan to a hedge fund that wants to finance new investments - must pay more for money.

That's a key connection to the stock market. Hedge funds and other big institutions that need cash can't borrow easily. Instead, they've been selling anything that isn't nailed down, whether it's crude oil or shares of hot technology companies.

The process feeds on itself. Because exposure to bad mortgages is so hard to calculate, a wide array of lenders, financial institutions and banks fall under suspicion. Rumors fly.

Rumors have their share in EMs (emerging markets) as well. The interlinking of markets has created a behemoth of a financial system, where ripples spread every where, including countries like India.

The volatility is measured from the option prices, and these reveal that over the years, volatility is actually declined. There is a reduction in the debt-equity ratio of companies, resulting in stronger equities. The fundamentals are strong, so we can be bullish in the long term. Short term jitters will keep happening..just ignore them, and use such falls to buy!

Its a networked world!

I happened to scan through a HBR article on the importance of networking. Before I could read through the 9 pages of text and illustration and comprehend what the stalwarts mean, thoughts gazed through my mind, and I thought that its better to put them down. I can read the article later, anyway.

What is networking? Being a part of a society, an individual is forced to interact, and take help of others. A standalone human doesn’t survive for long. The same rule applies in business as well. Networking is a form of interacting, and keeping good relations with those that matter in business.

One may be tempted to say “I have no business networking, I’d rather concentrate on my work!”. Its undoubtedly true that focusing on the core competencies is what Hamel and Prahlad would like you to do; yet looking around you, understanding whats happening and whats not (after all, one needs to spot opportunities as well) requires a good deal of networking.

I have often come across people who do not like meeting others, or for that matter, meeting too many people. Meeting too many people is like creating a shelter, you never know whom you will need. It doesn’t make business sense to have too many enemies, for the animosity will get the better of you any day.

In the work that I do (that becomes by core competence), I often have to interact with the other teams for gaining knowledge, and getting their help in solving the client’s problem. After all, the ultimate objective of my effort is to make my client happy, and thereby develop rapport (a flavor of networking), and lead to my own growth. Getting other’s help and helping others is the process of unlocking the potential hidden within us. Together, we know much more than each of us do, or possibly can know. Its true that synergy adds value, and I can come to know that 1 + 1 >> 2. Why? Because of the immense potential hidden between individuals, or teams as the case may be.

So why not network? Why is it that people still do not like to do it? There are various reasons, all emanating from the human psychology. We do not network because we fear our inabilities will be out in the open, we are scared of being mocked at. We fear that others will take advantage, and leave us high and dry. And most importantly, we do not network because we simply don’t “feel like it”.

I hope I would be reading through the HBR article now, and getting some more sensible ideas.

Too little

From Business Standard article Not really. Sometimes that is just what the customer wants.

Unfortunately, it is all too common: dreams and aspirations move to the back seat when confronted by the urgency of meeting day-to-day needs and other, more practical priorities.

But Fullerton India Credit takes the contrarian view and says it doesn’t have to be like this. The new non-banking finance company made that clear with its first ad campaign a few weeks ago.

Launched in phases — in Tamil Nadu and Andhra Pradesh from the second week of June and up north a fortnight ago — the two television commercials show families satisfied that their small wishes have been fulfilled. One film has a young child going to bed smiling in anticipation of a summer holiday in Delhi — earlier he was dreading having to lie to his friends when school reopened.

Another shows a teenager looking up with pride at his father’s newly spruced-up shop — he had been ashamed of the earlier, run-down kirana store. The message is clear: financial assistance from Fullerton made these dreams possible. The tagline underlines that: Humse kariye dil ki baat (Tell us what’s in your heart).

Formally launched in January 2006, Fullerton is a subsidiary of Asia Financial Holdings, which in turn is a subsidiary of Singapore’s Temasek Holdings. It lends to individuals and businesses from the middle- and lower-income groups — a section that the company believes has not been catered to sufficiently by other financial institutions.

Of course, there’s a good reason for that: very often, such people don’t have the credentials banks and financial institutions need to sanction loans. They lack proper documentation and proof, can’t offer suitable collateral and don’t really come under the radar all that often.

Fullerton is trying to reach out to this group through a relationship-led and community-based model. It focuses only on customers within a 5 km-radius of its branches; relationship managers make house calls and speak with potential customers about their financial requirements.

Going by the company’s expansion, the model seems to be working: from 25 pilot branches, Fullerton now has 275 offices in 18 states. The growth explains the strategy behind launching the campaign now: the time was right. “We have reached a mass where we need to build the brand,” says G S Sundararajan, CEO and MD, Fullerton.

The theme of the campaign was decided after careful, qualitative research a couple of months before the account was handed to Ogilvy & Mather, Fullerton’s agency since the start of operations.

The findings weren’t surprising: among the lower and middle income groups, financial security and future planning take precedence over “frivolous” pursuits.

Which means investing in pension plans and your child’s education is higher priority than revamping the store or going on holiday. The message Fullerton wanted to convey was easily decided, therefore: with a little help from us, you can do both.

Armed with the findings and timeliness of reaching out to people after a successful stint in business, the company launched its brand-building exercise with a press campaign in March, followed by radio spots in 15 cities in April.

The TVC was broadcast first in Tamil Nadu and Andhra Pradesh — Fullerton has 90 branches in the two states. Naturally, then, spots on regional language channels such as Sun TV, Eenadu and Raj TV were priority, but the campaign is also on air on mass channels such as Zee, Sahara and Sony.

Shot in Mumbai, the 60-second films — with 45- and 30-second edits — aided in breaking away from the short-and-quirky-ads clutter and were a blatant play on emotions.

“But that was essential,” explains Anup Chitnis, group creative director, Ogilvy & Mather, Mumbai, “We are talking to a section of people who do not have a very good understanding of finance. For them it is about their dreams being fulfilled.”

Interestingly, the same team at O&M had been responsible for State Bank of India’s “Surprisingly SBI” campaign — a completely different approach using humour to target younger people.

With a marketing and advertising budget of Rs 14 crore, the campaign will now continue with fresh radio spots in the coming weeks as well as extensive below-the-line initiatives such as banners, billboards and posters, strategically near the branches.

Print ads, though, will be limited and appear only in vernacular newspapers. Both the company and the agency claim that initial reaction to the campaign has been heart-warming.

The general impression of Fullerton’s target customers is that they slip through the gaps in mainstream institutional lending — they aren’t the poorest of the poor who qualify for microlending initiatives, nor are they the regular, income-tax paying professional who is the focus of most banks’ personal lending programmes.

They are the small traders who run the store with their brothers, the junior employees who are paid salaries that are exempt from income tax, or the first-generation entrepreneur who doesn’t maintain his account books religiously.

It was important, therefore, to keep the message simple — and emotional. “That’s how it works. Our branch employees belong to the same region and culture as the people to whom they lend,” says Sundararajan.

This homogeneity, Fullerton claims, makes it easier to assess the loan seeker; of course, there are the usual risk-assessment exercises as well.

Loans are disbursed under two schemes. “Parivaar” caters to the salaried class and includes products such as unsecured product loans, secured loans, home finance and home equity.

“Vyapaar” focuses on small businessmen, entrepreneurs and traders with a turnover of under Rs 2 crore. Fullerton offers loans of Rs 10,000 to Rs 1 lakh, at interest rates of 1.5-3 per cent a month. The company also sells third-party insurance and has plans to launch its own mutual funds products.

With a loan portfolio of Rs 1,500 crore and plans to more than double that by end-2007, Fullerton is also aiming for 1,200 branches in the next 12 months. But what about competition from the unorganised market and giants such as GE Money, Citifinancial and HSBC Pragati? After all, they have been in the market far longer. “I am sure they are doing well,” says Sundararajan.

“But the market is large enough to accommodate us extremely comfortably.” He points out that dipstick surveys among the target audience shows that although people know about these rival companies, they have little knowledge about their offerings and products.

Then, Sundararajan adds that Fullerton has an edge: physical proximity to the customer, compared to the others who concentrate more on the metros. That also helps in keeping the heart-to-heart chats going.