1. December 2011, Volume: 34
ISSUE
VOLUME
Investeurs
Chronicles
News …… In Focus
Cover Story
Fall from Grace: India’s News on Industry and Delhi Turns 100
Emerging Markets
Microfinance Industry
Open Forum……. Stats Watch ....... Outlook
This slowdown was coming IIP year on year Growth Euro

2. Call Rates as on 17th December 2011
7.00% - 9.00%
Figure Facts
Forex
Forward Rates against INR as on 16thDecember, 2011
Spot Rate 1 mth 3 mth 6 mth
US 52.82 53.17 53.73 54.45
Euro 68.84 69.33 70.09 71.09 16,805 5,039.
Sterling 82.09 82.62 83.43 84.47 .33 15,491 15
Yen 67.83 68.35 69.15 70.24 .35 4,651.
Swiss 56.28 56.7 57.37 58.3 60
Franc
Source: Hindu BusinessLine
Libor Rates Sensex Nifty
Libor % 1 mth 3 mth 6 mth 12 mth
US 0.28 0.56 0.78 1.10
Euro 1.05 1.34 1.61 1.97
Sterling 0.76 1.06 1.35 1.84
Yen 0.14 0.19 0.33 0.55
Swiss Franc 0.03 0.05 0.09 0.32 57201
Forward Cover
29119
1 mth 3 mth 6 mth
US 8.06% 6.99% 6.26% 53267
Euro 8.66% 7.36% 6.63% 27255
Sterling 7.86% 6.62% 5.88%
Yen 9.33% 7.89% 7.20%
Gold (10 gm) Silver (1 Kg)
Swiss Franc 9.08% 7.85% 7.28%
As on 16 th December, 2011 Source: Hindu BusinessLine
Commodities
Commodities Unit (1000kg) 110.82
Aluminum 104700
52.74
Copper 390650
51.41
Zinc 98500 103.88
Steel 34100
As on 17 th December2011 Crude Oil ($/barrel) Dollar
Data from 5th December 2011 to 16thDecember 2011

3. Stats Watch YEAR Outlook -Euro
Euro
The euro fell to an 11-month low (1.31$ in New York trade on evening of 13th December 2011)
against the dollar on concern European leaders won’t agree on ways to expand the region’s
rescue capacities as debt-strapped nations struggle to fund their deficits. In addition to this,
U.S. currency strengthened due to renewed commitment by Fed Chairman Ben S. Bernanke to
keep interest rates low through mid-2013, while refraining from taking more steps to lower
borrowing costs.
The single currency also registered a hit due to a rating downgrade warning of European
Union nations by Moody’s over a very few new measures to tackle risk, as it said. Fitch also
appears to be in agreement with this stand.
The Euro-area growth forecast for 2012 has been lowered over the past few months. Within
the 2012 consensus forecast range, the most optimistic forecast is 1.5% while the most
pessimistic is -0.5%. The euro area can avoid an outright recession in 2012 if Germany and
France continue to grow at more than 1% and if Italy can avoid a recession. The downside
risks are high.
Market condition suggests that there still has to be further monetary easing by the European
Central Bank to support growth in the euro area for 2012 and beyond. There’ll be further
Gloss
weakness, particularly in the first half of next year.
As a result, the single currency is expected to maintain its downward trajectory versus the
“Qualified endorsement”
greenback in the first half of 2012 as the European Central Bank will be under pressure to ease
its monetary policy to help the region combat the debt crisis. EUR/ USD is expected to go down
A signature on the back of a cheque or other negotiable that transfers
$ 1.30 in the first quarter of the next year, then hit $ 1.25 by the middle of the year and recover
the payment to another, or that restricts the condition of payment, such
as ‘for deposit only’. to $ 1.35 by the year-end.

4. Cover Story
In the last week of November 2011, SKS, India’s leading microfinance institution reported that VikramAkula had stepped down as Chairman of the company in order to pursue a
career in mobile banking. Whether a pause or full stop to Akula’s epic career in microfinance, the tryst of the India’s microfinance sector with controversies continue!
Akula remains a contentious character, whose very name incites admiration and criticism in equal measure. Some say that he gave birth to the microfinance industry as we know
it in India. Others say that his model of lending, pioneered by his company SKS Microfinance, gave birth to an almost unquenchable thirst for profit, driven by a business model
that has no place in ameliorating the state of the poor in India; a tremendously successful business model which has of late came under clouds of suspicion regarding its intent.
Industry, that was
Inspired by the Grameen Model of micro lending in Bangladesh, Indian MFIs had been growing by leaps and bounds over the last decade. Indian MFIs witnessed an
extraordinarily high growth rate from 2005-2010, with an average annual increase of 62 per cent in number of clients and 88 per cent in outstanding portfolio size – and around
32 million borrower accounts by end‐March 2011, India has the largest microfinance industry in the world. With interest rates for most MFIs as high as 30 per cent, some even
50 per cent, along with 99 per cent recovery, the steep profit was anyone’s guess. The high growth rate of microfinance over the five year period was fuelled by commercial bank
funding which inherently gravitated towards “for‐profit” institutional structures. Thus, there was an India‐wide trend towards the transformation of MFIs into for‐profit
non‐bank finance companies (NBFCs).
This worked a lot of people up. David Gibbons, a pioneer in the microfinance and head of Cashpor, an MFI which works in the poorer parts of Uttar Pradesh and Bihar, and Ela
Bhatt, founder of Self-Employed Women's Association of India (SEWA) and pioneer in cooperative women, and micro-finance movements, warned about organizations like SKS
creating debt treadmills, where a loan would be taken simply to pay off another. This didn’t deter SKS from planning an IPO in which some of the high profile investors invested.
However, close to heels, a troubling phenomenon surfaced on the MFI landscape. Between May 2010 and February 2011, 203 MFI-linked suicides were reported in Andhra
Pradesh, alone, according to data from Society for Elimination of Rural Poverty, Hyderabad.

5. For several pioneers of microfinance, IPO was the proverbial last straw in scripting India’s oldest microfinance firm, BhartiyaSamruddhi Finance Ltd (BSFL), is on the verge
the downfall of the Indian microfinance sector. Suicides by the farmers were referred of closure. With borrowers in Andhra Pradesh refusing to repay, bad loans are growing
to as manifestations of the anomalies that had hit the sector. As Ela Bhatt puts it, and threatening to wipe out its entire net worth and reserves. As of 30 June, BSFL’s net
move from public service to private purpose and super profiteering appeared to be worth was Rs128 crore, down from Rs230 crore in September last year, and this will get
the two main reasons for debacle of the MFI industry. completely eroded because of accumulated bad loans of Rs450 crore. Since repayment
there has dropped to 10%, the only way to increase income would be to lend in other
Unfolding of the crisis
states where repayments are assured. But BSFL has been unable to do so as banks are
To make matters worse, the Andhra Pradesh Microfinance Institutions (Regulation of
unwilling to lend it more money. It seems that the controversial Andhra Pradesh
Moneylending) Act, 2010 came down hard on MFIs for what it thought was predatory
Microfinance Institutions (Regulation of Moneylending) Act, 2010 is all set to claim its
lending practices, but it has also curbed fresh lending and recovery of loans in the
first victim.
state. Thus of the Rs 20,000 crore MFI industry in India, at least Rs 7,000 crore is set
to become bad debts in Andhra Pradesh, the state with the highest concentration of Factors at play
the MFI industry. MFIs were able to grow rapidly through better access to funding and by using the
proven methodology of a mono‐product offering rolled out over large numbers of
The MFIs will have to raise as much as Rs 5,000 crore by March 2012 as equity on
branches, in diverse locations using standard processes. This was often at the cost of
account of these non-recovered loans through equity. With bank’s reluctant to lend,
limited staff‐client interaction. The current crisis in microfinance is partly the result of
MFIs across the country are facing the heat of the Andhra Pradesh regulations.
this over‐simplification of the MFI‐client relationship.
Recovery dropped from 100 per cent to less than 5 per cent in the last one year.
Today, the industry is gasping for survival. While large numbers may have been reached, the lack of commitment on either side led
Year Outstanding Loans to substantial multiple lending and created an environment of concern about the rights
of clients thathad been oversold microcredit. Some clients became over‐indebted as a
2004-05 1,500**
result and the media attention generated by the IPO of SKS Microfinance (at the time, by
2005-06 2,700**
far the largest microfinance NBFC in India) only led to further introspection about the
2006-07 4,400** status of microfinance clients. With the reports of suicides in rural Andhra Pradesh
2007-08 9,500** (something that regrettably happens virtually every year) thrown into the mix,
microfinance took the blame this time around. Given the populist nature of state‐level
2008-09 18,500**
governance in India, conditions were ripe for intervention and the AP microfinance
2009-10 24,000**
ordinance of 14 October 2010 was the result.
2010-11 30,000**
Andhra Pradesh, promulgated a law in October to control microlenders, after a spate of
Present size 20,000**
reported suicides following alleged coercive recovery practices adopted by some of
*estimated ** informal estimates them. The law restricted MFIs from collecting money from borrowers on a weekly basis
Source : Crisil/ MFIN
and made it mandatory thatgovernment approval be obtained if a borrower takesmore

6. than one loan. While repayment rate dropped to 5-10% following the state law, commercial banks, which
typically provide 80% of the funds to the industry, stopped lending as a result. Future scenario is not too
optimistic about banks resuming lending to the industry, especially to those firms that don’t have sufficient
Microfinance Bill
equity capital.
The Microfinance bill seeks to make it mandatory for all
AP ordinance spread much more widely than the state of Andhra Pradesh. This effect was not due to any
micro-finance institutions to be registered with the
delinquency contagion reaching clients outside the state but rather due to the drying up of bank funds to
Reserve Bank of India and entrusts the task of regulating
MFIs. Thus, the manifestation of political risk that they saw in the form of the AP ordinance, resulted in banks
the sector to the central bank. The draft Bill also
reducing their sanctions in the last quarter of the financial year to a minimal level. This affected MFIs all over
proposes that any micro-finance institution which is not
the country and is the primary reason for the low (25%) growth in net portfolio of the leading MFIs during
a company registered under the Companies Act, 1956,
the year.
and which becomes a systemically important micro-
Indispensable finance institution shall convert its institution into a
The collapse of the microfinance industry has suddenly infused life in traditional money lenders even as company registered under the Companies Act, 1956,
borrowers are either selling personal assets to improve cash flow or halting business expansion. with or without a licence, under Section 25 of the Act.
This should happen within six months from the date of
This only proves that microfinance is now established as a significant component of the financial system in
the balance sheet that shows the MFI has become a
the country and its contribution to financial inclusion continues to rival, if not exceed, that of the rural
systematically important micro-finance institution in
banking system. However, the efficacy of that contribution is now under threat. Both internal factors (such as
terms of the rules prescribed by the central government.
high growth and over‐indebtedness plus a lack of adequate concern for product characteristics) and external
The RBI may pass an order directing a micro-finance
factors like the policy actions of the government of Andhra Pradesh are responsible for this.
institution to cease and desist from carrying out micro-
Government of India seems to have taken note of this as it proposes to rectify the situation through the financing if it is found acting in manner prejudicial to the
proposed microfinance law. The law would provide the sector with the full attention of the central bank as interest of its clients or depositors.
also continue with its primary task, which is to offer at least limited deposit services to low income families The bill is proposed to be tabled in the parliament in the
(recognizing their need for savings facilities). The bill, further, strives to protect the sector from the whims winter session. The draft Micro Financial Sector
of local government by clarifying that microfinance is governed by national laws and is, therefore, not a (Development and Regulation) Bill, 2011, was circulated
state‐level concern. for public comments in July this year. The government
had introduced the Micro Financial Sector Bill in the
All said and done, there is no doubting the fact that microfinance has actually managed to bring about
LokSabha in March, 2007. However, the Bill lapsed when
considerable change in lives of atleast a few odd families at the bottom of the social and economical
the term of the 14th LokSabha expired in 2009.
hierarchy. Intuitively then, infusing a fresh lease of air in the sector is more rational a decision than allowing
it to die a slow death. Hopefully, through the proposed microfinance bill, microfinance sector in India would
be accorded the level of significance commensurate with its contribution to millions of citizens.

7. Food inflation falls sharply to 4.35%; lowest since February
2008
Food inflation fell sharply to 4.35 per cent for week ended
December 3 - its lowest reading since late February 2008, from
6.60% in the previous week. Last week, food inflation dropped to
Oct IIP sinks to -5.1% vs 11.4% y-o-y
almost a three-and-a-half-year-low of 6.6% for the week to
India's industrial output shrunk by 5.1% in October after
November 26 as a good harvest drove down vegetable prices
witnessing a sustained slowdown over the past few months, led by
further, raising hopes that the stubborn inflation will finally ease.
a steep fall in production of almost sectors, particularly
manufacturing, mining and capital goods. Factory output, as
RBI keeps key rates unchanged in its mid-quarterly
measured by the Index of Industrial Production (IIP), had grown by
monetary policy review
11.3% in October last year.
RBI on 16th December has kept repo and reverse repo rates
unchanged to arrest rising inflation and slowdown in Asia's third
Food Bill put on the backburner
largest economy. The RBI kept repo rate, at which it lends to banks,
Fearing repeat of a recent fiasco triggered by its move to permit
constant at 8.5%, reverse repo rate at 7.5%. The RBI also left the
FDI in retail, the union cabinet on has deferred a decision on what
cash reserve ratio, which is the amount of cash the banks have to
can be called the present govt’s most ambitious social welfare
maintain with the central bank, unchanged at 6 per cent, despite
scheme: the Food Security Bill.
market speculation that it might cut the ratio in order to bolster
market liquidity.
DLF set to ink Rs 900-cr Pune SEZ deal with Blackstone
DLF is close to signing a deal with private equity major Blackstone,
Founder duo exits Ambuja, deal valued at Rs 185 cr
as the country’s largest real estate developer by market
Three-and-a-half decades after they founded it, Narottam S
capitalisation is planning to offload its entire stake in the special
Sekhsaria and Suresh Kumar Neotia have completely exited as
economic zone (SEZ) in Pune. DLF is targeting this deal for 2012,
promoters of Ambuja Cements, by selling their 0.79 per cent stake
and industry sources say the announcement is likely to come
in the company to a unit of Swiss cement major Holcim, the majority
within days. (The company declined to comment on the matter.)
owner. The transaction value has not been disclosed, but the stake
The deal size is pegged at around Rs 900 crore.
sold is valued at Rs 185 crore at on 15th December 2011) close of Rs
153.65.

8. Emerging Markets
Brazilian prosecutors seeking $10B in damages 2013, the World Bank committed an expanded program
from oil company Chevron for offshore leak of support in response to the government’s request for
SA factory gate prices ease Brazilian federal prosecutors said Wednesday (14th larger lending operations.
Statistics South Africa said on Thursday (15 th December) that they are seeking $10.6 billion in damages
December) producer inflation, which represents from U.S.-based Chevron Corp. because of environmental Philippines: 2011 budget nearly spent
domestic output, slowed to 10.1% year-on-year (y/y) harm caused by an offshore oil leak. The prosecutors are The national government has consumed nearly its entire
in November from 10.6% in October. The consumer also asking a judge to order Chevron and Transocean Ltd., budget at end-November, according to the Department of
price index rose to 6.1% y/y in November - a 20- the drilling contractor for the well where the leak Budget and Management.DBM Secretary Florencio Abad
month high and the first time it was outside the occurred in November, to halt all activities in Brazilian said that as of the first 11 months of the year, his
Reserve bank’s 3% to 6% target since January 2010. territory for an indefinite period. department released P1.53 trillion in allotments.
Such amount represents 93.2 percent of the P1.645
South African Banks Hire Staff as New York, Russia: WEF Raises Financial Rating trillion General Appropriations Act (GAA) for 2011. Abad
London Cut Jobs Russia has moved up one step to 39th place in a global said the near-complete release of this year’s allotment is
South African lenders are hiring more staff to target ranking of financial development according to the World in line with the Aquino administration’s thrust to
the country’s poorest people as banks from New Economic Forum's Financial Development Report, which implement its priority programs and projects that have
York to London slash jobs to cut costs. Employment analyzes drivers of financial system development in 60 direct, substantial and immediate impact on the Filipino
in financial services climbed for a fourth consecutive leading economies. In terms of financial intermediation, people, especially the poor and marginalized.
month in November, rising 0.7 percent to 1.63 Russia continues to show strong results in nonbanking
million, according to an index compiled by financial services, coming in at ninth place. Healthy
Johannesburg-based recruitment company Adcorp mergers and acquisitions and securitization activity drive
Holdings Ltd. That growth rate was only exceeded by the solid ranking, the report said.
South Africa’s transport industry.
Philippines: World Bank commits $1.5B to PH
The World Bank has committed a multibillion-dollar loan
assistance to the Philippines over the next three years to
finance priority projects under the Philippine
Development Plan for 2011 to 2016.Under its current
Country Assistance Strategy (CAS) that covers up to June

9. InFocus Open Forum
Delhi Turns 100 This slowdown was coming
As Delhi marks its 100th birthday this year, something which is most striking about Most commentators watching the UPA government wrestle feebly with the Opposition
the city is its transition into being a microcosm of the entire country. over its most prized and significant reform to date, seem to be missing a bigger problem
confronting the beleaguered government. The organised economy is falling and the
Delhi was proclaimed as the capital of British Raj on December 12, 1911, shifting
slowdown may not be a blip, but a flattening curve. Much as policymakers may want us to
from Kolkata, by then Emperor of India George V thereby returning to the historic
believe that the next quarter will set the economy on the right course, it is difficult to
city its lost glory. Between the 12th and the 19th century AD, Delhi was the capital
figure out, on the basis of the evidence, just how they could do it.
for many rulers. Delhi, it is said, is a cluster of 8 different cities. Siri, Tughlakabad,
Many experts, including HDFC Bank Chairman Mr Deepak Parekh, who exhorted “India
Jahanapanah, Ferozabad, Dinpanah, Shergarh and Shahajahanabad are the historic
Inc” to support FDI-in-retail, seem to think that this would turn the tide — but it won't.
‘seven cities’ that took shape in Delhi. The eighth city, or the present New Delhi,
The problems confronting the economy are systemic and not all the grandstanding by
was built by the British Empire and is the one which is celebrating its 100 years.
policymakers, whether it concerns inflation control or economic revival, can turn the
100 years of Delhi has seen so much that none who knew the city then in 1911 curve upward.
would be able to recognize it now. This city has entered a kind of transition which it GOVT SPENDING HELPED
is unable to equate with. A hundred years back, Delhi did not go beyond the area of And jarring as the latest CSO data on GDP for July-September might be, it certainly isn't
Shahjahanabad. Today this portion of Delhi is known as Puranidilli. surprising. The rate is the lowest in nine quarters, but for almost a year, signs have been
aplenty of the GDP's reversal. The more disturbing news that investment, or gross fixed
100 years of Delhi has seen the initial population of one lakh going up to the
capital formation, has also contracted isn't startling either, given its gradual deceleration
present day 22 million. The explosion is so much that even a creative planner
since 2009-10.
wouldn’t have expected this. Delhi has evolved over the years, from an imperial
The best way to get a sense of how fragile the recent growth has been is to refer to
capital to the capital of a thriving economy. It has grown to become a cultural
successive reviews of monetary policy by the RBI. Read together, the quarterly and mid-
centre and its reputation of being merely an administrative capital has undergone a
quarterly reviews construct a narrative that offers us more illuminating clues on the
change. It has evolved into an economic and cultural focal point.
economy's prospects than policy cheerleaders tiptoeing around systemic crises.
Yet, one thing remains unchanged. The charm, the specialty and warmth about the In January, the RBI's review of 2010-11 was fulsome in its praise of domestic growth in
city remains the same. Its about time that we raise toast to that! the first half of the year, despite inflation and a gloomy global scenario. The economy, it
gushed, had with 8.9 per cent growth in the first half, “returned to the high growth path”
with industrial output expanding 9.5 per cent between April and November 2010. But the
review noted disquieting signs: the growth pattern has, “however, been volatile through
the current year” (2010-11). Growth, the bank found, “was not broad-based”. Nearly 73
per cent of the expansion was driven by the top five manufacturing industries, with a

10. with a “combined weight of 24.6 per cent.”
That was not all. Six core industries grew just 5 per cent in April-October 2010; electricity generation remained “modest” and coal supplies, could “fall short of target”.
What fuelled this high GDP rate? Partly private consumption and final government expenditure. The RBI tells us that even though the government had rolled back its fiscal
concessions of late 2008-09, its volume of expenditure remained high, with a focus shifting to capital expenditure on infrastructure.
So the first half of 2010-11 witnessed robust expansion, all set to return to 2008-09 levels on the basis of private consumption and government spending. Where was private
investment?
OPTIMISM COMES UNSTUCK
In its monetary policy statement for the new fiscal issued in May, the RBI could get a handle on the whole year's developments; what it found exposes the unstable foundation
of the organised economy's growth. Government expenditure was decelerating on account of fiscal consolidation. “However, aggregate investment moderated somewhat in Q3
of 2010-11.” The contraction in government spending wasn't compensated by private investment. Twelve months ago, in a period of high growth, brisk corporate sales, high
capacity utilisation and pricing power (a euphemism for manufacturing inflation) gross private investment was dismal.
As the central bank concluded, “this slowdown was also reflected in the contraction in capital goods output and weaker new project investments indicated by banks…” This
sluggishness, it warned, “needs to be reversed to bolster the potential growth of the economy”. High base effect and “moderation in investment demand” decelerated industrial
growth. Yet, the RBI remained optimistic on the economy maintaining an 8 per cent average, in the new fiscal 2011-12.
By July, it had toned down its optimism. The slowdown in Q4 of 2010-11 to 7.8 per cent, against 8.3 per cent in the previous quarter, and 9.4 per cent in the corresponding
quarter a year ago, had forced a rethink.
As for private investments, here is what it said in the review, with a long glance at the previous fiscal's robust growth: “Aggregate demand decelerated in Q4 of 2010-11,
mainly due to investment slowdown. Corporate investment intentions also moderated significantly during H2 of 2010-11.” It turned to the immediate future and complained:
“There are no signs of improvement in investment during 2011-12 as yet. Private consumption demand may be adjusting downwards, but still remains strong.”
Predictably, the scaling-down continued. In September, the RBI found Q1 GDP falling marginally. Cumulatively, the IIP increased by 5.8 per cent during April-July 2011, against
9.7 per cent in the corresponding period of the previous year. The CSO data for the second quarter then confirms a pattern in decline of not just GDP but of investments by the
private sector.
FDI FLOWS
It's not very different with FDI. A recent report in this paper mentions a spurt of $1.3 billion in the power sector in just six months of the current year. But that's piffle against
the Eleventh Plan requirement of $230 billion or $46 billion a year. In aggregate terms, India has had a poor record of FDI inflows even during high growth periods, compared
with some other emerging market economies.
In the meantime, Indian firms with sticky fingers when it comes to domestic investments are looking globally to invest in plunging economies. Acquisitions are gathering pace.
This is a ‘flight' of capital: only it is legal.

11. About Investeurs Consulting P. Limited
Investeurs Consulting Pvt. Ltd. is a business and financial advisory company, successfully serving businesses since 1994; we offer advisory and consultancy services for successful fund syndication.
We have serviced diverse businesses by arranging finance of over $1600 million. We are strategic advisors to our clients during the ideation phase, implementation guides through start-up
phase, and trusted advisors overall.
All businesses go through a similar life cycle.Once an idea is conceived and a business is established, a company requires capital to fund ongoing growth and expansion. The Capital Structure
has to be optimally structured during each phase of business cycle. Investeurs perceives the requirement and accordingly arranges funds to help companies smoothly achieve milestones in
the process.
Investeurs Competency Kit
 Alignment of services with client’s business
 Round the year Financial assistance
 Facilitator between Banks and Clients
 Hassel free & on time service
 Industry & Market updates
TeamChronicle
Bhavna Goal bhavna@investeurs.com NidhiGogia- nidhi@investeurs.com
Akanksha Srivastva akanksha@investeurs.com Harpreet Kaur harpreet@investeurs.com
Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world
economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the
information provided.
 Investeurs Consulting P. Limited
 
S-16, U.G.F, Green Park Ext. New Delhi-110016, www.investeurs.com