The document discusses the principles of capitalism and argues that pursuing self-interest, while operating fairly and benefiting others, can create positive outcomes. It provides examples showing how businesses, investors, entrepreneurs, and other stakeholders can maximize their own returns in a way that also creates jobs, wealth, innovation, and improvements to people's quality of life. Specifically, it cites how microfinance has allowed small business owners in developing countries to access loans in a profitable way for lenders. The author advocates practicing "benevolent capitalism" by being successful in one's work but also giving back to help future generations.

1. Defending self-interests in
business
Shyam Kamadolli
Entrepreneur, Venture Capitalist and Private Equity
Investor

2. Food for thought
In theory:
Socialism is the most efficient economic paradigm
The state decides who produces what and to what extent
The state makes optimal capital allocations
Every resource available is dedicated to production
Every production unit is expected to perform at a certain level in exchange for not
having to compete
Every producer survives
And Capitalism is the least efficient
Competitors fight over scarce resources: capital, talent
Every market is open to new entrants: lucrative markets get more entrants
Game theory and micro economic principles ensure that few survive
Resources consumed by all those that did not survive were wasted
So which paradigm would you bet on in 1900? Today?
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

3. Pillars of Capitalism
Investors
Provide capital to the firm
Seek financial returns commensurate with risks they take
Entrepreneurs
Provide intellectual and spiritual leadership to endeavours that create value
Seek financial and emotional returns
Professionals
Provide services to the entrepreneurs
Seek monetary compensation, learning and career advancement
Consumers
Provide a market for goods and services
Seek the best product at lowest price
Institutions
Provide a security blanket: the law, governments, regulators, public opinion, the press together
create an environment so the above can thrive
Seek relevance, independence and respect
None of these is selfless! Why?
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

4. Thesis: self serving pursuit of happiness is a necessary
condition for human development
Every pillar of Capitalism maximises its own return, but in the
process:
Creates more wealth
Creates more jobs
Creates more talent
Creates more innovative products
Creates more civilized society
A virtuous cycle is a rising tide that floats all boats
Trickle down effects have translated broad GDP growth into improvements
of quality of life for lower income groups as well (e.g. India of 1992-2010)
Certain segments of society have been left behind
– these are structural issues that need to be addressed
– but they are not a counter argument
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

5. Case study: Rural micro loans (1)
Traditional option: loan sharks
Product offered: unsecured or secured loans at over 50% interest
Collateral offered: meagre personal effects, indentured labour
Issues: usurious rates, risk
Consequence: used only for dire situations despite easy availability, does
not create wealth
Benevolent option: charitable grant/loan
Product offered: outright grant or low/no-interest loan
Collateral offered: usually none
Issues: demand far outstrips supply
Consequence: does not scale, very limited availability
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

6. Case study: Rural micro loans (2)
Capitalistic option: micro finance
Product offered: small unsecured loans for specific purposes, interest rates over 30%
Collateral offered: assets if purchased with loan, group commitments
Issues: some reports of misuse (structural)
Consequences:
– Excellent financial returns to investors have resulted in massive equity and debt investments in
the sector
– Widespread availability of micro-loans in Bangladesh, India, Africa, Latin America
– Viable micro-businesses and wealth creation where ROCE is over 30% and can service debt
including farming, dairy, horticulture, etc.
– Lower default rates than traditional lending (<5%)
– IPO of a micro finance lender in Mexico, more imminent in India
Why is micro finance working?
Entrepreneurs, equity investors, banks, micro-entrepreneurs are all chasing profits
for themselves a lot more money is available to borrow than for charitable grants
“Self-interest” in business can do good, as long as it does no evil
“benevolent capitalism”
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

7. Benevolent Capitalism
Capitalism:
Where every stakeholder maximises creation of economic and/or
emotional value (e.g. wealth, fame)
Operates fairly and within limits of morality and the spirit of the law
Benevolence:
Value creation directly or indirectly benefits lives beyond the principal
stakeholders (e.g. job creation, employee welfare)
The good news: most businesses are already
practicing benevolent capitalism!
The bad news: a few bad eggs are giving the rest a bad name.
Enron, Satyam etc.: are weeds that do not justify maligning the grass.
Weed them out and move on!
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

8. What can YOU do?
Today: practice benevolent capitalism in your daily lives
Be the best at what you aim to do: work hard, take pride in your work
Compete, fiercely, but fairly
Seek to maximize your returns, so you survive to do more on a later date
Share your experience, touch as many lives as you can
Tomorrow: achieve and then give back
Amass wealth: economic, spiritual, fame
Invest in future entrepreneurs – keep the cycle going
Give to the needy who cannot join the system: “teach a man to fish”
Warren Buffet and Bill Gates ARE making a difference. $40 Billion!
But first they built great businesses that enriched them and
millions of shareholders and employees who are all making an impact
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.