Monday, May 9, 2011

Viability Gap Funding - An Emerging Model for Social Infrastructure Financing

The transition from economic backwardness to economic advancement is generally characterized by special focus on social sectors like healthcare, education, and general infrastructure for achieving the much needed inclusive growth. Since India is going through this period of transition there can never be an overemphasis on the need to create a model for funding projects in this sector to scale up the intellectual capital which is an essential component of a knowledge economy with the assurance of proper healthcare facilities for all segments of the society.

In Western countries the young population supports the old population by contribution to social security. However, because of the ‘Silver Tsunami’ in many of these countries the scheme is running into serious problems, compelling the governments to seriously think about nationalization of healthcare. Also, international tax competition that results in lowering tax on capital and increasing tax on labour creates problems for the Western countries with large welfare states.

But, in a country like India a major cohort of the population is young, and an imaginative and creative model for funding such projects by roping in the private players and effective supervision by the government could alleviate this problem of lack of funding and the consequent lack of initiatives from the private sector. The approach to this problem should aim at shifting the focus away from the state and move towards public-private-partnerships (PPPs). At the same time it should also ensure that the interest and initiative from the private players is sustained through the emerging model of ‘viability gap funding’.

This can achieve the twin purpose of effective government supervision and proactive initiatives from the private sector to scale up the intellectual capital which is the very essence of a knowledge economy and also supported by proper healthcare for all.

Saturday, May 7, 2011

Financial Inclusion and CSE

James Austin and Ezequiel Reficco in their HBR working paper (March 2009) aimed to address the contemporary challenges in Corporate Social Responsibility (CSR) through an innovative process called Corporate Social Entrepreneurship (CSE). According to Austin & Reficco "CSE aims to produce a significant and comprehensive transformation of the way a company operates."

Top leadership of an organization should be visionary enough to identify potential talent within the company who demonstrates high levels of energy and enthusiasm, is proactive in taking up responsibilities and has the fire in the belly to break the sloth of conventional ideas - even if it requires to put his/her foot down to disagree with other fellow mates.

I was curiously thinking how CSE can have an impact on the human welfare element. Let us take the example of insurance business in India - it has all potential to be used successfully for financial inclusion but, unfortunately have not gained much momentum primarily because operating performance of this industry was not properly aligned with professed commitment to social value creation. The top- and middle-level management in this industry is more interested to drive business volumes rather than ample coverage of people under insurance benefit.

The agency based system in the Indian insurance sector has diluted the core objective of insurance as a tool for risk management. Today most of us still consider insurance as a tool for maximizing financial returns. The agents (mis)sell the insurance products by luring customers by how much they can earn, by paying a stipulated premium per annum, at the end of the maturity of the policy.

Insurance companies can empower their agents to build their income streams through CSE and social value creation and not just fulfilling hourly/daily/weekly revenue targets. The same agents can become the torchbearers of spreading awareness among the rural people on the true benefits of insurance products. If the innovative insurance products can be supplemented with a league of motivated sales & marketing force it can address the financial inclusion challenges to a great extent.

Thursday, May 5, 2011

Can Economists Build Brands?

Recently in a conversation with my colleague Dr. Shamim Mandal we were discussing about higher education opportunities for Indian students at various U.S. universities. We concurred upon one point in this regard that beyond scholastic aptitude of the student it is the recommendation(s) that plays a major role.

Dr. Shamim and I hail from the same academic discipline - Economics, and thus essentially we focused on students majoring in Economics who wanted to go to U.S. for higher studies and research. The outcome of the discussion was that someone from India, essentially a bright scholar, sometime in the past would have impressed his American professor with his intellect and talent quotient so much that he became a hallmark and his recommendations can be relied upon without second thoughts. In the following years that bright scholar would create a legacy by recommending other Indian fellow mates and help them explore their pursuit of knowledge and success in the U.S.

Sukhamoy Chakravarty was one such brilliant and most trusted scholar of Paul Samuelson who can be attributed with the credit of creating a legacy of Indian economists at M.I.T. Similarly, Amartya Sen caught the attention of his professors and built his own brand at Stanford University.