[Reader-list] Changing Culture of Business: The Informal Sector and Finance Business in Vijayawada

[Ananth]

The Culture of Business: The Informal Sector and the Finance Business - 
First Month Research Report
Submitted By S.Ananth, Vijayawada.

Introduction to the Project

The research analyses the cultural aspects of the finance business in 
Vijayawada. As in most parts of India, the informal economy dominates the 
economic life of the city. Finance business thrives in region and 
Vijayawada is considered to be the finance capital of Andhra.

The finance sector has metamorphosed in the past three decades from the 
traditionally hire purchase based to various other forms of financial 
services. They range from the traditional hire purchase form of financing 
to chit funds (including daily chit funds, weekly chit funds and monthly 
chit funds) to more unconventional types of finance like “Call Money”(not 
to be confused with the Inter-bank Call Money) to various forms of 
“Securitisation”. The business is organised into two broad categories: (1) 
the registered finance companies and banks (which may be further divided 
into three categories) and (2) unregistered and individual private money 
lenders. The first category (the registered finance companies and banks) 
may be divided into international and national level banks and Non-Banking 
Finance Companies (NBFC’s), Vijayawada based public limited companies (some 
of which are listed on the stock exchanges) and smaller registered finance 
companies (referred to as “partnerships” in local parlance). An interesting 
aspect is that all the larger local players have mostly graduated from the 
partnership level.

Participants in the financial services sector in Vijayawada till the mid 
1990’s were many small players or partnerships The sector in Vijayawada has 
undergone a substantial change after GE Capital entered the area of hire 
purchase in 1996. The receivables of the registered players are officially 
estimated at about Rs. 1000 crores annually in 2002-03. The informal 
players in the finance sector cater to the formal businesses and informal 
businesses. Preliminary research indicates that a number of informal 
finance players lend to a large proportion of the informal businesses and 
the retailers in the city. Much of the money that is circulated is “black 
money”.

The huge profits made by these companies led to the surplus capital being 
deployed in the stocks in the post Harshad Mehta boom in stock markets. 
Vijayawada was one of the few places that had flourishing unofficial stock 
exchanges. At its peak in around 1995 – 96 the most significant of these 
unofficial exchanges had an annual turnover of approximately Rs. 3400 
Crores – which was more than the official Hyderabad Stock Exchange. Its 
nature and functioning were unique and it had a flourishing “badla” 
financing system where the rate of return was one per cent per week. This 
drew a number of financiers into the securities trade. The easy finance and 
the very easy access to buying and selling shares was one of the primary 
reasons for the boom. This project is aimed at collecting material related 
to the unofficial finance sector in city of Vijayawada with a focus on the 
stock exchanges of the city. The objective behind the collection of this 
material is to understand the cultural aspects of business.

WORK DONE IN THE FIRST MONTH:

    * Collection of printed material and other documents from the office of 
the largest of the unofficial stock exchanges in Vijayawada.
    * Processing/Organizing of the material: A selection of the material 
has been scanned for the use of Sarai as well as for my own use. At present 
there are approximately fifty scanned documents (most of them related to 
the documents of the unofficial stock exchange – Vijayawada Share Brokers 
Welfare Association) these will be submitted to the Sarai media archive.
    * Interview with major players in the informal as well as formal 
sectors. These interviews include V.G.K. Prasad, Managing Director, IKF 
Finance Limited, P. Prasad Rao, Managing Director, DFL Limited and 
Secretary of ‘The Krishna District Financiers Association’, V. Siva Rama 
Krishna (one of the early lorry operators in the region and former informal 
finance lender who has since exited the business), Gopal (name has been 
changed on request, a informal finance player who lends exclusively to 
employees), interview with the secretary of the Vijayawada Share Brokers 
Welfare Association(VSBWA), K. Vasudeva Rao. The interesting point to note 
is that most of the above mentioned players refused to speak on tape. The 
stated reason was that ‘these are sensitive matters related to money and 
hence would not like to be pinned down’. In the case of the Secretary of 
the VSBWA, he refused to answer any questions relating to the Court case, 
as the matter is ‘sub-judice’.