[Reader-list] The Culture of Business: The Informal Sector and the Finance Business
Ananth
sananth at sancharnet.in
Sun Jan 23 15:49:59 IST 2005
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 (NBFCs), 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
1990s 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.
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