[Reader-list] Changing Culture of Business

[Ananth]

The Changing Culture of Business – Finance Business in Vijayawada – May 
Monthly Report.

This posting will try to analyse the nature of the finance business and try 
to explain some of the actions adopted by companies or individuals in the 
business.

The finance business (especially the informal lending) is one of the few 
businesses where the person(s) involved in lending have a lot of time at 
their disposal. Infact most of the financiers tend to ‘classify’ as a ‘lazy 
business’. This could be one of the reasons why a large number of informal 
financiers tend to be involved in more than one business. A large 
proportion of the financiers interviewed, believe that this abundant 
availability of time is largely responsible for financiers developing vices 
that in the long-term ruin their businesses. Only the very prudent 
financiers are able to utilise their spare time in a profitable manner.

The nature of the business is such that the companies or individuals are 
only interested in collecting their dues / instalments. Once that is paid, 
a large number of financiers are not interested in any other aspect or 
business(es) of the client. Only the more judicious of the financiers 
undertake a regular interaction (or SWOT analysis) of their clients 
businesses over regular intervals.

An important aspect of the collection of dues is the fear psychosis created 
by the lender to collect their dues – even when the lender has clearly 
broken the law. The overt use of force (or more often the threat to use 
force) is an integral strategy in the financiers’ arsenal. In the case of 
the informal finance, the inability of the borrower to access any source of 
lenders is of paramount importance. Apart from using force and in case 
force does not work, what else can an informal financier do to collect his 
dues? Most financiers agree that there is very little that they can do, 
other than approach a local cop or a local tough to ‘settle’ the issue. 
This is more pronounced when the borrower has no other asset. Only the Chit 
Fund companies (and only the registered ones) have an interest in taking up 
costly litigation in courts as they are likely to recover most of their 
money from the guarantors.

Recovering money from the middle classes is relatively easier. Peer 
pressure and ‘middle  class respectability’ and their notion of ‘prestige’ 
provide an opportunity for a lender to exert pressure. But for a lower 
class borrower, it is more than a mere social problem. A default could well 
mean that such roadside arguments create problems as they erode the very 
little symbolic capital that they might have accumulated over a period of 
time. To a lower class person, this erosion may starve them out of funds 
when they need it most.


Despite these problems the fact that the informal lenders have prospered is 
largely due to their intricate knowledge of the borrowers, an excellent 
understanding of the nature of the borrowers business and the highly 
customised service. This customised service (in case of a good business 
relationship) means that the clients are serviced at literally any time of 
the hour – something which the larger national and multi-national players 
cannot offer. They Differ from large MNC or national level companies by 
their excellent knowledge of their clients, customised service and their 
needs including their seasonal and other needs; but the valorisation (to 
assign or give value to) of global practices has made these practices seem 
obsolete. The success of the informal players and the formal (local 
players) is simply because they do not have any lending targets. For them 
it is not a volume driven business it is a return based business. Employees 
of the local ICICI Bank have often complained that the pressure to find 
clients means that they are often forced to recommend clients with doubtful 
credentials. A local player or an informal player will never lend to a 
person who they think will not repay the money.

Despite the predominance of informal finance in Vijayawada (which is most 
likely the case all over the country), they rarely make the headlines in 
the newspapers. The only time when the informal lending practices leads to 
headlines in the press are when they create problems for the legal 
structures or when they compete with authorised competences. Otherwise they 
are never part of the common discourse. This suits the informal lenders as 
there is usually never any legally valid documentation – except the 
promissory note.