Image 01

Himalayan Crossings: Explaining the Rise of China and India

Selected Insights on US Foreign Policy and on Political Economy, Security, Finance, and Information Technologies in and between South Asia and Greater China

Dr. Rudolph's Website

Archive for July, 2009

The Gender Gap in Microcredit: Women Need More Support

Thursday, July 30th, 2009

Yesterday’s BBC “Business Daily” follows on HimalayanCrossing’s posting of last week regarding the “new pessimism” shown in research on microfinance. I’ve posted the BBC mp3 here (contact me for access).

Hopefully this new round pessimism will serve to improve the microfinance delivery models that are out there.
However, what is very clear from the new research, particularly that of Prof. Dean Karlan is that there is a gender gap in the performance of poor microcredit recipients. Women recipients do less well than do men. In a recent paper based on research in the Philippines, Karlan and his colleagues ascribe this to the lack of support or outright suppression of entrepreneurship that women often suffer in developing countries.
It is precisely this problem that Ubuntu at Work has been seeking to address through a program intended to provide mentoring and coaching to women entrepreneurs in India and Egypt.

India's New Budget: Walking Without Limping

Wednesday, July 29th, 2009

In a recent piece in the Hindustan Time, Ashutosh Varshney interprets the recent Indian budget as an early step in the institutional development of social policy and a Welfare State in India.

He suggests that the economic reform policies of the last 25 years must be accompanied by the development of social policy so that changes in India’s economic structure and growing wealth do not leave the behind the less well off, particularly poor and rural citizens.
He says that this is not only morally a good thing, but that it makes electoral sense. This is because the rural and poor vote in greater numbers than do the rich and the urban of that country. Ignoring them will endanger the prospects for reform.
Varshney uses the metaphor of “walking on two legs”; one economic reform leg and one social policy/welfare state development leg.
The risk of “limping” is a real one, though. While creating walking on two legs the risk of partial development of both legs — and the perpetuation of the old system, particularly in labor legislation and transport — is a real one.

Why Business Services to Microfinance Recipients May be the Next Important Chapter in the Microfinance Revolution

Monday, July 27th, 2009

Last week’s Economist had an article reviewing recent research on the benefits of microfinance for poverty alleviation.

The headline: Its not clear that finance alone — that is the loans themselves — can do the job. Other things such as savings storage and the category of assistance often called “business services” are likely to be valuable in helping microfiance recipients achieve viable scale and durability in their businesses.
Support, handholding, horizon-widening, mentoring, coaching and just plain cheerleading; these things can help microfinance recipients — particularly women — in environments that lack such things and where women are less empowered. Signaling credit-worthiness and increasing the entrepreneurial skills and confidence are also important for microcredit recipient success.
This is the insight that emerged from Dr. Pingle’s research and that is at the core of the Ubuntu at Work mentoring model.
Some key quotes from the Economist article:
Referring to an MIT “Poverty Action Lab” study that may be one of the most robust studies to date in terms of parsing the causality of microcredit from other causes of poverty alleviation, one conclusion that can be drawn is:

…though there was no measurable impact on poverty during the study period, there may well be some over a longer time-frame as these businesses prosper.

Discussing why an omnibus approach that relies on other services to make microcredit work, the article suggests that:

Microcredit may not even be the most useful financial service for the majority of poor people….

Tiny loans are unlikely to be enough to allow these businesses to grow to an efficient scale, of course. But the role of microcredit in allowing people to signal their creditworthiness is valuable, especially if their success makes banks more willing to lend them larger sums and leads to even more economic activity. By being willing to take a risk on entrepreneurial sorts who lack any other way to start a business, microcredit may help reduce poverty in the long run, even if its short-run effects are negligible.

Ji Xianlin Memorials: A Proxy for Chinese Interest in India?

Friday, July 24th, 2009

Li Xianlin, the scholar who secretly Translated the Sanscrit-Hindu text the Ramayan into Chinese during the Cultural Revolution, died on July 11th at the age of 98.

On today’s China Beat, Timothy Weston has a wonderful piece remembering Ji Xianlin.

Ji had been the Chair of the Chinese South Asian Association, and was one of the people most responsible for keeping South Asian studies alive in China between the Sino-Indian War of 1962 and the revival of popular Chinese interest in India in the late 1990s.

One wonders how much of the outpouring of popular and official Chinese sentiment at Li’s passing can be attributed to his connection with India?

For those Chinese who think of Li and India together, it is largely the romantic view of India as the land of Buddha’s birth and (to the Chinese) the fantastical and spiritual elements of Hindu mythology.

Nevertheless, Indians officials and members of civil society interested in understanding how elements of positive Sino-Indian engagement may wish to follow the coverage of Li’s passing and the public and official treatment of his contribution to Chinese scholarship, education and social memory.

After the Swat-Counter Attack: Can Pakistan's India Policy Ever be the Same?

Thursday, July 23rd, 2009

On May 5th Pakistani President Zardari appeared with Wolf Blitzer on CNN’s “Situation Room.” People interested in understanding the prospects for stability and governance in Pakistan should look at the transcript. It makes for a sobering read.

One of the most interesting things to come out of this interview was a conclusion drawn by a student in my Asian Security class, David Leonard.

Hearing Zardari discuss the groups taking control of the Swat Valley and how difficult it was to deal with them, Mr. Leonard wondered if the situation in Swat at that time might, in the future, undermine the legitimacy many Pakistanis have often claimed in providing what they call moral support to Kashmiris seeking autonomy in India. Leonard was arguing that if regular Pakistani army were now required to fight obstreperous autonomy-seeking groups within the FATA and NWFP areas of Pakistan, it would in the future be awkward for Pakistanis to criticize Indian governments for doing the same near the Indian frontiers.

In another interesting segment of the interview President Zardari told Blitzer that, “No Pakistani democratic government has gone to war with India.” It would have been interesting for Blitzer to have followed on this remark with a question about what President Zardari made of the events that took place in Kargil during the spring and summer of 1999. One could reasonably claim that the civilian government of Prime Minister Nawaz Sharif was not entirely in control of military policy as General Musharaf acted with increasing autonomy from civilian authority. Accepting that argument, however, could force even sympathetic observers to wonder what current conditions were today.

What’s Going on in Bangladesh? What Happened in February?

Thursday, July 23rd, 2009

Prof. Jalal Alamgir has a new article on “Bangaldesh’s Fresh Start” in the Journal of Democracy.

In December 2008 a new Awami League government won a huge victory in parliamentary polling.

In the previous two years an army-led caretaker government ran the country. That caretaker government undertook two major campaigns; one against corruption; the other to create modern voting system based on a countrywide systematic registration of voters. Many observers say the corruption campaign failed. Others believe the voter registration campaign was largely a success.

In late February HimalyanCrossing was in Dhaka and met with American and Bangladeshi officials and political experts.

During that stay a paramilitary force, the Bangladesh Rifles, “mutinied” against the regular army officers who occupy the command structure of the force. The mutiny broke out both in heart of Dhaka and around the country. More than 90 people were reported slain, among them at least 49 army officers. Many feared a coup might result. Rumors flew that agents provocateurs associated with the Jamaat Islamia might have encouraged the mutineers. Few doubt the mutineers had legitimate grievances.

Jala Alamgir has been developing a thesis on the nature of political development in

Bangladesh. He argues that there may be underway a shift from what he calls a “state-security model” of security in Bangladesh to a “human-security model”.

For those particularly interested in Bangladeshi politics, HC has some thoughts on Alamgir’s thesis based on what happened in February and under the caretaker government.

Some anti-corruption drive was necessary. In fact one could argue that it was precisely such a drive that was necessary to shift from a state-security model to a human-security model in Bangladesh.

More interesting, it would seem to me, would be an analysis of the views – or discourse – of the anti-corruption drive. While in Dhaka in February 2009 the discussions and disagreement I heard about the anti-corruption drive were more interesting than the issue itself (indicating to me fecund ground for a social constructivist research agenda on “anti-corruption” as a discourse in Bangladesh).

Another issue that is precisely focused on the shift from state- to human- security models is the voter registration drive of the interim military government. My sense is that, particularly compared to the anti-corruption campaign, the voter registration drive was regarded as relatively successful. To provide voice to the people in the interests of human security and adding ballast to civil society against the state, this is pretty important.

The BDR “mutiny” is a fraught issue. Here I think I see a hall of social constructivist mirrors. Potentially quite interesting if you are the David Fincher of social science. BDR members and (more importantly) any one who was involved as agents provocteurs understood the “private justice” code that Alamgir argues was constructed via Zia-Ershad-BNP rule. Either cynically or in good faith, the provocateurs of the BDR took advantage of that code. We still don’t really know why. Fear of the impending War Crimse Tribunal? A desire to sabotage Awami League success?

The Project Dal-Bhatt parts of the BDR mutiny story seem cruelly cynical. Project Dal-Bhatt was a project undertaken by the army and the BDR to deal with rising food prices in the 2008 global food crisis that hit Bangladesh hard. That is a human security issue in which the capricious use of state-security forms of power (which lends itself to corruption) intersects with a very obvious human-security intent.

Vive La Heterogeneity!: Lessons from the Financial Crisis for Regulatory Reform

Thursday, July 23rd, 2009

Finance may now be tarnished, but one of the core principles of modern financial theory is still a noble and valuable one. Diversity is always good.

The crisis may have been caused not because of this principle, but because it was violated. Clubish” and “off exchange” trades of credit defaults swaps and “herd modeling” all caused clumping and homogeneity in the way large financial institutions modeled and traded risk.

The lessons: Limit size and insure diversity.

When I read last week’s Economist articles discussing “What went wrong with economics” generally and with financial economics in particular, I noted an air of criticism directed at the “value-at-risk” (VAR) model behind much modern financial risk analysis.

A financial economist whose expert advice has always seemed sound to me, Ajay Shah, has long been a cheerleader for VAR modeling. So, I wondered how Dr. Shah would respond to this criticism.

On July 22nd, he posted what we could consider his rejoinder.

It is valuable reading for anyone who wishes to understand what went wrong “under the hood” of the financial firms and regulators during the Greenspan bubble.

Dr. Shah identifies two key elements that, alas, are obvious to even non-technical financial observers, but that are hugely consequential in considering policy action for regulation and industrial organization of the finance industry.

Here are some key take-away points:

`Systemic liquidity’ is about the consequences of endogenous risk. If a market is dominated by the big 20 financial firms, all of whom run the same models and have the same regulatory compulsions, this market will exhibit inferior systemic liquidity.”

“When a market is populated by just a small set of players, all of whom think alike and all of whom are regulated alike, this is a much more dangerous world for the use of risk modelling.”

The punchline for regulatory reform is this one:

Harmonisation of regulation is a popular solution in regulatory circles these days. But if all large financial firms are regulated alike, the likelihood of the failure of risk management could go up…The monoculture induced by harmonised regulation will likely make the world more unsafe.

As the Obama administration dithers on financial reform, one thing they should consider is that regulatory heterogeneity may help produce risk-mitigating heterogeneity in modeling and trading?

The idea of a group taking an Archimedean view of finance is a good one. Sheila Bair (FDIC head), Mary Shapiro (SEC head) and Larry Summers, among others, are promoting the idea of a “systemic risk council” for the financial sector. Sen. Warner has championed the idea. It should be a council with subpoena-like powers forever snooping around for systemic risk. This is a good idea, but it should not infringe upon regulatory heterogeneity in the rubber-meets the road stratum of regulators.

Reform plans should insure there are multiple regulators who operate in different ways and deal with different segments of the financial industry. The Reagan-Bush style laxity of the Office of Thrift Supervision should is not an argument for consolidating regulatory authority into a single agency.

The resources necessary to undertake thorough supervision by a diversity of financial regulators should be the objective. More supervision by a range of regulators; not more regulation.

Financial Institutions: "Break 'em up, or tax size"

Wednesday, July 22nd, 2009

After Healthcare, What Next?

If and when health-care reform legislation is completed in the US, what should be Obama’s next priority? Reforming finance.

It was only late in the spring when programs like “Marketplace” were still digging into the issue of “what must be done?” Today, alas, stabilization of the US and world economies is already draining interest in reforming finance. Financial academics are shaking their heads grimly as they watch Obama slipping toward the violation of his own admonition to “never waste a crisis”.
Obama was right to use his election mandate to tackle healthcare first. But, in the spring of 2009 the finance industry was as weak as its been since the Great Depression. Its regaining its footing fast though. Obama must get healthcare in the can and himself pivot to confront finance before that industry shifts its full weight back to the front foot.
Matters of Size
Further to a posting here on May 10th, the problem of financial institutions that are “too big to fail” forever holding a gun to the heads of US taxpayers and the global economy must be addressed.
What is necessary to diminish the probability of another major financial crisis, and to mitigate the impact of the ones that will inevitably occur? Now the outlines of a solution are coalescing further, and they accord with the suggestions made in this blog earlier.
In today’s BBC Business Daily, Willem Buiter of the LSE explains a bit about what needs to be done. At the broadest level, financial institutions need to be broken up, or (for those that still believe economies of scale in finance are worth pursuing) taxed for their size.

If Size Matters, Tax It
Lets take the “size-tax” first. The proceeds of the tax should ideally be put into at least two buckets; one bucket would be dedicated to improving the supervision (supervision, not regulation) of finance; the other bucket would be a rescue fund. That fund should, naturally, be diversified away from the size-tax-paying institutions. That fund should be invested in such a fashion that, when the rainy day does come, the fund’s asset value are as little linked as possible to the potential users of the rescue fund (the taxed institutions and the victims of “collateral damage”).
The tax should also be calibrated to accord with the incentives created by the new mergers and acquisitions policy and “break up” efforts discussed below.
For the Rest, Scale Finance Firms for Mortality
Turning next to risk-mitigating industrial organization of finance, Buiter also mentions in today’s BBC story that US policy makers once had the mettle to break up financial institutions. They did so with the Glass-Stegall Act in the 1933. Much of the current team US policy team (including Larry Summers and Timothy Geithner) were involved with dismantling Glass-Stegall using the Gramm-Leach-Bliley Act in 1999.
Change always has costs. This is where Obama’s “crisis wasting” may be most acutely missed, if he fails to act. Imposing those costs on the finance industry after it regains its mojo will be harder, if not impossible.
In the trade-off between the benefits of growth- and profit- creating innovation and the costs of potential risk, the scales have today tipped a bit more toward accepting the costs of managing risk. Opponents of change regularly raise the specter of stifling financial innovation. The AT&T break-up and the subsequent flourishing of innovation in IT and telecommunications should be the counter argument to such objections and a model for current reform.
Recognizing American comparative advantage in financial services and financial innovation, new policy dealing with the organization of the financial industry can be devised to mitigate systemic risk by encouraging competition in finance. The financial industry will have to accept “half a loaf” in the form of profits from competition-incentivized innovation, while giving up the other half loaf in the form of their hoped-for profits from economies of scale.
Reorganizing the finance industry to achieve “safer” scale in firm-size is, perhaps, less difficult than reforming health care. Anti-trust is a provocative term. Those rallying against the financial oligarchy today serve a useful purpose in the public debate on financial reform. Few doubt the power of financial institutions and their supporters in the US. Keeping the issue in the headlines and revealing the mechanics of financial power is key to the political fight. But, a well thought out policy package is still needed.
A sector-wise approach to mergers and acquisitions policy that recognizes the unusual risk that voter-tax payers and the country’s reputation face should target finance to create a field of players whose firm size is calibrated to allow multiple failures without endangering the entire US and global financial systems. Where the case for large firm size is compelling, taxation to fund future remedial action and compensation to smaller competitors should be arranged.

Wokai – Making Inroads in Chinese MFI

Thursday, July 9th, 2009

Wokai’s Bay Area Chapter launched on June 29. There is an HimalayanCrossings posting on the launch on the Ubuntu At Work website in the forum section.