graylightning

PE or VC? Pondering in Calcutta

I've just arrived in Calcutta for the first time, or Kolkata, as it is now called in India.

It's a bit drab, dirty and old but the streets below are all lit up with glowing bulbs and the arches and doorways of churches and temples are decked out in flowers, all for the festival season, and specifically, West Bengal's celebration of the "Durga Puja" this weekend.

I've already managed to make a local friend, a 20 year-old business school student who split a cab with me to Sudder Street, the divey, foreigner/hippy/culturalist refuge at the northern end of Chowringhee Street. The guy I met was fluent in English, Hindi, Bengali and Nepali (or so he said) and was thrilled to meet a foreigner who actually liked India. I guess they don't get many in this corner of the country.

I'll explore this old colonial capitol tomorrow...and will definitely check into a better hotel...

On Tuesday I linked to a story that suggested that Blackstone and Carlyle, two of the world's most renowned and powerful Private Equity firms, were interested in making an investment in the microfinance space.

I have a mixed feeling about this kind of news. Not because I have issues with capitalism, like many of the social activists who work in microfinance, nor because I have a thing against private equity funds, like a few politicians in Washington D.C., but rather because I don't think these investment opportunities, the SKS's, the Spandana's, SHARE's, Bandhan's and Ujjivan's of India, are really private equity deals.

These are venture deals, and they deserve venture money, and with that money a venture perspective - the freedom to explore different products and services, different business models and even a bit of social services work or livelihoods training if these activities actually strengthen microfinance clients' purchasing profile and borrowing capacity in the long-run.

I have a fear, as I mentioned in another Op-Ed in MINT on Monday, that private equity money will bring a myopic management focus on portfolio growth and short-term profitability, with investment horizons hovering in the 2-3 year range, instead of 4-6 years. This is the kind of pressure which prompts CEO's to start satisfying their investors first, and their clients only afterwards. I believe that would be the wrong recipe for real, long-term value creation.

A short-term view would probably entail stripping down any ancillary activities the MFI is involved in (i.e. cutting spend on product and service development) and unnecessarily focusing on maintaining the same rapid portfolio growth we have seen in the last 2 years, irrespective of whether the new regions being tackled by MFIs can support those levels of growth while maintaining portfolio quality (repayments).

I believe venture investors, broadly, have greater comfort with longer investment horizons and larger spend on research and development which allows product innovation. Ultimately, I think these things allow MFIs to end up with more satisfied, "sticky-er," and in the case of microfinance, potentially better-off client. Clients, employees, founders, and management have to come first. Only when those people have been well-served do the investors deserve their share. As Sequoia Capital suggests on its own website, that is the only way, there are no shortcuts.

Southern Africa in Pictures...

So I'm back in Delhi after an incredible trip to Mozambique and South Africa, but before I get back to blogging about microfinance, economic development and other tales from India, I wanted to share a few more shots and stories from my journey to the southern hemisphere.

From sitting in a tiny seat on an $8 bus ride across rural Mozambique to a decked-out Landrover on an all-inclusive safari in Kruger National Park (click here for an unbelievable YouTube Kruger Safari), from a trip to the Zimbabwean border where refugees are flooding into a South Africa to deserted Mozambican beaches where humpback whales play just past the breakers, from a from drive past the slum-lined airport in Capetown to the green and pristine Cape of Good Hope, I was able to see different sides of a civilizational puzzle, at times both depressing and inspiring, made from various layers of economic development and environment, different levels of goods and services and diverse life situations of people, black and white, rich and poor, African and foreigner finally being integrated in the Southern tip of this fascinating and beautiful continent.

I can't wait to go back.

Here are a few of the more memorable snap shots from my journey.

Sunset on the beach across from Hotel Costa Del Sol; Maputo, Mozambique.

Local couples and families flock to the rising tides at dusk; Maputo, Mozambique.

Deserted beach north of Tofo; Barra, Mozambique.

Walkway to the Cape of Good Hope; Capetown, South Africa.

Mozambicans line up to use the town's only ATM at 830 AM in the morning, a phenomenon I described in my post from July 26th; Maxixe, Mozambique.

AIDS mural; Maxixe, Mozambique.

My friend the Peace Corps volunteer at her community center for girls and young women (PROLIR); Maxixe, Mozambique.

On a night-time game drive looking for leopards; Kruger National Park, South Africa.

Photography in the African bush; Kruger National Park, South Africa.

Exhibit in the cell block where Nelson Mandela was held as a political prisoner for over 20 years during South Africa's Apartheid era; Robben Island, South Africa.

The Victoria Waterfront in front of Table Mountain; Capetown, South Africa.

Awezome Zouth Africa

South Africa's majestic "Mother City" of Capetown has provided an amazing backdrop for my last few days of travel, with its stunning cliffs and beaches, quaint neighborhood cafes and bookstores and excellent food and wine.

The city has also been a great host as my friend and I have experienced generally excellent service and help whenever we've faced wrong turns, confusing maps, hungry stomachs or the occasional blown out tire.

South Africa, like most nations in this continent, also carries a legacy of brutal European colonial roots and a glaring economic and racial divide (immediately noticeable when you leave Capetown's cosmopolitan downtown area) that lingers despite South Africa's peaceful transition of power in 1994. Despite these challenges, its sights, food, people and prices are all impressive in their own way, and Capetown's crown jewel, the Cape of Good Hope is indeed, breathtaking.

We've been amazed at the prices that we've encountered at hotels and restaurants here (7 rand = $1), where our new, clean, friendly and trendy hotel cost less than 350 rand per person, per night and a 5-6 course meal with wine pairings was roughly the same. Renting a car was also sufficiently affordable and easy with a U.S. driver's license.

The reasons behind all this visitor value are of course tied to the relatively low cost of labor in South Africa despite higher levels of education than in comparative low cost countries and the still significant political risk premium associated with the country and its currency, giving the dollar a significant advantage inspite of  its recent weakness globally.

But all this value only adds another reason why tourists should make it to this far away but vibrant and miraculous country.

Whether you call it South Africa, Zouth Afrika, or IRiphabliki yaseMzantsi Afrika, this part of the world is an awesome place to be.

I Like to Spend a Week in Moçambique

As the Bob Dylan song goes, it's nice to 'stay a week in Mozambique' (spelled "Moçambique" and pronounced "Mo-Sam-Bi-Kee") in the national tongue, Portuguese.

I have been absent from blogging as, outside of the capital, Maputo, internet access is scarce in this expansive and sparsely-administered country, and broadband is almost unheard of.

My drive north on the one road leading out from the southern and remotely-located capital took me past cashew stalls and corn stalks which soon gave way to endless palm trees, pristine beaches and dark blue bays and lagoons. Mozambique may have had a troubled past with its painful colonial story and a 16 year Civil War heavily financed by its neighbors, but it is still beautiful, people are still friendly and life here is quiet and easy.

My trip has taken me from the country's biggest city to its small towns and through its tiny villages. While subsistence farming remains most peoples' primary means of survival, there are some large banks and cell phone companies operating here with widespread appeal and I was surprised to see that most people in the small towns had bank accounts and ATM cards.

In fact, the biggest shock I've experienced (besides the ocean-side beauty and absolute slow-pace of life) has been the lines that form each morning and remain until afternoon at each of the town's local bank ATMs. The Peace Corps friend I'm staying with tells me this phenomenon is partially due to the date. People get paid at the end of each month and right now their paychecks are hitting their bank accounts. Apparently many here also have direct deposit - at least the government employees - and that's a lot of the non-farming population.

It's fascinating but sad to watch the strange routine in front of the banks. A government soldier stands guard with a shotgun while dozens and dozens of people wait in line for a chance to get cash. When I waited once, the ATM ran out by the time I got there. I don't know if it's a testament to a shortness of ATM supply or an inability to be able to plan out four weeks of expenditures, but apparently everyone here goes broke at the end of the month.

But "De Nada," (no worries), "Esta' Bom" (it's all good). Sit down in this place time forgot and have another 2M (the local beer) while you forget about the world outside 'Mossaaambeekee' for a week.

Off to Africa & William's Windmill

Had a nice blogging exchange with William Kamkwamba yesterday, an aspiring 19 year old engineer in a village in Malawi. William has his own blog, and was quick in responding to my comment.

His inventions, windmills linked to electrical power applications in his family's home, garnered the attention of a Malawi newspaper which triggered his invitation to the African TED conference in Tanzania last month, where William was introduced to the Internet. He crossed 10,000 page views on his blog within two months of starting to write.

I wrote him a suggestion that he submit some designs to the Cooper Hewitt Museum, whose exhibit on inventions to help consumers in developing countries I wrote about back in June.

I'm headed off to Africa today for a two week vacation.

I won't be making it to William's home country of Malawi, but I will be close by in Mozambique and South Africa.

I plan on blogging as much as time and connectivity allow. Looking forward to some new stories, new landscapes and new people.

See you in Africa,

News from Two Sides of the Border

I spent the weekend with friends up in Punjab, home of a very peaceful and unique religious sanctuary, the Sikh Golden Temple. The area is very near one of the most notorious of borders, the Vaga Gate, separating Pakistan's city of Lahore from the Indian city of Amritsar. Here you can experience the famous (or infamous) guard changing ceremony where the two countries send their tallest and strongest soldiers up against each other in a political beauty pageant to see who can shout the loudest, stomp the hardest and goose-step the highest.

At sundown, at the same time we were watching the Indian and Pakistani border guards flex their muscles along their northern desert border, 38 people were killed during protests and battles with police in Karachi, the oceanside financial capital of Pakistan 1,000 kilometers south of the border.

The recent spat of violence in Pakistan was touched off by General Pervez Musharraf's removal of the country's Chief Justice of the Supreme Court for unspecified accusations of misconduct. Some newspapers have reported that Musharraf was facing an investigation by the courts and that the removal of this Justice may have been an attempt to stymy the investigation. However, with this latest move, whimsically removing one of the most senior and respected legitimate government officials from office, Musharraf seems to be losing support even among those educated 'Westernized elites' who had previously supported him based on his claim to be upholding the rule of law.

Back inside the Indian border...UNITUS has announced three more partnerships, Adhikar, IIRM and Vardan Trust, with whom it will work to accelerate the organizations' growth plans, with a goal of serving over 600,000 clients among the three groups by 2010.

Both IIRM and Vardan are relatively small with roughly 6,000 and 10,000 borrowers each, respectively, but Adhikar has 45,000 clients in Orissa and has also set up a network allowing remittances back to the Eastern state of Orissa from the Western state of Gujarat, where many Orissan husbands venture to find work.

Death and Employment at 13,000 Feet

Early on the afternoon of February 7th, 2007, Australian skier and photojournalist Shaun Kratzer was killed in a self-triggered avalanche while skiing in the back country on Mount Apharwat near Gulmarg, Kashmir. As described in the Kashmir ski blog Line of Control, by the Eric Segalstad, the mountain conditions that led to the avalanche may have been a natural occurrence, but it was the choices made by the skier that ultimately led to his death.

When I asked my ski guide, Wally Muhammad, about the previous month's skiing fatality - what had happened and how - his response was little more than acknowledgment. "Over there," he said, pointing to a ravine three ridges away. "Once avalanche starts, not much you can do."

Death is not a new thing for this place; it has seen more than its share.

Several international newspapers report that between 1989 and 2003 an estimated 30,000 to 40,000 people were killed as a result of the Kashmiri conflict between India and Pakistan. And while that number seems staggering, it pales in comparison to the effects of the October 2005 earthquake, which is said to have killed over 70,000 people, mostly in Pakistan-controlled territory.

On Sunday afternoon after a few turns through the yogurt-white snow, I waited with Wally at a clearing while my friend skied down to us. Pondering the tragedy that fate had wrought upon this beautiful landscape after hearing stories of the avalanche, the wars and the earthquake, my mind was jarred back to the present by two muffled booms that sounded like rounds of artillery fire, echoing from a distant mountain top.

"What the hell is that?" I said to Wally, exasperated.

"Army practice. Usually on Mondays. Not sure why today..."

Mount Apharwat sits about 13 kilometers, roughly 6 miles, from the infamous Line of Control between the Pakistani and Indian armies. While neither side recognizes the boundary, it has become the de-facto border between the two countries at their northern end. On the map below, the tiny hill station of Gulmarg is delineated with a blue arrow.

The drive from the airport in Srinagar to Gulmarg takes just under two hours, but the ride feels much longer as every 500 yards you pass machine gun-totting soldiers and armored vehicles, all there to make the Indian army's presence felt (and to discourage insurgent activity). Kashmir feels like a country under foreign occupation. But although political protests are still frequent, most locals agree that the tourism business, and by extension the economy, have begun to improve since the cease fire agreement in 2003.

Over lunch Wally told me his various approaches to finding work during his 15 year skiing hiatus when threats of violence had killed the Kashmir ski industry. After starting as a ski instructor, he left Kashmir in 1990 to become a trekking guide in the nearby state of Himachal Pradesh. He had ventured as far south as Delhi to work in the central government's tourism department, but, tired of splitting time between family and work, he eventually moved back to Kashmir, and in 2003, began guiding skiers in Gulmarg again.

The prime earning years of his career having been constrained by a conflict he seemed disgusted with but accustomed to, Wally was relatively well off compared to the hundreds of men we saw wondering around the streets outside Gulmarg, milling about, carrying bricks, seemingly looking for work. Grown men pulled teenage tourists and their luggage on toboggan sleds for a few rupees at a time. Two men offered to do the same for us, despite the fact we were already sitting in an automobile. Another man jumped on to the back of our jeep's bumper and rode our vehicle into town.

Overseeing all of this activity in the market were a few dozen Indian troops, part of a 100,000+ force still in place in Kashmir. Every year the Indian government spends millions of dollars housing, feeding and compensating these unskilled laboring Indian soldiers, whose primary task is to make sure other unskilled, out-of-work, military-age laborers of Kashmiri origin remain pacified in their poverty.

Coming down with a case of cabin fever in our freezing and deserted hotel, which had started to look like the lodge from Stephan King's "The Shining," my friends and I hopped into a jeep with two Indian skiers and a Dutch guy and told our backstories on "why we were here." We headed to the only other place we knew that was serving food. After catching a chill while stopping to push the jeep out of a ditch, we warmed up with a bottle of black-market, Indian Army whiskey. I asked our road companions how much they paid for the stuff, a difficult item to get in this Muslim state where alcohol is all but banned. "500 rupees off a soldier we met" was the answer. The bottle was stamped 'For Indian Defense and Paramilitary Personel Only.' That certainly wasn't us but I took my swigs nonetheless.

The Muhgul King Nuruddin Jahangir's priceless quote about Kashmir popped into my head while the booze numbed my senses as I'm sure liquor had done countless times before for the Indian soldiers sent to this frost-bitten outpost from their homes far away on the hot Deccan Plateau.

"If heaven be on earth then it is here, it is here, it is here in Kashmir."

It must have sounded like an Orwellian slogan from 1984 to these Indian troops, paid to stand around and look menacing so as to discourage a few thousand other men also standing around not to join an insurgency.

This is yet another casualty of Kashmir - the missed economic opportunity. There are amazing resources in this state, from unique cultural exports like Khawva tea and Cashmere wool, to a new gondola system at the highest ski resort in the world with more terrain than Johnny Moseley could ski in a season. But everyday in Kashmir the political realities make risk-taking more than just an economic activity. Up here in "heaven," it is instead a way of life.

Skiing on the Line of Control

For 50 years the violently-disputed "Line of Control" separating Indian and Pakistani troops along India's northern border has run through a snow-capped state in the Western Himalayas called Kashmir. At one time an independent kingdom, Kashmir has been the site of three wars and dozens of skirmishes waged between India and Pakistan for its control. It is a beautiful place with a tragic history.

While the full Kashmir story is more than I can tackle in this blog (though you can read more here) the roots and the relevance of this conflict are briefly summarized by wikipedia,

"Pakistan argues that Kashmir is culturally and religiously aligned with Pakistan (Kashmir is a Muslim region), while India bases its claim to Kashmir off Maharajah Hari Singh's decision to give Kashmir to India during the India-Pakistan split [in 1947]. Kashmir is considered one of the world's most dangerous territorial disputes due to the nuclear capabilities of India and Pakistan."

My journey to Kashmir began with an email last Wednesday telling me that Gulmarg, a little hill station at the edge of the Kashmir valley whose name means "meadow of flowers," had just received 5 feet of fresh snow.

"If we're ever going to go, now's the time," my friend said. I needed no encouragement.  Eager to ski in the Himalayas and to see this mystical and troubled place, my friends and I boarded a plane for Srinagar, the Indian government's summer capital for Kashmir. After a turbulent two hour drive through wintry swamps and past sandbag-laden military checkpoints we arrived in Gulmarg, population 800, elevation 8825' (2690 meters). It was already afternoon but we managed to get in a few runs and chat up the local Kashmiris, renowned for their warm friendliness (and delicious fruit-tinged tea) in this very cold place.

I spent the next day with a guide skiing the main mountain, Apharwat, a 13,500 peak accessed by a two-stage French-built gondola completed in 2005. Serious skiers can read a good description of the terrain here.

Valle' ("Wally") Muhammad, my 39-year old Kashmiri ski guide, is a father of two who learned to ski in the 1980s. But over our lunch of tea and curry at a lodge half way up Apharwat, Wally told me how he had had to put away his boots, bindings and poles for 13 years between 1990 to 2003 when successive attacks by Pakistani-backed paramilitary forces (terrorists if you're Indian, Mujahideen freedom fighters if you're Pakistani) all but ended the flow of tourists to the region. A 2003 ceasefire and the completion of Gulmarg's Gondola two years later brought him back to the slopes but the thin trickle of out-of-towners I met was little proof that the terrorist-ridden image of Kashmir had been shaken from Indian minds.

More on Wally (pictured below), Kashmir, and the conflict's impact on the local economy tomorrow...it's late here, and my eyelids are still sore from squinting into the sun-drenched snow...

Back Alleys and Food for Thought

In my last five days journeying through Rajasthan, my parents and I have come across a range of interesting people, from an 18 year old running an Internet kiosk and attending business school at night to Australian travelers on photography expeditions. But throughout our conversations over dinners and drinks there's one theme that continues to haunt me.

After touring opulent palaces and taking in gardens that were previously the private domain of princes and princesses, we always have to journey back through decrepit streets and abject poverty to reach our hotel rooms. If so much wealth was available to build and outfit lavish places of royal refuge in the 16th and 17th centuries, why was more money not used for investment in public works, education and general infrastructure?

While much of Europe was busy challenging religious authorities, conducting political and scientific experiments and founding universities during the Enlightenment, scores of Indian Maharajas (regional kings) were adding luxurious 2nd and 3rd palaces to their real estate holdings while ignoring the development of their surrounding kingdoms. Why this discrepancy in investment choices? Was it caused by colonial and invading influences? Maybe it was a result of limited foresight of the political leadership at the time? Or was this some broader reflection of the stratified social culture? Whatever the reason, enjoying the beauty of these palaces becomes more difficult when you start to realize the opportunity cost associated with their construction.

In one extreme example, the Maharaja of Udaipur ordered a complete set of crystal furniture from England in the 1880s but died before the shipment could arrive. Following his death, the wooden crates of elaborate crystal tables and lamps sat untouched for 110 years before being unwrapped and made available for public viewing in a museum. I wonder how nasty (and negative) the returns would look from a discounted cash flow valuation of that sort.  The squandering of wealth seems enormous, and the price is still being paid today.

Some of the children we talked to in these Rajasthani cities told us they could not afford school or had very limited access to teachers. We saw shopkeepers tucked into narrow streets banding together to patch up potholes in front of their stores because there is no government transportation authority to do it for them. Open city sewers line some alleys and dogs and cows fight over who gets to eat the trash because there are not sanitation services to sweep the streets.

It is impossible not to be struck by the wonderful aesthetics and romantic charm that exude from the historic attractions in ancient cities like Jaipur and Udaipur. At the same time, the thoughtful tourist who visits these places is left pondering the priorities of the political leaders who built these beautiful bastions while generation after generation of commoners suffered through marginal lives in back alleys.

Ultra Cool in Udaipur

If you've ever seen that bizarre 1970s Bond movie "Octopussy," you've already had a glimpse of Udaipur, a desert city built around lakes in the middle of Rajasthan, India's gateway state to Pakistan and the Middle East, via the mountainous Thar Desert. Udaipur made its way into the pop culture annals when Roger Moore snuck into the watery Lake Palace (above) to catch Maud Adams and her cult of octopus-worshiping international jewel smugglers.

They love this movie here. Every third restaurant you see has a nightly showing. But instead of watching an old spy flick tonight, I walked a few back alleys in the city and had a serendipitous run in with a micro-artist (if that's a profession).

It was getting late and I was on the way back to my hotel while walking through a small moon-lit Indian neighborhood, crisscrossed by narrow streets with open sewers and the occasional meandering cow. One doorway stoop with saloon style swing-hinge doors was lit up and a silk prints painter, of about thirty-five, was painstakingly putting the finishing touches on small multi-colored animal prints, with beautiful calligraphy style brush strokes and bold earth tones.

 

 

I stopped and stared for a moment and he caught my glimpse, quietly motioning for me to come inside and take a look. This wasn't you typical tourist cat-call, he could barely be disturbed from what he was doing - at the same time, he realized he had an audience. I watched him work for another five minutes, then inquired about some of his small prints, eventually buying a beautiful blue one for all of $5.

 

After our transaction I asked him more about his business, moving back and forth from Hindi to English. He told me really only had a single sales channel, essentially a middle man who bought his paintings for about $5 and sold them to tourists at the nearby palace for roughly 5-6 times that amount. When I asked this artist why he didn't do the tourist selling on his own, he told me that he didn't have the capital required to open a shop downtown (about $2,000). In my best attempt in Hindi I asked if he had ever gone to a bank for a loan. "Paperwork," he replied in heavily-accented English, "I don't have it all."

 

Any microfinance organizations opening up in Rajasthan? If so, I think I've got your first client, B.L. Singh, profiled below...