Loans to encourage entrepreneurship? You must be joking Mr. Jaitly

March 28, 2016

When I read the news of “Stand up India” program, first thought that came to my mind was “entrepreneurship can not be thrust upon anyone by giving money in hand”. On the contrary entrepreneurship is all about brining your ideas to life despite having all the odds stacked against you. Second thought that went thru my mind was why government wants to encourage only one section of the society to be entrepreneur. Entrepreneurship should be encouraged for anyone who has deserving ideas irrespective of caste, religion and gender.

Lets take the first case. 
What is entrepreneurship? First of all entrepreneurship is a mindset. It is about developing new ideas, being creative, being innovative in every aspect of the business. These aspects include raising money for starting the business. If one is really serious about his / her business, he/she would find ways to start it and develop into big one. If you go and ask any successful entrepreneur he/she would tell how despite having the problem of raising capital for the business, he /she became successful. Real entrepreneurs thrive more when the odds are higher.

In my experience, no country has been able to develop entrepreneurship by throwing money at people. I have seen how Singapore, a very rich country, flush with money, is trying very hard to create successful entrepreneurs. Government has in last 8 years ( that I have seen) created many schemes, incentives, programs, infrastructure for encouraging people take up entrepreneurship. Some aspects have worked, some have not. But there is no scheme through which Banks are told to give loans for entrepreneurship. There are other implications of ‘loan’ that I would discuss further in this article.

Even in the silicon valley there are no government backed loans by the banks that entrepreneurs are given. Here it is strict meritocracy and based on your ability to bring about innovation.

I am not saying that entrepreneurs don’t need access to funds. But giving loans through banks and that too based on caste, defeats the whole purpose of entrepreneurship. While I have no issue in providing support system for weaker sections of the society for entrepreneurship, but not at the cost of people. This support system can be developed from within the society itself. For example, Dalit Indian Chamber of Commerce is an excellent initiative. It provides platform for aspiring and budding entrepreneurs of Dalit society. It also helps create a network and support system.

I have the first hand experience of running a network for entrepreneurs in Singapore. I am personally going through this journey of entrepreneurship since 2009. So, I know that the support system, networking etc are crucial aspect for encouraging entrepreneurship. Access to funds is definitely important part of it. But it has to be based on strength of your ideas, ability to execute and building and running business successfully.

Money doled out in the form of loan and an affirmative action most often fail to deliver the result and it is painfully true for entrepreneurship. You can not build the mindset by doling out money. You are only developing crutches that are so detrimental in entrepreneurship.

Second aspect is about extending these loans based on caste. It is a laughable thought that access to  money (or lack of it) was a reason for not developing entrepreneurship in a particular section of the society. I understand the affirmative action that we have in place for education and jobs. I support that completely. But there is no logic nor any historical reason to extend these actions in the field of entrepreneurship. If India wants more entrepreneurs, if India wants more ideas and innovation, it should remove all discrimination in extending such help.

I have no problem if private institutions or chamber of commerce etc have plans to extend money to groups of society.  It is their private issue. But when Government is getting into the business of extending the loan through government owned bank, it is giving away money of all the citizens. Especially in the field of entrepreneurship we don’t need any discrimination. There is no historical reason that exists for lack of entrepreneurship in a particular society for lack of access to funds. ( the argument that is used for reservation in education was that historically Dalits and large section of the society were deprived of it because of their caste) Actually this challenge (funding) is faced by everyone who aspires to be an entrepreneur.

Government can create entrepreneurship development cells, special incentives for innovation ( I have seen them in many parts of the world) through various bodies that can work closely with industry bodies. But extending loans through banks have a serious ramifications. Lets look at them.

Typically banks give loan against collateral (which is a good business practice). If anyone has an asset worth Rs. 1Cr to pledge and take a loan you don’t need a separate scheme for them.  Since this is not the case, then government, it seems, want to treat these loans against the business idea? Does that mean banks would become angle investors? Do you think banks have a mechanism to access the intangibles and decide to invest in startups? When the success ratio of thorough professionals in this field is not more than 10%, what is the likelihood that banks would be able to recover money?
In all likelihood it would become a way to doling out money without any assurance of getting it back. Very soon it would turn into similar thing as ‘loans to farmers’ and then degenerate into ‘loan waiver’ program.

When the banks are crumbling under mounting NPAs do you think they need another potentially NPA developing scheme? Just think about the enormity of possible NPAs. Rs 1Cr given to a modest number of 1 lakh people would mean Rs 1Lakh Cr money down the drain?

The last part that comes to my mind is a pure political angle. Since I believe that this government has good intentions and is really working hard for the development of the country, I do not want to think deeper in the possible dirty political game that could be associated with this move.

To conclude, my points are :
– You can not develop entrepreneurship by giving government money through loan. You need incentives and schemes against innovation and measurable deliverables.
– By giving loans for entrepreneurship for a particular section of the society, government is discriminating against deserving ideas. There is no proof that only a particular society needs money for entrepreneurship; on the contrary anyone with good idea and ability to execute needs to be supported.
– To support upliftment of a particular society or entrepreneurship within that society, there are private institutions such as Dalit Indian Chamber of Commerce who are doing a good job. Government can help strengthen such initiative.
– By giving the loans through banks, government is potentially creating huge NPAs.

PS : I must say that these thoughts are based on the news item that appeared in all national newspapers. I did not have a chance to look at the intended mechanism of the scheme. 

Stop that innovation

July 22, 2011

While reading the news on Apple and MS’s results, one whacky thought came to my mind.

If these two IT companies along with IBM, HP are close to $100Billion in annual revenue each, then top 25 IT companies put together would be making $1000 billion annual revenue. There is a great race going on to growing these revenue faster. And there is a greater race for bringing ‘innovation’.

The other side of this revenue is consumers and enterprises are spending at least $1000 billion in buying these stuff made by these companies. Every year we are spending more money on these stuff. What is the primary reason for fast growing sale of Apple like products? Primarily we are buying new stuff every year. We are getting lured by so called innovation or new features.

The thought that came to my mind, if Apple, for example, does not come out with iPad3 or iPhone5 or Microsoft does not bring newer version of Windows or Oracle, IBM , CISCO all decide not bring any new features for next 2 years, what would happen?

My feeling is that they would stop growing but they would still collect $1000billion between them, but may be extra $100Billion (10% of $1000 billion) that consumers and enterprises would have spent to buy ‘innovation’ would not be spent on these products. If you take this logic further and apply to consumer electronics field, I guess we could help consumers in saving upto $500 billion from spending.

And then we create a system of channelizing this money into projects that are meant to save people’s life, make food available to each and every human being on the earth and help create more equitable place, we would be right thing.

If companies do not bring out these so called innovation in consumer IT and consumer electronics, world would not be poorer. My mobile phone, 6 years back, had made as happy as iPhone made me. So if there was no iPhone, I would still have been happy and talking to people. But today me and people like me are eagerly looking for newer version of iPhone and iPads with wallets in hand. Does it make sense? Does it make any world any better?

Please stop this innovation.


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