Podcast | Digging Deeper: Decoding the pre-election sops to MSMEs

Image result for Podcast | Digging Deeper: Decoding the pre-election sops to MSMEs

The frenetic election season will bring with it controversies, sops, slogans, rallies and a lot more and media platforms will as always struggle to keep up with it all.

From the time the government reached out to Micro, Small and Medium Enterprises (MSMEs) with  overtures to boost their growth, analysts have tried to understand not just the reasons and the implications of the move but the fine print underscoring it.

In this Moneycontrol Deep Dive podcast. we examine whether the 59-minute loan sanction for small businesses  is a gimmick or a masterstroke.

On November 6, Debabrata Das, wrote a piece in Fortune India with this headline, ” With an eye on elections, government gives boost to MSME sector.”

The  article exhibited a pattern of inquiry that is essential to make sense of sweeping economic decisions. It is after all still hard to completely deconstruct the reasons and outcomes of demonetisation. Or successfully  evaluate the management of the goods and services tax (GST). Or even to foretell the impact of Reserve Bank of India’s (RBI) directives that are currently causing panic among ATM operators. But we must try, right?  If only,  because such complex ideas  have the potential of affecting citizenry in a far-reaching  manner.

And in retrospect, demonetisation and GST impositions did adversely impact  among other things, small and medium businesses.  And hence economic policy makers must think of not just the immediate returns of  a momentous announcement but also how it will  pan out in the future, in real time, when implemented.

And that is why it is important that the MSME goody bag is examined in its entirety. Especially because there has been an unprecedented tension between RBI  and the central government over the liquidity issues pertaining to easing credit availability to micro, small and medium enterprises. And as always there is that unavoidable question. Why now?

What about the timing?

 As Debabrata wrote in the Fortune piece, “At a time when the talk of a liquidity crunch in the Indian financial system is rife, it seems odd that micro, small, and medium enterprises (MSMEs) have been promised that loans below Rs 1 crore would be sanctioned in less than an hour. But when you put it in the context of a general election next spring, the government’s efforts to pacify the MSME sector, which been through the wringer in the past two years, starts to make sense.

For nearly two years, the MSME sector has borne the brunt of the government’s policy measures. With demonetisation first and then the haphazard implementation of the goods and services tax (GST), the MSME sector had been left cash-strapped.” Unquote.

The author cites  MSME Pulse report from TransUnion CIBIL and the Small Industries Development Bank of India (SIDBI) to report  how the percentage of non-performing assets in the loans given to the sector grew to 17.2 percent this June, from 14 percent in December 2016. According to the report, he says, the total credit exposure in India to the MSME sector is Rs 22.8 lakh crore.

Adding to the woes of the sector was the fact that loans were tough to come by. This was , says the author, because  11 of the 21 public sector banks are facing lending restrictions as they are under the Reserve Bank of India’s prompt corrective action (PCA) framework.

“With a financing requirement of nearly Rs 4.5 lakh crore over the next two year, it was assumed that the non-banking financial companies (NBFCs) will step up into the space left vacant. However, in the aftermath of the meltdown of the biggest NBFC in the country, Infrastructure Leasing & Financial Services (IL&FS), the entire industry is strapped for cash.”

A political decision?

 As expected , says the piece, traditional support base among MSMEs for the ruling party was getting increasingly antagonised but things took a swift turn when a large support package was announced for the sector.

As the piece elucidates, “Prime amongst the measures was the promise of loans of less than Rs 1 crore being sanctioned in less than an hour. These loans can be accessed through a link on the GST portal. Further, all GST-registered MSMEs would get a 2 percent interest subvention for fresh and incremental loans. And for exporters who receive loans in the pre-shipment and post-shipment period, there would be an increase in interest rebate to 5 percent from the existing 3 percent.

MSMEs with a turnover above Rs 500 crore would be brought on to the Trade Receivables e-Discounting System (TReDS) where entrepreneurs would be able to access credit from banks based on their upcoming receivables.” Unquote.

Additionally,  as the piece informs, public sector companies have been asked to procure 25 percent  of their total purchases from MSMEs and of this 3 percent should be from MSMEs promoted by women entrepreneurs. We quote, “To improve the ease of doing business for MSMEs, clusters would be formed, initially for pharmaceutical sector MSMEs; regulations with regard to labour laws have been relaxed; inspections would be done through a computerised random allotment; and environmental clearance has been simplified.” Unquote.

Vinod Parmar, global head of sales and marketing at Vayana Network is cited and he opines that linking loan approvals to GST returns will encourage more and more MSMEs to become a part of the formalised economy. Besides, any platform which can reduce friction and give convenient access to finance to the MSMEs will see rapid adoption, according to him.

What will be the big gain?

 The bigger question is IF the growth of MSMEs will benefit from these measures. It goes without saying as the piece suggests, that the well-being of 65 million MSMEs in the country that employ  120 million people, will impact which way the election results swing in 2019. As the author says, “Disruption in credit to the sector could affect both jobs and the MSME entrepreneurs. Prime Minister Narendra Modi has a penchant for making mega announcements near the festival of Diwali. This year, the focus clearly is on the elections, which is why the traders who form the BJP’s traditional support base have a lot to cheer about.” Unquote.

The larger picture

 On November 6, Ravi Krishnan wrote a Moneycontrol  piece that also went beyond the optics of the sops to convey that an inordinate price should not be paid for a short -term gain. The central argument being, “It is important that MSMEs get access to credit, but it should not come at the cost of banking sector’s health.”

The piece concedes that access to formal credit is a serious issue for most micro, small and medium firms in India. And on the surface, it seems that the government is seeking to fill this gap with its 12-point programme announced on November 2.

The slip between the cup and lip as far as lending to this sector goes, can be attributed to the fact that about 97 per cent of MSMEs operate in the informal sector and without  formal documentation and records, loans are hard to come by.

We quote, “Bank credit has been slow in recent years. Although it picked up recently, banks have ceded space to NBFCs or  Non Banking Financial Companies who have doubled their share in MSME credit from 5.5 per cent in December 2015 to around 10 per cent by March 2018. That’s why when a liquidity crunch is feared to hit NBFC lending, the government has been pushing the central bank to open a special window for such firms and also be lenient in recognising MSME defaults.” Unquote.

But even good intentions must consider how much they will cost.

As the author says, “While an attempt to help out the MSME sector is commendable, sanctioning a loan of Rs 1 crore in just 59 minutes looks like a gimmick that can have unintended consequences. It could mean subtly putting pressure on state-owned banks to lend to this sector. Public sector banks would do well not to relax their credit appraisal and assessment in a rush to meet this artificial deadline. As it is, in a sector that is reeling from demonetisation and  the imposition of Goods and Services Tax (GST), the level of delinquent loans is pretty high. According to SIDBI’s MSME Pulse, the non-performing assets ratio ranges from 8.7 percent to 19.5 percent depending on the size of the loan taken.” Unquote.

It is now an established fact that public sector banks have been hit badly with about 15. 2 percent of their MSME loans turned sour at the end of June 2018 compared to 5 percent for NBFCs and 3.9 percent for private banks.

Says the author, “Unbridled, forced lending to the sector could reverse the gains made by banks in recognizing and resolving their bad loans. Thus, the government would do well to take steps to help MSMEs beyond opening credit channels. Indeed, some of this has already been done. Asking companies with a turnover above Rs 500 crore to register themselves on the Trade Receivables Discounting System (TReDS) receivables platform will help MSMEs tackle cash flow problems and enhance their access to credit, since banks will have greater security (and documentation) in extending loans.

Indeed, the larger question policymakers should ask is why do MSMEs remain small and operate in the informal economy. The answer lies in complex regulations and lack of infrastructure. The GST, which is supposed to help ease the tax burden, is a case in point.” Unquote.

It is of course important to recognise the unrealised potential  of MSMEs as they contribute to a fifth of the country’s labour force, about 45 per cent of manufacturing output and 40 percent of India’s exports.

However, to help them thrive,  improving infrastructure and ease of doing business are a must. Some steps that have been announced must be lauded as checking unwarranted inspections of factories, simplifying penalties for minor offences under the Companies Act etc but as the piece points out, more such measures are needed rather than directed lending.

The pitfalls

 What could go wrong with populist measures like indiscriminate lending? Well, plenty.  The MSME package promises loan clearances in 59 minutes flat, disbursal within 10 days and concessional interest rates on borrowings. It was a great idea, but a flawed decision, says  consulting editor  RN Bhaskar   in a Moneycontrol piece on November 22. We quote, “The  Banks are already weakened by bad loans. Concessional interest rates and forcing them to increase their allocation of funds to MSMEs from the existing 20-25 percent is not a wise way of strengthening the banking sector. ” Unquote.

The article recognises the importance of the MSMEs in the organised sector work force and cites  The Ministry of Micro, Small and Medium Enterprises’ annual report for 2017-18 which pointed out that this sector accounted for Rs 39 lakh crore of gross value added (GVA), or about 31.6 percent of the country’s GVA.

And of the jobs they provide, about five crore  are in rural areas, making its support crucial during elections in states like Uttar Pradesh, which accounts for 14 percent of all MSMEs.

But the author points out that the only dark cloud is that the rate at which they have been growing has been declining consistently. We quote, “They grew by 15 percent in 2012-13, 12.3 percent in each of the two following years, and only 7.62 percent in 2015-16.

Clearly, they needed incentives and a bit of prodding to accelerate their growth rate. Demonetisation had hit them very hard and so did the Goods & Services Tax (GST). The latter has increased their need for working capital because GST must be paid at the time of invoicing, even before the money comes into their kitty.


Before you pause your student loan payments, consider the risks

Silhouette Portrait of a graduate in cap and gown


Yet when your payments resume, they’re often higher because your debt has swelled, thanks to interest.

The Associated Press, citing a 2017 Department of Education audit, reported this week that Navient, one of the country’s largest student loan servicing companies, steered tens of thousands of struggling borrowers into costly delays of their payments, known as “forbearances.”

Made conscious decision to focus on quality, not quantity of loans: SoFi CEO Anthony Noto   4:00 PM ET Tue, 23 Oct 2018 | 03:12

The Consumer Financial Protection Bureau alleges that Navient added more than $4 billion in interest to borrowers’ debt through the misuse of forbearances between 2010 and 2015. Navient disputes the allegations in the audit and those by the CFPB.

Despite the fact that putting off payments increases their debt, nearly 70 percent of people who began repaying their student loans in 2013 had their debt in forbearance for some period, according to an April report by the Government Accountability Office.

What else can a borrower do?

Borrowers should first ask whether a deferment is available before they opt for a forbearance, said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling.

That’s because interest does not accrue on subsidized student loans during an economic hardship deferment, for example, as it does with a forbearance. There are also deferments for cancer patients now.

If your difficulty repaying your student loans is unlikely to come to an end any time soon, you might want to enroll in an income-driven repayment plan, which caps your monthly payment at a percentage of your income. Some monthly bills wind up totaling nothing.

Is a forbearance ever a good idea?

Borrowers who find themselves in a short-term difficulty, such as a medical leave or temporary unemployment, might want to consider forbearance, said Mark Kantrowitz, an expert on financial aid and publisher of SavingForCollege.com.

A forbearance typically lasts a year, and borrowers can use the option up to three times.

If possible, however, people should request a partial forbearance and keep up with at least their interest payments during the break.

“This will prevent your loan from growing larger during the forbearance,” Kantrowitz said.

Can I trust my lender?

Given that student loan servicers might not always provide borrowers the best information, it helps to review your options with a nonprofit such as The Institute of Student Loan Advisors, an organization that offers free advice and dispute resolution.


Is Uber a Taxi Company or Not? The EU’s Top Court Will Decide

Photographer: Akos Stiller/Bloomberg

Uber Technologies Inc. is set to reach the end of the road in a legal battle over a question that’s reached the European Union’s top court — is the world’s most valuable startup a taxi company or not?

Uber has argued that it’s a technology platform connecting passengers with independent drivers, not a transportation company subject to the same rules as taxi services. The decision is being closely watched by the technology industry because it could set a precedent for how firms in the burgeoning gig economy are regulated across the 28-nation bloc.

“The judgment will either promote the digital single market or lead to more market fragmentation for online innovators,” said Jakob Kucharczyk, of the Computer & Communications Industry Association, which speaks for companies like Uber, Amazon.com Inc., Google and Facebook Inc. “The court should make a clear distinction between the online intermediation and the underlying service it facilitates.”

The case centers around UberPop, an inexpensive ride-hailing service in several European cities that allowed drivers without a taxi license to use their own cars to pick up passengers. Legal challenges have forced Uber to shutter its UberPop services in most major European countries in favor of UberX, which requires drivers to get a license.

A loss for Uber would mean countries in the EU will have to classify Uber as a transportation service. While Uber adheres to many taxi laws in countries where it operates, the case could lead to new regulations and fees.

“Any ruling will not change things in most EU countries where we already operate under transportation law,” Uber said in a statement. “However, millions of Europeans are still prevented from using apps like ours. As our new CEO has said, it is appropriate to regulate services such as Uber. We want to partner with cities to ensure everyone can get a reliable ride at the tap of a button.”

Gig Economy

The question of whether Uber is a transport service has long vexed regulators and lawmakers across Europe. Uber has faced roadblocks, real and regulatory, in the region, amid complaints brought by taxi drivers who say the company tries to unfairly avoid regulations that bind established competitors.

Start ups argue that their apps offer flexible hours to workers. Regulators, governments and unions allege that companies are profiting on the backs of people without benefits such as overtime pay or vacation time.

Without the pressure from regulators, companies in the gig economy will force rivals to employ similarly aggressive tactics, said Andrew Taylor, who earlier this year was commissioned by U.K. Prime Minister Theresa May to come up with recommendations to regulate the new business types.

“There’s a danger of a race to the bottom,” Taylor said. “Major American companies are treating national norms, culture, regulators and tax systems in a cavalier way.”

Status Quo

Mark Graham, professor at the Oxford Internet Institute, said the scrutiny represents a shift against companies that have avoided regulations facing more traditional businesses in the markets they are trying to disrupt by classifying themselves as technology platforms.

Uber isn’t the only business model being questioned by policymakers. In Paris, regulators are clamping down on Airbnb, whose home-rental service has drawn complaints from hotels that are subject to a different batch of rules. Deliveroo, the food-delivery service, is also facing scrutiny over its treatment of workers in the U.K. and elsewhere.

The EU court’s decisions in this and a pending case may bring clarity for Uber’s continuing battles in national courts. London has become a lighting rod for all of the company’s problems. The car-service provider is fighting regulators and drivers in court as it tries to protect its hold on its busiest market outside of the US.

London’s transport regulator banned Uber in September, citing safety concerns, and an appeal will be heard as soon as April. Two drivers successfully sued the company over vacation and overtime in a suit that would force Uber to radically change the way it treats its drivers.

The case is: C-434/15, Asociacion Profesional Elite Taxi.

— With assistance by Jeremy Hodges


Cryptocurrency: The Dark Side Of Investing

Disclosure: The author and American Dream Investing own shares of Disney, but have not invested in cryptocurrencies at the time of this writing.

Like the characters in the latest Star Wars film, I’m grappling with an inner struggle.

Do I stick to my core investing values and principles and ignore the cryptocurrency craze? Or, do I succumb to the “dark side” and buy some Litecoin or Bitcoin, hoping that demand keeps rising and prices continue to soar?

I know the reasons why I bought Walt Disney DIS -1.12%shares three years ago and why I’ve held onto them: they have an unparalleled collection of entertainment properties like Star Wars and Marvel, strong management, growing free cash flow and a history of raising their (admittedly paltry) dividend. It’s been a mostly solid, albeit unspectacular stock in my portfolio, despite the fact that its year to date performance is significantly trailing its broader index.

On a fundamental level, Disney passes my litmus test for an investment. Cryptocurrencies, on the other hand, do not. Despite that, I’m still tempted to make a calculated play on cryptos and their potential long-term future after careful consideration and due diligence.

I understand that there’s a basic concept of supply and demand at work here that’s driving prices so high. There will only be 21 million Bitcoins mined and afterwards, no more will be added to the circulation.

But I can’t pay my rent using Bitcoin or buy health insurance with Ethereum (not yet, at least). There’s a high risk of fraud, market manipulation and account hacking. The volatility of the crypto market is enough to make a professional rollercoaster tester queasy.

Still, the money keeps pouring in and prices continue to rise. CNBC spends half the trading day discussing the markets and the rest of the time talking about Bitcoin.


The Next 10 Things Small Business Owners Should Do For Social Media Success

10 Actionable Social Media Tips for Small Business Owners

Social media is a tricky business. It seems so simple on the face of it and you may have launched your business profiles thinking that everything would take off if you only started posting. Sadly, that is rarely the case and many small business owners have hit their head against the wall trying to make headway, without any real results.

Don’t worry, it isn’t nearly as mysterious as you may be fearing. While social media has a tendency to change and adapt to new trends and features, not to mention shift with the way that users themselves choose to use it, there are some actionable social media tips that you can put into play right this second to begin seeing results.

Actionable Social Media Tips

Hire a Social Media Manager

This may seem like trite advice but it is actually a really good strategy. Not to run your social media campaigns, but to teach you how to do it. Here is what you do: put out an ad for a temporary social media manager.

Set the contract for as long as your budget allows and specify that part of the job will be setting up a campaign and showing you how to continue it once the contract ends. Watch the steps carefully because that is how you will learn.

Use a Productive Social Media Scheduling Solution

Yes, you need to be there interacting with your social media community on a regular basis, but there’s other work to be done too! You cannot quit everything and just socialize (especially if you cannot afford to hire a social media manager just yet).

So what you do? Scheduling social media updates is the answer. You can even schedule social media updates 6 or 12 months ahead: Think about holidays, for example! You’ll be busy but you need your social media account to remain active, so use the slower seasons to schedule social media updates for the holidays.

There are a few solid social media scheduling solutions out there.

Get a More Comprehensive Dashboard

Once you are ready to launch your campaigns, you will want a solid dashboard where you can schedule posts, watch analytics, etc. There are plenty of options right now for a social media dashboard. I’m currently using Cyfe.

Set Smaller Goals and Build From There

When you are talking about a big business it is good to look at long term goals and then set milestones and plans to meet them. For small businesses that don’t have an entire marketing team and millions in the budget on hand, making smaller goals and focusing on those is a far better idea.

Set little milestones to work on and monitor your progress. For example, instead of saying, “I will have 10,000 followers by the end of the year on Instagram” try “I will grow by at least 100 followers per month.” If you overshoot it, hey… good for you.

Go To Where Your Customers Are

Guess what? The platform you chooses matters… a lot. Facebook, for example, is popular with people over the age of 30, particularly those over the age of 40. But if your target audience is under 25 you have next to no chance of reaching them there. They are almost entirely on Instagram and Snapchat.

The same goes for Twitter, which is becoming more a home of influencers than normal users. Where are the highest concentration of women? Pinterest. Where can you launch potentially viral content? Reddit. The list goes well beyond the basics and if you don’t know where your audience is hanging out then you won’t be able to reach them.

Quality Over Quantity (But Quantity, Too)

Striking a balance here can be really hard. On one hand, you want to be able to post often enough that your profile grows. But on the other, crappy content is still crappy content.

If you are just churning out useless posts like inspirational quotes or jokes, especially if you don’t have a fair amount of original content, you are nothing more than a glorified bot account. You may have noticed the best brand social media sites out there are the ones that manage to really engage with their customers. So post often, post consistently, but only post good stuff.

Don’t Get Too Bogged Down In Analytics

Analytics are helpful and most brands use them in order to measure their progress and results, while coming up with new campaigns using that data. They are great to have. But they are also not everything.

The truth is that unless you are a well versed social media mogul, you probably aren’t going to understand the majority of the figures analytics give you. The important ones are the more basic: growth over time and how it correlates with strategies in play at each peak. You may also be able to learn more about your demographic, such as when they are most active.

Learn the Pareto Principle

The Pareto Principle is simple: for every 100 percent of your content, 80 percent should be engagement, 20 percent should be promotional.

See? Easy. I won’t even bother going further into it.

Think Visually

Another no brainer, visual content is pretty much the only way to go. It won’t make up all of what you post, but it should make up most of it.

Posts with visual media are more likely to be shared, commented on, saved and reach viral status. All of these are things you want, so invest most of your time in visual forms of social content.

Get Involved In the Community

This is one of the best things you can do. You are a local small business. You have ties to the community where you operate. So start getting involved: go to festivals, reach out to local news, engage with people via geolocation, get involved in local charities.

Have some actionable social media tips for small businesses looking to get into the game? Let us know in the comments!


The best of 2017 in personal finance advice

In 2004, my daughter, who was 9 at the time, gave me a Christmas present that I shall treasure for the rest of my life.

Olivia created “Yo Mamma: Sayings from My Momma,” a book of all the things I would repeat to her and her siblings. As you might imagine, most of the sayings were about money.

Here are two of my favorite quotes that made it into the book.

— “Do you have a job?” (I started saying this as soon as the kids started talking and asking for stuff.)

— “Do you have money to pay for that?” (A standard question when she tried to put something in the shopping cart.)

I smile every time I pull her book from my bookshelf.

So, with Olivia’s book in mind, I thought I’d pull five of my quotes over the past year that resonated with readers.

— “If debt were a person, I’d slap it.” I said this in a column about good debt versus bad debt. I hate all debt. As I wrote, I know my views are extreme, almost un-American, in a nation that relies so heavily personally and politically on borrowing. But when it comes to money, what you tell yourself matters. When we use positive adjectives to describe debt, we minimize the financial bondage it creates.

— “Empathy does not equal endorsement.” In April, I recommended for the Color of Money Book Club an essay by novelist and former Washington Post book critic William McPherson. McPherson died this past spring and I thought the essay “Falling (You can read it at http://bit.ly/Falling_essay) was a powerful look at how this once privileged person ended up poor because of a series of bad decisions.

“Life is about choices,” one reader wrote. “One does not ‘fall into poverty.’ One walks into it with open arms.”

Many people feel that there shouldn’t be a government safety net for the irresponsible. They only want to help the poor they deem worthy of assistance. But that’s a dangerous means test. It leaves no room for people to make mistakes. And we are all fallible. Advocating for government supported anti-poverty programs doesn’t mean you absolve people of personal responsibility.

What do we as a society owe the poor? We owe them empathy. We owe them a safety net that gives them a chance to get back on their feet — and maybe even survive.

— “When it comes to helping your young adult to successfully launch — and stay in flight — there’s no place like home.” A lot of young adults are moving back in with their parents, often because they are saddled with student loans.

“More young people today live in their parents’ home than in any other arrangement,” according to the Census Bureau.

Is this a good thing?

It’s not a bad thing necessarily. I encourage young adults who have burdensome debt to move home if they can. Instead of paying rent they can attack the debt.

You may think that living at home is a failure to launch or that it delays the all-important lesson of learning to be independent. But we should remove the stigma of young adults returning home as a financial embarrassment. It is not, especially if parents allowed or encouraged a student to attend a college that necessitated some heavy borrowing.

— “Sales are bait, and you have to keep in mind that you never save when you spend.”

One of my new favorite books is “Dollars and Sense: How We Misthink Money and How to Spend Smarter” by Dan Ariely and Jeff Kreisler. It’s a brilliant and accessible look at behavioral economics. Ariely and Kreisler agree with me that consumers are too driven by a discount and that can lead to some bad decision making.

— “Should you invest in bitcoins for retirement? Only if you think riding a roller coaster without a safety harness is a good idea.”

I wrote this in response to questions from some readers on whether they should buy bitcoin, an electronic currency that has skyrocketed, causing people to ignore caution.

As I told folks, if you can afford to lose every penny you invest and not miss any sleep over the loss, go ahead and invest in bitcoin. However, if you have a regular job, a mortgage, kids to put through college, credit card debt, a pitiful emergency fund and a lackluster retirement account, don’t even think about buying bitcoin. The currency may be virtual, but the investment risk is very real.

Tell me your favorite financial quote, one that may help you do better with your money in 2018. Send me an email to colorofmoney@washpost.com. I love quotations, which are a shorthand way to remember some important life lessons.


Beware of the True Cost of Private Student Loans

Image result for Beware of the True Cost of Private Student Loans

Most of my young clients join the ranks of the professional world with some amount of student debt. It’s this very reason that any family with a student getting ready for college or graduate studies should read on.

Recently, I took on a client who came to me with $168,000 in total student loans. To make following the story easier we will give my client a fictitious name and call her Anne. Anne obtained her degree at a private institution and graduated with a substantial amount of debt. Her level of debt isn’t unlike most young adults without wealthy parents to pay the astronomical cost of tuition. However, Anne could have saved well over $100,000 on her student loans. (For more, see: 10 Tips for Managing Your Student Loan Debt.)

Anne borrowed $97,000 of her $168,000 from private lenders Sallie Mae and Wells Fargo. Yes, Sallie Mae is a private lender. Unfortunately, too many borrowers assume Sallie Mae is a part of the federal lending program. The confusion is that up until 2014, Sallie Mae used to be the loan service provider for two federal loan programs: the William D. Ford Federal Direct Loan Program and Federal Family Education Loan (FFEL) program. On October 13, 2014, Sallie Mae split into two companies and the part that services federal loans became Navient.

Unfortunately, what I have learned from analyzing so many client student loan plans is that most borrowers do not understand the terms and conditions of their loans. Nor do they know the proper channels to follow before choosing a private lender. These are fundamental problems that result in the average person potentially finding herself getting taken to the cleaners.

Borrowing Options

For most families, borrowing might be the only option. In order to help aid in that decision process, use the following hierarchy when borrowing at the undergraduate level (best to worst):

  • Perkins Loans – $5,500/year
  • Direct Subsidized – $5,500/year
  • Direct Unsubsidized – $20,500/year (less any subsidized amount received)
  • Parent PLUS Loans
  • Private Loans – Fixed rate
  • Private Loans – Variable rate

For those looking for higher learning opportunities at the graduate level, like my client Anne, federal loans should be the first choice. The common misconception is that a grad student can only borrow $20,500 per year from the federal program, with a lifetime limit of $138,500. This is true with the direct unsubsidized program, However, the Graduate PLUS program allows a student to borrow up to the cost of attendance, minus any financial aid received. (For more, see: Student Loans: Paying Off Your Debt Faster.)

It is entirely possible to pay 100% of the cost of tuition with federal loans. In order to qualify for the Graduate PLUS program, a student must have sound creditworthiness. So for students with bad credit, they may need a parent to guarantee the loan and co-sign. Assuming that parent trusts and understands their credit is tied to their child, the federal program remains a better alternative to borrowing from a private lender.

Some parents prefer to see their kids have some skin in the game and pay for a portion or all of the cost of college – or at least make their kid think they have to pay for their education until that student has earned their degree. The bank of mom and dad is always the place to start for those who are more fortunate than others. However, that parent or grandparent should review the minimum personal loan rates published by the IRS so that they do not inadvertently get hit with a gift transfer tax.

Government Debt Forgiveness

It just so happens that Anne works for a hospital that is classified as a non-profit, 501(c)(3). Student loan borrowers working for a 501(c)(3) are currently eligible for a government debt forgiveness program called, Public Service Loan Forgiveness (PSLF). In order for a public employee’s loans to qualify for debt forgiveness, the following criteria must be met:

  • Full-time public sector job (30 hours or more)
  • Direct federal loans only
  • Loan status is repayment
  • Cumulative of 120 on-time payments
  • Payments made from an income-driven repayment plan – Income-Based Repayment (IBR), Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE)

The key criteria missing for Anne was that her federal debt only amounted to $72,000, which is still a lot. However, when compared to her annual income of $109,000 it wasn’t. Basically, the higher ratio of income-to-debt greatly reduced Anne’s level of forgiveness. In fact, she gets a marginal benefit compared to a standard 10-year payment plan. Only $350 of forgiveness was projected in our analysis.

On the other hand, had Anne borrowed everything from the Grad PLUS program, her total federal debt would have exceeded her annual income. This is when PSLF and other types of debt forgiveness offer a substantial financial benefit to the borrower. In Anne’s case, she would have benefited from a projected savings of $116,700. Instead, we had to go a more conventional route and refinance a majority of Anne’s student debt. This meant her total estimated savings was reduced to $22,600.

The impact of student debt borrowing decisions and how to pay for college, even at the beginning stages, is substantial. For my client, Anne, we are talking about a difference of $94,100. It’s why college planning is essential for families with college-bound kids. Especially when that kid wants to pursue a higher cost degree like a doctor, lawyer, veterinarian or pharmacist. Regardless, the economics of making sound choices will dramatically affect your child’s adult life. So if you are a parent or young professional and don’t know or don’t have the time to learn it, enlisting the help of an expert is worth every penny. (For more, see: Debt Forgiveness: Escape Your Student Loans.)


Why the world’s wealthy are investing more in companies that care, Aecon’s tumble and where Prem Watsa sees opportunities

A global investment club for the wealthy whose members aim to bring about social or environmental change as well as making a profit has grown by more than US$1-billion in two years, according to a report.

Toniic said its members now have a combined US$2.8-billion in what’s considered impact investments – capital placed with companies and organizations that can demonstrate they benefit society or the environment – up from US$1.65-billion in 2016.

Members, who include families and foundations as well as wealthy individuals, said the industry was becoming more mainstream.

“Impact investing is not some minority sport by some hippies on the fringes,” James Perry, chief executive of the Panahpur charitable foundation, which has investments worth 4 million pounds (US$5.34-million).

Toniic found 82 per cent of members who participated in its study had portfolios that met or exceeded their financial expectations according to the report, released on Thursday.

A majority said impact investments yielded returns on a par with traditional investments.

Perry cited Auticon, a British IT consultancy that helps integrate employees with autism into workplaces, as a successful impact investment in the Panahpur portfolio. Auticon’s shares rose in value recently after it expanded into other countries.

“Clear dissatisfaction in the way the economy is going and emerging data around changing ecosystems have woken people up. People are seeing they can’t carry on like they are,” he told the Thomson Reuters Foundation.

The amount of money going into impact investing is rising by about 18 per cent a year, according to the Global Impact Investing Network, whose 2017 survey found the market was worth at least US$114-billion.

However Damian Payiatiakis, head of impact investing at Barclays, said the industry was still in its infancy.

“The industry has progressed from the stage of visionary innovators and is now entering one of early adopters, but the majority of investors aren’t yet aware of or being offered this opportunity,” he said.

— Lee Mannion, Thomson Reuters Foundation

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.

Stocks to ponder

CI Financial Corp. (CIX-T). The S&P/TSX Composite was more or less flat for the trading week ending with Thursday’s close, easing lower by 0.2 per cent, but the benchmark remains in overbought, technically vulnerable territory according to Relative Strength Index (RSI). The RSI level of 73 is just over the 70 sell signal and miles away from the oversold RSI buy signal of 30. There are four oversold, technically attractive index constituents trading below the RSI buy signal led by Aecon Group Inc. Dorel Industries Class B, CI Financial Corp. and Extendicare Inc. round out the list. Scott Barlow focuses on CI Financial as he was surprised that a company with its fortunes leveraged to market performance was not following the benchmark higher. (For subscribers).

Quebecor Inc. (QBR.B-T). This stock appears on the positive breakouts list with its share price closing at an all-time high on Thursday. Analysts have positive outlooks on the security with 14 buy recommendations. Earlier this month, the company announced a change to its dividend policy, which is expected to result in meaningful increases to its dividend over the next few years. Quebec-based Quebecor Inc. is a telecommunications and media holding company with an 81.5-per-cent interest in Quebecor Media Inc. Quebecor has three key business segments: telecommunications with its core asset, Videotron Ltd.; the media segment, with the television broadcaster, TVA Group; and its smallest segment, sports and entertainment. Jennifer Dowty reports (for subscribers).

Aecon Group Inc. (ARE-T). Aecon Group Inc. didn’t work as a short-term takeover target. Perhaps the stock will look better as a long-term investment. The construction firm had seen its share price soar to a 10-year high of $20 in April, ahead of a proposed $1.5-billion takeover by the financing unit of China Communications Construction Co. Ltd. (CCCC), which is majority-owned by the Chinese government. But on Thursday, the shares tumbled to levels seen 4½ years ago, down 15.4 per cent for the day, after the Canadian government blocked the deal on Wednesday, citing national security. David Berman reports (for subscribers).

Watsa shuns China as Fairfax looks for investment in India, U.S.

The Rundown

Watsa shuns China as Fairfax looks for investment in India, U.S.

Prem Watsa, the billionaire head of Fairfax Financial Holdings Ltd., sees plenty of opportunities for investment in the U.S. and his native India. He’s less interested in the other Asian powerhouse. “In China, we are less invested,” Watsa said in an interview with BNN Bloomberg Television Friday. “We like democracy. We like business-friendly policies.” Watsa, who emigrated from India 46 years ago, is most excited about the opportunities being created there due to the policies implemented by Prime Minister Narendra Modi.



IN 2011, THE Dutch industrial giant Philips unveiled something it called the Microbial Home. It was a zero-waste, self-sustaining vision of the future, where household appliances ran on food and human waste, powered by a “bio-digester island” that converted food scraps into methane, which in turn powered a range and heated water.

The home was not a prototype of anything Philips actually intended to manufacture. Instead, it came out of the company’s Design Probes program, which was rooted in the discipline of speculative design.

Speculative design is design freed from the constraints of practicality, design intended to change the way we think, about today’s world and tomorrow’s. Its intellectual godparents, Tony Dunne and Fiona Raby, explain that they’re in the business of posing “what if” questions, using design “as a tool to create not only things but ideas.”

Felix Salmon (@felixsalmon) is an Ideas contributor for WIRED. He hosts the Slate Money podcast and the Cause & Effect blog. Previously he was a finance blogger at Reuters and at Condé Nast Portfolio. His WIRED cover story on the Gaussian copula function was later turned into a tattoo.

Often speculative design can envisage terrifying or dystopian futures. If you share Dunne and Raby’s aspiration to “increase the odds of achieving desirable futures,” it’s important to face these possibilities actively. As a result, much of speculative design is deliberately discomfiting. Some of it isn’t: A friendly yet futuristic concept car, like Honda’s sports EV, still falls under speculative design.

At the core of speculative design, however, are unsettling visions, in the tradition of Brave New WorldThe Handmaid’s TaleBlade Runner, or Black Mirror. Speculative dystopia is a tradition that can be traced back 200 years, to Mary Shelley’s Frankenstein, but it’s a tradition limited, mostly, to the world of novels and fiction. Speculative designers work a similar vein but do so in the world of designed objects, be they physical or digital.

So what happens when speculative design goes corporate? When the practice retreats behind the walls and NDAs of giant Silicon Valley companies, it loses its status as a public provocation and becomes instead something much more troubling. At its most disturbing, it’s a way of giving a company’s employees permission to think the unthinkable—to grapple with how omniscient and powerful that corporate entity might become.

All large companies employ designers, who, depending on the industry and the company, often carry great status. Carmakers tend to lionize designers; Apple, too, is a haven for them. And at companies where designers are held in high regard, they are often given a bit more free rein to indulge their imaginations rather than simply creating the next product.

At Google, this free rein, in 2016, resulted in a video entitledThe Selfish Ledger, which was leaked to the Verge earlier this month. As a grad-seminar provocation, it’s really well done, with a professional-sounding voice-over and lots of surprisingly clear explanations of Larmarckian epigenetics. The conceit is that as our lives become increasingly measured and recorded, the “ledger”—the digital record of all our activity—will start to influence not only our own behavior, but that of the entire species. It will become a Lamarckian epigenome: a set of information, not unlike the human gene, which seeks to replicate itself across generations.

The idea is not particularly far-fetched: Facebook researchers have already successfully tinkered with hundreds of thousands of users’ emotions, and the study of epigenomics has produced significant measurable effects. We construct our environment; our environment constructs us. Given the undeniable and constant effect that Google and Facebook have on our lives and our existence, it’s at least theoretically possible that they could end up altering our genetic makeup.

Google’s video was put together by Nick Foster, the head of design at mysterious Alphabet subsidiary X. Foster is a cofounder of the Near Future Laboratory, a shop that promoted something called “design fiction” at much the same time as Dunne and Raby were thinking about speculative design. The Selfish Ledger is clearly a work of design fiction, and an X spokesperson told The Verge that it was also a work of speculative design:

“We understand if this is disturbing – it is designed to be. This is a thought-experiment by the Design team from years ago that uses a technique known as ‘speculative design’ to explore uncomfortable ideas and concepts in order to provoke discussion and debate. It’s not related to any current or future products.”

It’s notable here that Alphabet is not using Foster’s own “design fiction” language, and instead is using Dunne and Raby’s “speculative design.” The reason, surely, is that speculative design is a respected academic discipline with clearly-understood parameters and a not-entirely-friendly attitude towards the technology industry. Design fiction, in contrast, was built on the idea that fact and fiction frequently swap properties and that by designing something fictional and fanciful, you might be laying the groundwork for something entirely real.

When I asked Dunne what the difference was between speculative design and design fiction, he said that “design fiction tends to focus more on technology-based video scenarios and stays closer to reality….Whereas the kind of speculative design we do tends to focus more on objects for exhibitions that rarely attempt to convince the viewer they are real. They are props for thinking with. Speculative fiction is more critical of the kind of technological narratives put forward by the tech industry.”

Was The Selfish Ledger Foster’s attempt to warn Googlers of the possible dystopian consequences of their actions—an Alphabet version, if you will, of the famous Boz memo at Facebook? Did Foster really want to call his video “The Ugly,” and warn the company he worked for (confidentially, internally) that there was a risk it would go too far?

That’s the impression X is trying to give, when the company talks about the video as a piece of speculative design. But it’s not a Black Mirror episode, it’s not self-evidently horrific, and to many Googlers, it might even be an exciting harbinger of technological possibility. What’s more, the video is not some kind of ancient history, as X’s “from years ago” phrasing might imply: it was created at the end of 2016, right around the time that Donald Trump was being elected president.

The Selfish Ledger, then, is clearly a piece of design fiction more than it is a piece of speculative design. It wasn’t really designed to be disturbing, it just is disturbing. And it’s particularly disturbing by dint of the fact that it was made by Google, in secret, for internal distribution only. Some speculative design thinkers, like Genevieve Bell, are very happy to talk in public and in detail about what they do. She does it now, at Australian National University, and she did it in her previous job, too, when she worked as a vice president at Intel.

X, by contrast, is a mysterious organization which is opaque even to most Googlers. The loss-making Alphabet subsidiary exists precisely to think outlandish thoughts and to turn them into reality: that’s it’s raison d’etre. In that context, The Selfish Ledger looks very much like an aspiration, rather than a warning.

As Dunne says, the use of speculative design within corporations can be a good thing, if it’s used to explore the cultural, ethical or political implications of an idea, and if it’s done in public. “A dystopian vision created by a large tech corporation is going to be more scary than one produced by a small design studio or developed as entertainment for TV,” Dunne says, “especially if it is stripped of context and its purpose is unclear.”

He continues: “As tech companies become more powerful, and as the scale and complexity of their technologies mean there are many more possible unforeseen outcomes and implications, perhaps companies should be obliged to explore and make public any potential implications of the technologies they are developing.”

It’s a very good suggestion. Foster’s video is disturbing, but it’s disturbing mainly because it was kept secret, for internal X use only. Google is too big and too powerful to be trusted to build the future of humanity in a top-secret lab.

It’s time, then, that Alphabet becomes a bit more like Intel during the Genevieve Bell years: It has no choice but to start engaging more with the broader design community and the public at large. If it doesn’t, publics and governments around the world are going to start asking some very pointed questions about what it’s hiding.


Board exams set the base for successful life

Board Exams,Boards 2018,Studymate

The Class 10 and 12 Board examinations are, in many ways, among the most important milestones in the academic life of any student. The results of these examinations stay with students for life. They test not only the fundamentals of the students but also become the key factors in determining the course of their careers, according to a press release issued by Studymate.

The Studymate chain of learning centres in Delhi-NCR is conducting Road to Boards, a comprehensive programme to help students of Class 8th to 12th prepare and score more in the Board examinations.

Here is the second in a series of articles powered by Studymate in association with its Road to Boards programme. It focuses on the following reasons why board examinations deserve a serious approach:

1. A true measure of students’ merit

The Board examinations focus on evaluating students’ knowledge and understanding concepts. Students who score well in these usually have a strong grasp of the concepts. Most competitive exams test the ability of students to apply concepts. Without strong fundamentals, their ability to solve problems would be limited, which is why a thorough understanding of basic concepts is needed.

2. Class 10 Boards: Key to selecting the stream for higher education

Students have to choose a stream (Science, Commerce or Humanities) which they would like to pursue in senior school. Streams are allotted on the basis of the percentage score in Class 10 Board Exams. A high score can help students get the stream of their choice.

3. Class 12 Boards: Key to college admissions

Most higher education institutes, except Engineering and Medical, give very high weightage to the Board examination results. Every year, around 2.5 lakh students apply for admissions in Delhi University. Even for Engineering and Medical streams, it makes sense for students to keep their options open by scoring good marks in the Board examinations. A high percentage also gives students the advantage of pursuing undergraduate courses at leading universities in countries like Hong Kong, Singapore, United States and Britain.

4. Advantage for higher studies and professional career

Students with consistent academic performance are likelier to get admission in premier post graduate institutes or secure an opportunity to study abroad. The results of Board examinations also play a key role in the initial years of one’s career. Many leading organisations shortlist candidates for entry-level jobs on the basis of candidates’ educational record, which include Class 10 and 12 Board exam results.

“The entire process of preparing for the board examination, appearing for it as well as to handle the results, help in the students’ overall development by building their skills in planning, managing anxiety and dealing with the outcomes”, Arindam Lahiri, chief academic officer, Studymate, said, according to the press release.