Life Insurance Corporation of India (LIC) entered 64th year of its incorporation on Sunday. It has played a significant role in spreading the message of life insurance among the masses and mobilisation of people’s money for their welfare.

In this journey, LIC has crossed many milestones and has set good performance records in various aspects of life insurance business. In its 63 years of existence, it has grown in terms of its customer base, agency network, branch office network, new business premium.

LIC has been embraced technology from the nascent stage. It is continuing its journey by reaping the benefits of technology to become customer-centric, to improve pricing and to create operational efficiencies. It has a strong online presence and has provided digital platform for new business and servicing operations to both internal and external customers.

The focus of the corporation is to enhance the e-presence and e-delivery capabilities and to transform existing enterprise IT systems in sync with the expectation of the users. It is also issuing e-policy along with physical policy document.

LIC has revamped its portal system with latest technological platforms to enhance digital experience and provide online services. Various options are available — product information, downloading plan brochures , premium calculator, apply for policy, LIC office locator, policy self servicing options like Policy Information, online premium payments, advance premium payments, revivals, online loan request, loan repayments, ULIP statement, grievance redressal etc.

It also offers life insurance protection under group policies to people below poverty line at subsidised rates under social security group schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and  Aam Admi Bima Yojana (AABY). These schemes provide life insurance protection to the persons living below poverty line and marginally above poverty line.

LIC won 25 Awards in the year 2018-19 including golden peacock award for National Training and Readers Digest awards.

Writer & Courtesy: The Pioneer

With a few simple tweaks, rural banking can be made both viable and result-oriented. But for this, political will is needed

The Government is planning a mega revamp of the regional rural banks (RRBs) and that includes consolidation for better operational efficiencies. In the budget 2019-20, it allocated Rs 236 crore towards the capitalisation of RRBs. There are 56 operational RRBs and the roadmap is to bring them down to 38 or below. There were 196 RRBs after the concept was originally introduced in 1975, to ensure access of affordable credit to the rural population.

RRBs were set up to eliminate other unorganised financial institutions like money lenders and supplement the efforts of co-operative banks. Although RRBs have performed commendably, in recent years, they have lost sheen on account of their inability to preserve the low-cost model and raise capital. RRBs have not been able to attract bright talent. Poor leadership has retarded their mission and vision. Issues relating to governance, suitability of design of products and staff productivity continue to stifle their growth. At present, the Central Government holds half the stake in RRBs. Sponsor banks own 35 per cent and the rest 15 per cent is with the State Governments.

While the Government’s renewed rural focus is laudable, some important caveats must be in place. It is true that banks can play an important role in the financial transformation of low-income communities, but sustainability should never be overlooked. In their excitement to oblige their constituencies, politicians run financially amok and literally plunder banks for vote-banks. This was precisely the reason why India’s post-nationalisation mass banking programmes degenerated into populist agenda, which financially ruined the banks.

All these highlight how an unenlightened politician can play havoc with the financial systems. The entire execution lacked the soul of a genuine economic revolution because it was not conceived by grassroot agents but was assembled by starry-eyed mandarins, who had picked up bits and pieces about financial inclusion from pompous new-fangled and half-baked ideas generated at seminars and conferences. Cheap loans, followed with periodical waivers and write-offs, have been the hobby horse of eye-on-the-ball experts and lazy policy-makers.

The original banking concept, based on security-oriented lending, was broadened after the nationalisation of banks to a social banking concept based on purpose-oriented credit for development. This called for a shift from urban to rural-oriented lending. Social banking was conceptualised as “better the village, better the nation.” However, opening new branches in rural areas without proper expansion, planning and supervision of end use of credit, or creation of basic infrastructure facilities meant that branches remained mere flag-posts. It was a make-believe revolution that was to lead to a serious financial crisis in the years to come.

The Integrated Rural Development Programme (IRDP) is a grim reminder of how mechanically trying to meet targets can undermine the integrity of a social revolution to such an extent that a counter-revolution can be set into motion. Arguably, India’s worst-ever development scheme, the Integrated Rural Development Programme (IRDP), was intended to provide income-generating assets to the rural poor through the provision of cheap bank credit. Little support was provided for skill-formation, access to inputs, markets and necessary infrastructure.

In the case of cattle loans, for example, a majority of cattle owners reported that either they had sold off the animals bought with the loan or that those animals were dead. Cattle loans were financed without adequate attention to other details involved in cattle care: Fodder availability, veterinary infrastructure and marketing linkages for milk among others.

People erroneously came to believe that the State had all the answers to their problems. Governments, international financial institutions and non-governmental organisations (NGOs) threw vast amounts of money at credit-based solutions to rural poverty, particularly in the wake of the World Bank’s 1990 initiative to put poverty reduction at the head of its development priorities. Yet, those responsible for such transfers, had — and in many cases continue to have — only the haziest grasp of the unique demands and difficulties of rural banking.

Working for the poor does not mean indiscriminately thrusting money down their throats. Unfortunately, IRDP did precisely that. The programme did not attempt to ascertain whether the loan provided would lead to the creation of a viable long-term asset. Nor did it attempt to create the necessary forward and backward linkages to supply raw material or establish marketing linkages for the produce. Little information was collected on the intended beneficiary. The IRDP was principally an instrument for powerful local bosses to opportunistically distribute political largesse. The abiding legacy of the programme for India’s poor has been that millions have become bank defaulters through no fault of their own.

Today, the people so marked find it impossible to re-join the formal credit stream. The entire notion of economic revitalisation became a kind of code: It’s a formulation that isn’t taken literally and one that worked wonderfully well to bring all the anti-poverty players together at a time when the world’s energies were focussed on ending poverty. Juicy numbers are music to the ears of bosses. Numbers have been a great obsession with Indian planners in particular. Number of men and women sterilised, contraceptives circulated, wells dug, toilets constructed, villages screened for polio, TB or malaria, children enrolled in schools and saplings planted… there is no accountability for fudged figures. In fact, majority of the rewards are given to officers most adept at massaging figures. The game of numbers, without a concurrent focus on social performance and evaluation of quality of assets created, has been the bane of most credit programmes for poverty reduction and self-employment. 

There are two basic pre-requisites of poverty eradication programmes. First, reorientation of agricultural relations so that the ownership of land is shared by a larger section of the people. Second, programmes for alleviating poverty cannot succeed in an economy plagued by corruption, inflation and inefficient bureaucracy.

A poverty eradication programme must mop up the surplus with the elite classes. These two pre-requisites call for strong political will to implement the much-needed structural reforms. Besides, the Government must aim at a strategy for the development of the social sector — the key component should be population control, universal primary education, family welfare and job creation, especially in rural areas. These and other aspects of poverty alleviation have not received any importance so far in our planning policy making.

During the massive banking expansion phase in the 1980s, opening a bank branch was made to look as casual as punching a flag post. It was impossible to locate a proper structure to house the bank. The existence of a toilet or a medical centre, a police post or a primary school in a village, as a precondition for a bank branch, was simply overlooked. In several cases where the expiry of Reserve Bank of India (RBI) licence for the opening of the bank branch approached without proper premises being identified, banks were housed in a temple or a local community centre, marked by a small banner and a photograph screened as evidence of the launch of the bank’s operations.

Rural branch expansion during that period may have accounted for substantial poverty reduction, largely through an increase in non-agricultural activities, which experienced higher returns than agriculture, and especially through an increase in unregistered or informal manufacturing activities. But there was a significant downside; commercial banks incurred large losses on account of subsidised interest rates and high loan losses — indicating potential longer-term damage to the credit culture.

Rural finance programmes should have substantial inputs from rural sociology as part of the training kit for rural managers. Rural Banking requires greater insight into rural sociology than banking practices as far as finance is concerned. A basic knowledge is adequate to handle these simple credit proposals. It is only in case of high-tech agriculture that technical skills and expertise are required. With a few simple tweaks, social banking can be made both viable and result-oriented. We should not commit the mistake of throwing the baby out with the bathwater.

(The writer is member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)

Writer: Moin Qazi

Courtesy: The Pioneer

India does not even have a data protection policy. This is something that our policy-makers need to look forward to instead of batting for the right to be forgotten

As a concept, the Right To Be Forgotten (RTBF) evolved in the 1990s in western Europe and subsequently developed as part of human rights jurisprudence. France became a pioneer of this issue when it recognised the “right to oblivion.” This right was available to all convicted individuals, who had served their prison sentences. Often, in cases like these, social stigma is attached to individuals even after they have served their punishments. In general, people had ready access to the criminal history of such cases and the actual commission of a crime would perpetuate stigma. As a result, individuals suffered regardless of the geographical location.

The RTBF is reflected in Article 17 of the General Data Protection Regulation (GDPR) of the European Union (EU). The EU Parliament took nearly four years of preparation and debate to approve the GDPR in 2016, which was finally enforced on May 25, 2018. The GDPR framework replaced an outdated Data Protection directive from 1995. It contains provisions that require businesses to protect their personal data as well as privacy of the EU citizens for transactions that occur within the member states of the EU. It also regulates the exportation of personal data outside its boundaries.

In the Indian context, RTBF is envisaged in the Justice BN Srikrishna Committee report (2018) on Data Protection Bill. The report held that the “rights of the citizens have to be protected, the responsibilities of the States have to be defined but data protection can’t come at the cost of trade and industry.” Thus, there is also a strong possibility of this right making its way into the Indian legislature. The rationale of the Supreme Court of India in the Puttaswamy judgement has upheld other fundamental rights securing individual liberty in the Constitution. In addition, individual dignity is one of the basis for right to privacy. Privacy itself was held to have a negative impact (the right to be let alone) and a positive one (the right to self-development).

The sphere of privacy includes the right to protect one’s identity. This right recognises the fact that all information about a person is fundamentally their own and he/she is free to communicate or retain it for himself/herself. This core of informational privacy is, thus, a right to autonomy and self-determination with respect to one’s personal data. Such a notion has also been echoed in the Srikrishna Committee report (2018) on data protection.

Further, it believes that a free and fair digital economy, one that empowers the citizens, can only grow on the foundation of individual autonomy, working towards maximising the common good. However, the report manifests an approach to balance free speech with RTBF. Many have pointed out that the Bill doesn’t lay down the golden principle of allowing individuals to be true owners of their own data. The report further includes a balancing test with five criteria for the judiciary to weigh the freedom of speech and expression with RTBF.

RTBF is sometimes referred to as the Right to Erasure (RTE). As it is commonly misunderstood, RTBF is not synonymous to the RTE. It is rather an extension of it. The underlying principle of RTE is that when there is no compelling reason for the subject’s data to be processed, he/she can request the data controller to erase/remove their personal data, stop any further distribution of their personal data or potentially prevent third parties from processing their personal data.

RTE was applied to only proprietary databases. For example, if one wishes to unsubscribe from a

magazine, he/she can ask the concerned firm to delete all information that they possess of him/her. RTE did not apply to search databases as RTBF does. Hence, RTBF is actually an extension of the RTE.

The debate around this has gained a lot of traction in India after the Supreme Court recognised Right to Privacy in its landmark case of Justice KS Puttaswamy (Retd) and Anr vs Union Of India and Others. The apex court held that right to privacy is part of the right to life and personal liberty as guaranteed under Article 21 of the Indian Constitution. A nine-judge Bench held that “life and personal liberty are inalienable rights. These are rights which are inseparable from a dignified human existence. The dignity of the individual, equality between human beings and the quest for liberty are the foundational pillars of the Indian Constitution…” The verdict has given impetus to demands for recognition for other fourth generation human rights in India, like the right to be forgotten and RTE.

The right to privacy guarantees liberty in private spaces, electronic or otherwise. This means that the information, which is not in the public domain, is protected from coming into the public domain. Right to be forgotten, on the other hand, involves information that is already in the public domain and is required to be delinked from the individual, who has claimed the right to be forgotten.

Further, the RTE operates in an even niche area, where an individual can target a specific database and claim a RTE against it for the removal of information which concerns them. But the fourth-generation communication rights, like the right to be forgotten, come with their own set of flaws.

First, one of the major problems is that the guarantee of the right vests with only a few individual corporations. Take the example of Google. As per Google’s Transparency report, it can remove only 41 per cent of the URLs against which some issue was raised. This means that the authoritative framework for implementing such a right now vests with a corporation and it is performing an adjudicatory function while deciding to accede to a request of removal. This is something which the Indian legal system does not envisage; wherein adjudicatory role is an essential state function.

Second, there is a concern that accused criminals can wipe out valuable evidence while their guilt is under adjudication. This can turn out to be an implementation nightmare for security agencies, especially those who are collaborating on international crimes and possibly terrorism.

Third, the sheer reach of the internet make a case for something, like the right to be forgotten absolutely impractical. If there is an adjudicatory order, for instance against Google, the information, which a claimant is seeking to protect, is not necessarily saved by such a request. This simply because Google is not the sole repository of that information. Details may be available through other search engines and may still be hosted as it is a primary website. Hence, it is highly problematic to put such a right in motion. Regardless to mention, it also involves significant expenditure to bring it into force.

Fourth, India does not even have a data protection policy. This is something that our policy-makers need to look forward to instead of batting for the right to be forgotten. Because in the absence of such a system, multinational corporations, which practically administer and govern the internet, are beyond the jurisdiction of the Indian law and courts. Hence, even a guarantee will be meaningless if the decisions of our courts are not respected/recognised.

(Raghav Pandey is an Assistant Professor of Law and Anoushka Mehta is a student of Law at the Maharashtra National Law University, Mumbai)

Writer: Raghav pandey/Anoushka mehta

Courtesy: The Pioneer

The Supreme Court has directed the Reserve Bank of India to disclose the names of wilful loan defaulters in RTI requests

With the Supreme Court making it clear that the Reserve Bank of India (RBI) must heed Right To Information (RTI) requests for its Annual Inspection Reports (AIR), which would reveal the names of those who have wilfully defaulted on loans, it seems we have taken a crucial step in ensuring financial transparency. While the RBI asserted that this would imperil banking secrecy laws, its argument was dismissed by Justices Nageswara Rao and MR Shah with some exceptions. They clarified that the statements of the bank, reports of the inspections and information related to the business obtained by it does not, in fact, fall under the pretext of confidence or trust. However, the question remains about whether naming and shaming will do any good.

One potential prospect is that many of those, who are afraid that their names will be revealed once the Supreme Court order is implemented, will make an offer to pay up to keep their good name. There is no doubt that there are a large number of people who owe money to the Indian banking system and have the ability to pay, but often, sometimes in connivance with bank officials, as happened with Nirav Modi and Punjab National Bank, they do not pay back, knowing full well that they will not get prosecuted. However, many ‘wilful’ defaulters are often individuals who have not quite bankrupted themselves but have failed in their business ventures. In that ambiguity, there are some aspects of privacy that are also violated, and some modifications might be necessary in the classification of wilful and ‘non-wilful’ defaulters. Then again, naming and shaming people who break the law is possibly one of the only ways to get them to repent. Unlike the Panama Papers, this data, once released, will have perfect provenance and that will mean that many of the excuses that people make when caught will be just that, excuses. There is the possibility of another major risk. Much like the hundred plus individuals, who have run away from India, some even acquiring foreign citizenship using their ill-gotten gains, will many more take pre-emptive flights out of the country? Will the fear of knowing that they might be exposed make several hundred rich fraudsters run away from Indian banks and the law? However, this is a risk that we must take, considering some countries like the United Kingdom, have opened their doors willingly to financial fraudsters. Yet other nations are very strict with such individuals and extradite them promptly. Clever fraudsters tend to hide in nations where they know their chances of prosecution are limited. They are the worst type of criminals, knowingly not paying their dues and, thus, making life harder for everyone else who pay back their loans for homes, cars and everything else properly. As the saying goes, the hands of the law are very long. But those hands should know who to catch. Lest there be any objections, remember that the banks’ total non-performing assets amounted to Rs 11.2 trillion in FY18.

Writer & Courtesy: The Pioneer

Financial access alone is not enough to change the economic landscape of the country. We have to stimulate productivity, raise living standards, unleash entrepreneurial energy and reduce inequality

India has grown into a global powerhouse and while its economy is soaring, the picture on the ground is still quite grim, with the green shoots we see being only a patch of the overall landscape. Most Indians are hapless victims of inequity.  India is one country where intense poverty abounds in the shadow of immense wealth.

The Indian economy is projected to be the fastest growing major economy in the world in 2018-19 and 2019-20, ahead of China, according to the International Monetary Fund (IMF). Per capita national income rose from Rs 86,647 in 2014-15 to Rs 1,12,835 in 2017-18. Furthermore, improved telecommunications, seamlessly connected global markets, universalisation of information through Internet and innovations in the financial ecosystem have all opened up opportunities for the common man like never before. It is, therefore, imperative that lack of demand and supply of financial services — to all levels of society — do not act as an impediment to the country’s growth.

Inequality and exclusion are two of the most pressing challenges facing the world today. In recent years, policy-makers have realised that development will be uneven and not wholesome if we do not address the problem of exclusion in a big way. Inclusive growth is necessary to ensure that the benefits of a growing economy extend to all segments of society.

Access to and integration of every individual into the formal economy by providing opportunities to use his/her potential to improve upon their well-being is essential for the building of a prosperous and stable economy. Inclusive growth is widely recognised as having four mutually supporting pillars — an employment-led growth strategy, financial inclusion, investment in human development priorities and high-impact multi-dimensional interventions (win-win strategies).

It is now accepted wisdom that a key ingredient of inclusive growth is financial inclusion. Inclusive financial systems have potentially transformative power to accelerate development gains. They provide individuals and businesses with greater access to resources to meet their financial needs such as investment in education and housing, capitalising on business opportunities, saving for retirement and coping with various economic shocks.

Like all other rights, citizens have the right to participate in the economy. The Consultative Group to Assist the Poor (CGAP), the development arm of the World Bank, puts it well: “Ensuring the financial system is inclusive is paramount in the process of creating a more inclusive, equal and peaceful society.”

For the millions of individuals who are in the lower deciles of the economic pyramid, lack of access to financial services is extremely difficult, expensive and harrowing. It constrains their ability to plan for their family’s future and traps households in cycles of poverty. More broadly, it limits the economic growth potential of a country. People need to protect themselves against hardship and invest in their futures to cope with risks such as a job loss or crop failure — all of this can push families into destitution. Many poor people around the world lack access to financial services that can serve many of these functions such as bank accounts. Instead, they rely on cash, which is not only unsafe but hard to manage.

Financial inclusion, in its broader market conceptualisation, is the belief that people, including the very poor and marginal, should gain access and be able to regularly use these services — an idea that the World Bank promotes as part of building inclusive economies, financial institutions, fintech companies and mobile operators and others pursue for evidently more self-serving reasons. Having an account isn’t the angle — it’s using the account to achieve development goals, to save, to invest in business and educational opportunities and to build financial resilience.

The objective of financial inclusion is a task that independent India has tried out in different forms over the decades but has not been able to get it quite right. Initiatives include the cooperative movement, followed by priority sector lending, lead bank schemes, service area approach, creation of National Bank for Agriculture and Rural Development and Small Industries Development Bank of India, introduction of Regional Rural Banks (RRBs), Local Area Banks (LABs) microfinance, kisan credit cards, business correspondence and finally, Pradhan Mantri Jan Dhan Yojana.

All these initiatives have been supply-driven — delivery of banking services to the poor people, if need be, at their doorstep. However, they have not been able to achieve the goals with which they are designed and mandated. Most of them were based on a misconceived premise and assumption. One important lesson they have offered is that the availability of finance is a necessary but not a sufficient condition for poverty reduction. It is certainly not an end in itself.

In this race to financial inclusion, we will be missing the mark if we believe that financial inclusion will by itself eliminate poverty. Financial literacy, access to financial tools and economic empowerment underpin the development of healthy and stable states. But it needs to be complemented with a host of other services. Financial services alone cannot vault the poor out of poverty. They can enable economic enfranchisement but cannot solve social exclusion, which has to be addressed by tackling the entire combination of problems. The issues include: Unemployment, discrimination, poor skills, low incomes and poor housing. One of the main reasons that the excluded populations cite for not having a financial account is that they simply don’t have enough money to open and use an account.

We need to remind ourselves of the memorable poser of Dudley Seers, first president of the prestigious European Association of Development Institutes (EADI), on development: “The questions to ask about a country’s development are: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality?”  Credit is a powerful tool if it is used effectively when it is made available to the credit-worthy among the economically active poor participating in at least a partial cash economy — people with the ability to use loans and the willingness to repay them. But other tools are required for the poor, who have prior needs, such as food, shelter, medicine, skills training and employment.

For development to be wholesome, it must cover all basic facets of individual or society’s well-being: Health, education, housing and employment. The well-known economist VKR Varadaraja Rao underlined that integrated development is not done in isolation through the project approach or even the programme approach but is integrated to take account of their mutual interaction and their linkages forward or backward, temporal or spatial, friendly or hostile, with a view to achieving the total result, which is universalisation of health and enrichment of the quality of life.

Since substantial public investments are being made to promote financial inclusion, convergence, inclusive collaboration and mutual reinforcement alone can ensure better resource utilisation. Plans and strategies that operate in   exclusive silos lose out on the benefits of mutual synergy and convergence of the various development channels. Advocates of financial inclusion claim that financial services will reduce poverty and promote pro-poor development but critics believe that this is illusory and that it falsely prioritises finance over delivery of more important services. Financial services are presented as central to social and economic growth and development.

Inclusive finance requires us to break the vicious cycle where educational, financial and digital exclusion combine to create social exclusion and isolation. The obvious lesson is that financial access alone is not enough: There has to be money to put into the account. For this, we have to stimulate productivity, raise living standards, unleash entrepreneurial energy and reduce economic inequality.

Financial inclusion is actually a tool in a broader development toolbox but in certain conditions, it happens to be the most powerful tool. It will make the poor a little more resilient but it is not the answer on its own. It has all to do with how we are using it and how we are defining the outcomes. Access to credit is not enough to alleviate indigence. More than micro-loans, what the poor need are investments in health, education and the development of sustainable farm and non-farm related productive activities.

(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)

Writer: Moin Qazi

Courtesy: The Pioneer

LIC’s New Chairman: Hemant Bhargava

The managing director of the Life Insurance Corporation (LIC) of India, Hemant Bhargava, has taken additional charge as Chairman of the organisation in place of V K Sharma, who retired on December 31, 2018. Bhargava had taken charge as managing director of LIC of India in February, 2017.  A true leader, he was instrumental in completing the design and setting up a separate Micro Insurance vertical which was LIC’s first comprehensive enterprise-wide initiative in financial inclusion space. He also set up a new joint venture in collaboration with the banking industry, and founded LIC Cards Services Limited, launching the ‘LIC Card’ in 2009. He also set up the newly formed SBU International Operations to manage LIC’s operations in about 11 countries. He has also been instrumental in finalising the first memorandum of understanding (MOU) for LIC to form a composite insurance company in the Kingdom of Saudi Arabia. Bhargava founded the ‘Indian Business Group’ in Mauritius for promoting the business interests of the companies of Indian origin with the High Commissioner of India being the Patron. Bhargava has also headed different Zones, viz. Northern Zone comprising of Delhi, Punjab, Rajasthan, Himachal Pradesh, Jammu and Kashmir, Haryana and the Union Territory of Chandigarh and the Eastern Zone comprising of Arunachal Pradesh, Assam, Meghalaya, Mizoram, Manipur, Nagaland, Sikkim, Tripura, West Bengal and the Union Territory of Andaman and Nicobar Islands.

Saurabh Kumar takes charge as DGOF and Chairman of OFB

Saurabh Kumar, IOFS, took over from P K Shrivastava, IOFS, Director General of Ordnance Factories (DGOF) and the Chairman of the Ordnance Factory Board (OFB) upon the latter’s superannuation at the OFB Kolkata. Kumar, an IOFS officer of the 1982 batch, is an MTech in mechanical engineering from the Indian Institute of Technology (IIT) Kanpur. An expert in the manufacture of ordnance, Kumar was on deputation to the Ministry of Defence at Delhi as the Director of Planning and Coordination from 2002 to 2009. During this period, he was involved in drafting the Indian offset policy for defence purchases and the ‘Make’ procedure in the Defence Procurement Procedure of 2003-04, which incorporated the recommendations of the Arun Singh Committee.

He was also instrumental in piloting the proposals and obtaining the approval of the government for setting up two, new greenfield Ordnance Factories at Nalanda and Korwa in Bihar and Uttar Pradesh respectively.

As the general manager of the Engine Factory at Avadi (2012-13), he was involved in operationalising the project and initiating an indigenisation programme which culminated in the handing over of the fully indigenous engines of T-90 ‘Bhishma’ and T-72 ‘Ajeya’ tanks to the Minister of Defense in July 2018.

His tenure saw the establishment of the vendor base that led to this achievement and an increase in production of new engines by 30 per cent. As the general manager of the Ordnance Factory Ambajhari, near Nagpur in Maharashtra, Kumar spearheaded the modernisation programme which included the induction of the robotic forging technology, new generation CNC machines and the predictive maintenance, which not only increased productivity and quality but also led to the successful productionisation of the ‘Pinaka’ rockets.

Writer and Courtesy: The Pioneer

Greater financial inclusiveness is a gateway for balanced development and a cohesive society. With billions of people already using mobile phones, the means to introduce them to formal financial services already exists. The mobile telephony system has enabled contact with villages that remained far away from banks and unreachable by road. It has also transformed businesses and family life besides bringing more people into the financial mainstream.

In India, an expansive network of mom-and-pop stores, tailors, pharmacies and telco booths has been extending customers similar services  as that of banks. This includes paying the utility bills electronically, sending money back home, mobile phone top-ups, paying television and Wi-Fi bills and purchasing travel tickets — all of this is done without the hassle of opening a bank account.

In most villages, shopkeepers help customers transact these services using their mobile phones. This has made these services accessible to low-income families, who have to struggle with technology. Money can now be transferred quickly, efficiently and securely with a fraction of cost incurred with other channels. People in far-flung villages are now able to receive social benefits, buy ration and make payments using their Aadhaar card. This has helped save the recipients several hours of commute and wait time.

As a platform, the mobile has a unique set of capabilities that can overcome the challenges posed by the payments landscape. Mobile platform combines digital identity, value and authentication to create low-cost access to financial services. Take for instance, OTP-based authentication for Aadhaar-linked accounts and biometric authentication for processing transactions. Mobile finance offers at least three major advantages over traditional financial models. First, digital transactions are essentially free. In-person services and cash transactions account for a majority of routine banking expenses. But mobile finance clients keep their money in digital form. This is why they can send and receive money often, even with distant counter parties, without incurring transaction costs from their banks or mobile service providers.

Second, mobile communication generates copious amounts of data which banks and other providers can use to develop more profitable services. It even acts as a substitute for traditional credit scores (which can be hard for those without formal records or financial histories to obtain).

Third, mobile platforms link banks to their clients in real time. This means that banks can instantly re-lay account information or send reminders; and clients can quickly sign up for services on their own.

Mobile operators know how much consumers are spending on air time and are also able to infer other relevant information. If the customer is a regular user of a mobile money transfer service, the operators may also be able to assess his/her disposable income. They team up with banks, financial tech (fintech) companies and data analytics specialists to use this data to build financial profiles and offer credit to those who otherwise lack proof to re-pay loan. On-time payment of bills can attest the financial discipline of the consumer.

For the micro-finance industry, such systems represent an important opportunity as they enable borrowers to apply for, receive and re-pay loans on their mobile phones using a network of local agents. But this doesn’t mean mobile is a magic device that can provide algorithms for all credit- related issues. A majority of the population still doesn’t use smartphones and there are many who use it very frugally.  

The proportion of the Indian population that has access to financial institution accounts via mobile phones or the internet to transact digital payments still remains significantly lower as compared with other developing economies, particularly sub-Saharan Africa. In Kenya, 79.0 per cent of adults made digital payments in 2017, and in South Africa 60.1 per cent, compared to 28.7 per cent in India (World Bank 2018).

While digital technology is opening new channels for delivering financial services, other challenges also persist. Sparse population, inconsistent network coverage, lack of trust or insufficient capital for building new business models can stand in the way of success, particularly in connecting remote or undeserved communities. The aversion of the ‘other India’ to digital finance has more to do with their disinclination to everything that has more to do with technology. This stems from a lack of trust in and comfort to use technology. Women often face additional barriers: Limited access to mobile phones, low literacy level, less confidence in using technology and restrictions on travel or social interaction.

For India to attain mobile money, as has been the case in Kenya, providers will need a more liberal stance from the Central Bank (Reserve Bank of India) whose stiff legal and regulatory framework has constrained the expansion of mobile money. It is understandable that in a vast country like India with such a diverse and remotely dispersed population, most of which is poor and illiterate, the central banker has to tread the terrain cautiously.

Security of consumers must be the topmost priority and concern. Although we must continue to make the case for responsible digital finance being good business, we know that isn’t enough. Independent and well-resourced regulators, consumer groups, and other organisations are critical to ensure that the consumer protections afforded by the law and regulator are actually followed and enforced. The new customer base build-up by the Jan Dhan Yojana has its own peculiar fragilities and vulnerabilities. Regulators must live up to trust.

We must remember that the ‘technological’ layer is another tool — a means to an end — and not a solution in itself. In certain conditions, it happens to be the most powerful tool and certainly enables services to be delivered efficiently at a scale with great benefits. But it has to do with how we are using it and how we are defining the outcomes.

The unfulfilled promise of past technologies rarely piques the most optimist advocates of cutting edge, who believe that their favourite new tool is genuinely different from others that came before. We must not forget that we are working with a constituency which is both politically and socially mute. Building inclusive digital economies requires the collective action of Governments, industry, financiers and civil society. Before speeding ahead, we need to build infrastructure, align policies and create the tools that can enable the poor to comfortably board the digital train.

As Ghanaian diplomat Kofi Annan had said: “In managing, promoting and protecting the Internet’s presence in our lives, we need to be no less creative than those who invented it. Clearly, there is a need for governance but that does not necessarily mean that it has to be done in the traditional way, for something that is so very different.”

(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)

Writer:  Moin Qazi

Source: The pioneer

We can’t jeopardise the future of one business to save the other. Similar is the case with the banking system that runs on a few ethical principles. If a person commits fraud by submitting spurious documents, declaration or statement of his/her account, he/she should be treated as an economic offender. By committing fraud, one not only cheats the bank but also puts people’s hard-earned deposits at risk. Millions of poor, pensioners, widows and workers of the unorganised sector keep their hard-earned money in banks with expectations that they would earn interest and would get their money back whenever they need them. Banking business actually thrives on people’s low-cost current and savings account deposits. It is another matter that the Reserve Bank of India (RBI) keeps reserves to protect the banks from crisis, which safeguards people’s deposits. Given that the Indian banking sector is fast integrating itself into an unstable global financial system, reserve funds always work like cushion.

Over the years, a large number of scamsters has taken undue advantage of banking loopholes to run away with huge credits. As per RBI data, as on September 30, 2017, there were 5,879 reported incidents of frauds amounting to Rs 32,048.65 crore in 2017-18. Gross non-performing assets (NPAs) in banks stood at more than Rs 7.34 lakh crore in September this year, according to ratings agency ICRA. The need, therefore, is to strengthen the law and put stringent guidelines for wilful defaulters who try to break the very backbone of the country’s financial system. In doing so, they also create trust deficit between banks and borrowers that adversely affects the credit cycle of the banks. Experts have suggested that the public sector banks (PSBs) be privatised. In reality, the workings of PSBs are entirely different from the private sector banks — it has a wide network to reach people in the remotest area. PSBs face tough challenges, like political interference at the village level, manpower shortage and pressure to meet social sector objectives. On the other hand, private sector banks have better operational efficiency, investment skill and less response time. Nevertheless, both have their strengths and weaknesses. Privatisation of the PSBs is not a sound option but an escape from the difficult task of reforming the banks itself.

Professional CEOs, equipped with updated management information system, effective board of directors, sound HR policy, state-of-the-art internal and concurrent audit system, dedicated asset supervision mechanism and a detailed information structure can prevent frauds and reduce NPAs. Equally, banks must pay more focus on fraud prevention measures than post-fraud correctives. A new mechanism must be adopted to judge the reporting, communication skill and decision-making capacity of the employees. There is also an urgent need to stop the practice of giving incentives to the CEOs so as to achieve desired targets. Many PSB chiefs are known to put pressure on the entire staff. This results in oversight, leading to frauds. All kinds of post-retirement assignment should be stopped for the good health of the banking sector.

Defaulters of the likes of Nirav Modi, Vijay Mallya and Mehul Choksi among others could not have duped the banks had their boards, audit teams, supervising officers, loan review committee, asset verification teams, information system auditors and CEOs worked in tandem. Few banks conduct dedicated physical verification of assets, which in many places invites risk. Here, the Government must provide adequate security to the bankers. Physical asset monitoring is a must for banks. Over the years, bad loan in the agriculture sector has witnessed an alarming increase from Rs 24,800 crore in 2012 to Rs 60,200 crore in 2017 due to loan waivers, poor credit end use, unviable methods of agricultural practices and lack of dedicated research and planning.  Politicians desperately cling to loan waivers for votes and cause immense damage to entrepreneurial life cycles. This creates massive idle energy across the country. Politicians should revive village ponds, wells, ground water, bio-diversity and above all natural agricultural practices. Subhash Palekar, agriculturist and research scholar, has revived natural agriculture practices free from all kinds of pesticides. His model works well in villages with rich bio-diversity, which helps increase the farmers’ income in order to help save banks from a defunct credit cycle in rural areas. There is no paucity of credit, technology, skill and innovation in the country. But there is lack of will to ensure that bank credit serves the ultimate purpose.

(The writer is a freelance commentator)

Writer: Sudhansu R Das

Source: The pioneer

The government is facing a stand-off with the Reserve Bank of India on the issue of latter’s autonomy.

The Narendra Modi Government just cannot seem to catch a break when it comes to dealing with statutory bodies and officers. And opinion is divided on whose fault that is. After a revolt in the Central Bureau of Investigation, it now appears that the Government and the Reserve Bank of India are at loggerheads. This is because the Government is reported to have invoked Article 7 of the Reserve Bank of India (RBI) Act which allows the Government in some manner to supercede the autonomy of India’s central bank. Of course, the conspiracy theorists are out in force on their websites — allegations are rife that the Government has taken this step at the behest of friendly industrialists who are being forced to borrow money at higher rates; by invoking Section 7, the Government can ‘force’ the RBI to order Indian banks to loosen their purse-strings.

There is an argument to be made that while the RBI has been extra strict with banks, especially public sector banks, in a crackdown on Non-Performing Assets (NPA), this has followed a period of over-lenient central bank supervision loans to all and sundry. As a result, now all financial institutions whether in the public or private sector have had the fear of God instilled in them when it comes to disbursing loans as they are petrified of possible NPAs. This, in turn, has virtually brought economic activity in India to a standstill.

According to media reports, Section 7 has been invoked three times already over the past few weeks at least in part to reclassify the massive NPAs plaguing India’s power sector. Invoking Section 7 is, for better or for worse, a vote of no-confidence in the RBI Governor. It is not as if the RBI and the Government cannot work together. But when the Government compels the RBI to act in a certain way, there are few options in front of the RBI Governor.

Urjit Patel was widely thought to have expressed his displeasure at Government interference through a media interview given by his deputy V Acharya. His position seems to be untenable and the odds are that Patel may have no option but to resign. But that’s not a done deal, yet. After all, we are in an election year and the Government would not want another once-hallowed institution to be seen to be imploding on its watch. But there is also a view emerging in Government that it has no option but to demolish the ‘deep state’ established by the ‘Congress System’ if it is to fulfil what it thinks is its mandate from the people of India.

Writer: Pioneer

Courtesy: The Pioneer

Crisis is not restricted to the US dollar but has affected all financial institutions of the world.

Trigger was the downgrade on August 5, 2012, of United States rating from AAA to AA+ by Standard & Poor, (S&P) a private rating agency. The consequence has been that all stock markets in the world recorded massive declines.

The downgrade complemented the turmoil in Europe with the debt problems faced by PIGS (Portugal, Ireland, Greece, Spain). PIGS joined by France and Germany who have their own Euro-dollar problems to cope with.

World Economic History snapshots: impoverishment of the world

India and China accounted for 50% of world GDP for all of the past 2000 years. (Now they account for only 25% of world GDP). The impoverishment was caused by colonial exploitation.

US economy: some history lessons

26.5?cline in GDP (from 1929 to 1933). Unemployment: 24.9% (1933), >20% (1932-35). 85?ll in stock prices; 47?ll in industrial production; 80?ll in home building (1929-33). Double-dip recession of 2011 evokes these memories.

Why is US $ a big deal in global finances?

US $ dominates currency circulation in world economy. $ Forex holdings are held by countries outside USA. US trade deficits and consequent increased supply of US $ to the world meant that over 66% of US $ (1980- 2005) are held outside USA. Two- thirds of US $ (Over $1 trillion) are in circulation outside USA.

Total Forex business: $3.98 trillion (US$ accounts for $

After the formation of OPEC and Petroleum products carry 69 trillion or 42.5%; Euro accounts for 19.5%).

Causes for dominance of US$tel, Kissinger ensured that these petro-dollars were stated in US$ terms and recycled in the world.

Thanks to forex, trade, investment, financial derivatives (puts and calls, credit swaps, participatory notes), petro-dollars, US $ is the dominant currency.

Total Forex reserves: $9.7 trillion (i.e. 16.7% of World GDP 58.26 trillion). Of these reserves, 2/3 are in US $, held and transacted in financial markets.

Keynesian economic model

Keynes was instrumental in introducing the current mainstream economic thought, in the wake of the First and Second World Wars.

He wrote two works:

The Economic Consequences of the Peace (1919)

How to Pay for the War: A radical plan for the Chancellor of the Exchequer (1940)

Keynes wrote in 1919: “If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing.”

He attacked the post World War I deflation policies with A Tract on Monetary Reform in 1923 – an argument that countries should ensure stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate.

Keynes’s predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the Weimar Republic and the out- break of World War II. Only a fraction of reparations were ever paid.

How to pay for the war (1940)

At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter cyclical public spending and contains one of the first mentions of the multiplier effect.

Keynes’ General Theory of Employment, Interest and Money (1936) argues that demand, not supply, is the key variable governing the overall level of economic activity. Without government intervention to increase expenditure, an economy can remain trapped in a low employment equilibrium. Keynes advocated activist economic policy by government to stimulate demand in times of high unemployment for example by spending on public works.

One consequence was the US announcement of Marshall Plan. Key argument was that war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers loaning money to the government), rather than deficit spending, in order to avoid inflation. Marshall Plan finally ended up in the formation of European Community with Euro dollar as their common currency.

How to overcome the present economic mess?

(1) Promote public works, reduce unemployment

US and developed economies of the world should pause and learn lessons from history of the last 20 centuries. Impoverishment of colonies by the colonial loot should be recognized. Developed economies owe reparations to the impoverishment developing world which has come out of colonial dominance. One solution: Just as European Community and Eurodollar were formed, an Indian Ocean Community and Mudra as common currency of IOC should be instituted.This will lead to employment generation in ALL economies of the globe.Law of the Sea now expands territorial waters to 200 nautical miles, opening up new zone for economic exploitation. Projects are ready to link Vladivostok and Bangkok through Trans-Asian Highway and Trans-Asian Railway – projects which will provide the multiplier effect made popular in economics by Keynes.

(2) Promote savings

Avoid the temptation to print US dollars. Slow down the US $ money circulation. Institute steps to reduce US and other Developed Countries’ Current Account Deficit by increasing their exports of services for public works’ financing in Developing countries, for e.g. IOC.

US current account deficit (1976 to 2009): $8.5 trillion which becomes forex reserves of nations outside USA.

Promote savings in USA and other Developed Countries.

Promote investment of $ held as cash by corporate.

(3) Ban financial derivatives

Financial instruments such as options, financial derivatives, and participatory notes create a false sense of financial health.They do not provide insurance cover, they only promote the development of excessive greed. To promote greater corporate social responsibility, take lessons from millennia-old Dharma- dhamma institutions which promote social responsibility through sreni dharma (corporate responsibility) (e.g. makamai, a voluntary contribution of a percentage of turnover to social causes).

Are Indian companies missing out on investment and business opportunities?

With an expanding home market many Indian companies tend to focus on domestic growth and looking to expansion in markets where successful Indian establishments has been made earlier, like UAE, and where quite a few Indian NRI HNI’s are strong links to opportunities.

In both US and Europe the markets are slow, to say the least, an FDI from these regions into India have dropped during the last one to one and a half year. The later is because of several factors; the perceived risks related to investing in emerging markets, lower risk investing in known markets and companies, but more interesting and important because there are “better” investment opportunities to be found in Europe and the US. And, from an Indian investors point of view many of these investments can make even more sense.

A company with relatively low valuation, a proven advanced technology being used by world-class customers could in many ways be the perfect acquisition. Or, a brand with a strong position in the local market who has not taken the step into the enormous Indian market due to lack of knowledge, contacts in India or temporarily slim financials.

According to our experience, in Europe, the geographical belt from northern Italy, Switzerland, Germany and Scandinavia are were the most attractive opportunities are. Throwing a glance at Netherlands and the UK might make sense in some cases. In the US there are typically industry specific clusters with different locations depending on industry.

Leveraging a higher margin customer base, moving manufacturing and development to India to further improve margins, bringing the products to the high end market in India and applying the Indian knowledge of down-scaling the product to match the requirements a cost sensitive volume market in Indian and as a next step go global with a superior product with an attractive price-point is a viable and proven strategy. Indian companies are uniquely positioned to implement such a strategy.

What we have seen though is that many Indian owner/promoters and executives tend to go for the cheap acquisitions, technology transfers of joint ventures – losing strategic and long-term advantage, unnecessarily sharing profits and being held back during implementation by foreign partners looking to their local needs and the past. Also, there is an reluctance by many to do, and pay for, the quality upfront research and evaluation work of available strategic options and acquisition opportunities – an initial investment that typically has an amazing return.

As examples – how many researched the Swedish market for green-technology, renewable energy, agriculture equipment, defense technology, medtech, auto-components or IT? – a region with a history of being at the frontier in clean energy, environment, medicine, vehicle manufacturing, telecom equipment…. Who has not heard of ABB, AlfaLaval, Bofors, Gambro, the Nobel price, Volvo, and Ericson. Is it likely to find interesting acquisitions or partners in their supplier base? Where are the clusters of companies, technology and brands related to your industry and business? Why miss out on an opportunity in a life time to leverage 150 years of development in Europe and US and bring it into, to, the future in India?

– R Vaidyanathan (Writer is Founder & Chairman of EXTEND, LLC)

It’s presidential inauguration time in Washington. Not for the person who will helm the federal government that comes in six months but instead for Dr. Jim Yong Kim, the man taking the reins of an organization even more lumbering, and far less accountable: the World Bank.

And according to dozens of interviews over the past few weeks, atop hundreds more over the past five years, plus a review of thousands of pages of internal documents- problems have gotten worse, not better, at the World Bank despite more than a decade of reform attempts. Kim, the Dartmouth College president tapped by President Obama to lead the bank, stands little chance of fixing things, say insiders, unless he is prepared to completely revamp the cur- rent system. “The inmates are running the asylum,” says a former director.

Part of the problem is philosophical: No one, starting with outgoing president Robert Zoellick, has laid out an articulated vision for what the World Bank’s role is in the 21st century. For example, economic superpower China remains one of the bank’s largest and most valued clients, even as it doles out development money to other countries and bullies the bank from aggressively investigating corruption.

Part of the problem is structural: Internal reports, reviewed by FORBES, show, for example, that even after Zoellick implemented a budget freeze some officials operated an off-budget system that defies cost control, while others used revolving doors to game the system to make fortunes for them- selves or enhance their positions within the bank. Why not track all the cash? Good luck: Bank sources cite up to $2 billion that may have gone unaccounted for recently amid computer glitches.

Sadly, the last part is cultural: The bank, those inside and outside it say, is so obsessed with reputational risk that it reflexively covers up anything that could appear negative, rather than address it. Whistle-blower witch hunts undermine the one sure way to root out problems at a Washington headquarters dominated by fearful yes-men and yes-women, who-wary of a quick expulsion back to their own countries- rarely offer their true opinions. Zoellick declined to speak with FORBES for this piece, though that’s not surprising. I’ve covered the bank for the past five years and have been ritually denied access to anyone in a mid-to- top-level post. The blockade ended just before FORBES went to press, when the bank conducted a carefully monitored conference call with two staffers who run the global “Open Data” initiative. The bank’s media relations spokesman was permitted to be quoted by name. That this is considered openness epitomizes the problems that Kim now inherits.

Like most out-of-control bureaucracies, the World Bank started with lofty and idealistic goals. Facing a planet in ruins near the end of World War II, it was created along with the International Monetary Fund at a conference of leading Western economists trying to find ways to address the economic instabilities that they believed led to war and to guarantee it would never happen again.

Having successfully helped rebuild Europe and Japan, the World Bank eventually expanded into a truly global agency, notably in the 1970s under the leadership of Robert McNamara, who took on the goal of a poverty free planet in his search for redemption after his role in the Vietnam War. Donor nations fund the bank with billions of dollars annually, which it then doles out to fight poverty worldwide.

In terms of its governance, the World Bank has always operated under a gentleman’s agreement that allows the U.S.-its largest shareholder with 16% of the vote-to pick its president, while the other 187 member-governments flow into a 25-member board. The process for its funding, grants and loans is absurdly complicated, but in essence it combines capital from its donor -countries, plus self generated income through the sale of bonds. While often confused with the IMF, which provides financial stability to governments, the World Bank’s role is at least supposed to be only development projects-like building dams, roads, schools, even fish farms-although it has muddied those boundaries over the last 20 years. Unlike the IMF, the bank deals with both the public and private sectors, and as the number of projects and amounts of money have escalated, so has the mischief, corruption and cover-ups, since no agency has the power to audit them.

In 2005 George W. Bush tapped Paul Wolfowitz as president to clean the place up. To his credit, Wolfowitz made rooting out corruption his primary mission. But the former Pentagon official also came in like an occupying power. According to internal documents obtained by FORBES, the board and Wolfowitz engaged in a game of trench warfare so vicious that the minutes of some board meetings had to be sanitized to keep the world from knowing what was really going on.

Perhaps Wolfowitz’s heavy-handed style would have eventually paid dividends. He did, after all, declare war on the bureaucracy. But he also fell prey to the insular culture, giving his girlfriend at the bank special considerations that undercut his credibility and led to his resignation.

So in came Zoellick. He had a stellar resume, serving as the U.S. trade representative, an assistant Treasury secretary and deputy secretary of state. Joining the bank in 2007 he immediately calmed the waters. Facing a global food crisis, followed by a financial crisis, he shoveled loans out the door at record levels to help keep the world’s poorest from being buried alive. He then turned around and sought-and last year received-healthy financial increases from the bank’s member countries. When arriving at the bank he was flabbergasted at the glass ceiling for women-despite 20 years of studies and internal promises to change it. Within five years he could boast that half of his top managers were female. Zoellick was also shocked to learn that the bank sold its old data and surveys in its 8,000 “datasets” going back 50 years. He ordered it to be given out for free and made available to all-except for the sensitive stuff under what he calls the Open Data program.

These moves, however, all fell at the margins. The bank’s core problems grew unabated. Zoellick appeared to continue Wolfowitz’s corruption battle, boosting the budget and the number of investigators in the bank’s corruption- fighting arm-which led to the bagging and debarring of a record number of companies for corruption and bribery, including Germany’s Siemens and Britain’s Macmillan Publishers.

But numerous managers and vice presidents that I spoke with inside the bank say that corruption continues unabated. Five years ago a commission led by Paul Volcker drilled into the bank and called it a massive problem. He recommended restructuring the bank’s corruption-fighting unit, including moving the leadership into a more powerful notch in the bureaucracy. Zoellick adopted everything in the Volcker plan, but there are big questions today whether it’s having a deep impact.

“Certainly the World Bank in its official attitude has changed,” Volcker tells FORBES. “Now I can’t tell you how much that’s penetrated into the field staff … or the people who make the loans.”

Last year a little-known internal bank review was done on the effectiveness of the bank’s corruption-fighting efforts. At first, according to the report’s lead author, Navin Giri-shankar, Zoellick’s team asked the evaluator based inside a semi-independent bank unit-not to review the Volcker restructuring until they had more time themselves to see how it was working. The investigators agreed, focusing instead on the end results that ultimately matter, anyway the “quality of the bank’s operations,” particularly in countries that suffer heavily from corruption and poor governance.

The bank’s corruption fighters are too focused on specific development projects and not enough on the budgets of poor countries, where bank funds more than $50 billion since 2008 are commingled with a country’s income and may not be used for its intended purpose. These funds go down a rabbit hole and are almost impossible to track.

It was a bold report that shook the bank, and Zoellick’s team worked hard to discredit it. “In the beginning they wanted to push us toward examining countries where they felt there would be successes,” says Girishankar, considered one of the best analysts inside the agency. “Then the sampling was questioned, as were the findings that the bank is not consistent in fighting corruption and improving governments across countries.”

A similar report that the bank buried, attacked and then ignored was done by another respected internal investigator, Anis Dani. This report found a “dramatic dip” in the quality- meaning effectiveness, impact and results-of bank projects over the past five years, says Dani. He also found a seemingly premeditated effort to remove the only whistle blower function within the bank that dealt with all its projects, called the “Quality Assurance Group.” Zoellick’s team dissolved it in 2010, and while the bank maintains that it is working on replacing it with something else, Dani calls that claim “hogwash.”

The study, presented to the board in February of this year, was objected to by the bank’s senior managers, who preemptively produced their own Power Point presentation that found a lot of the same problems that Dani did. (That report has never been released.)

None of these apparent attempts to blunt unwelcome news comes as a surprise to Carman L. Lapointe, who has worked as the UN’s chief internal watch- dog since 2010. Before that Lapointe was the auditor general of the World Bank, where her team issued 60 internal reports per year on what was really going on inside the agency. “Carman’s reports were-how can I put it-a bit can-did,” laughs a bank vice president who supported her. But it led to Lapointe being gently walked out the bank’s door in late 2009. “We were pretty blunt with what had to be said, and that’s not what those at the top of the bank want to read,” Lapointe tells FORBES. “The bank’s management  didn’t want to hear the tough messages. They are very reluctant to be held to account.” The bank wouldn’t comment on that, although Lapointe says she confronted Zoellick before leaving, and he told her he’d been blindsided by his own top  managers.

At the most fundamental level the World Bank has a mandate problem. Economist Adam Lerrick, a longtime critic of the organization, argues that it lost its bearings lending to middle- income countries “that don’t need the money,” like the BRIC countries Brazil, Russia, India and China-rather than sticking with development projects in the world’s poorest and most fragile states.

The bank argues that it makes money from lending to the BRICs, which allows it to lend still more money to the poorest nations. In a 2006 study, however, Lerrick drilled down into the bank’s books and found real annual losses of $100 million to $500 million per year on its loans although accounting maneuvers painted a rosier picture of the financials. It’s hard to believe the situation has improved in the wake of the financial crisis.

“The World Bank should be in the development business, not the lending business,” says Lerrick. “Its scarce donor-backed funds should be channeled to countries that do not have access to private-sector capital.” Volcker has previously likened the bank’s we-must-lend attitude, ominously, to Fannie Mae.

Nowhere is the problem clearer than with China, the world’s second largest economy and the World Bank’s second largest customer behind Mexico, having borrowed more than $30 billion over the past few decades. When China in 2007 threatened to stop borrowing from the bank unless the agency toned down its new corruption fighting plan according to a secret internal bank memo, obtained by FORBES the bank’s top managers went into a panic and quietly caved. “The bank is desperate to keep its best clients,” explains Lerrick. A decision was made inside the bank announced on its website but wrapped in diplomatic jargon that they would benchmark each country individually on corruption, rather than against one global standard. The practical result was an easing of the rules for the biggest violators, such as China.

Zoellick, who prides himself on his relations with China’s leaders, did nothing to alter it. Indeed, in the report issued last year by Girishankar, he con- firmed that this was happening. “There are several countries, including those with very big geopolitical influence and a strong voice on the bank board, where the bank had to find a way to deal with it,” he says.

It gets worse:Hardly a month now passes without an announcement that the World Bank is lending China a ton of low interest money say $300 million to clean up a polluted lake-only to watch China turn around a few days later and announce a similar sized zero-interest loan, or grant, to a poor sub Saharan nation, winning extra global clout. Meanwhile, inside the bank’s Washington headquarters, China is increasingly assertive on the board level, while bank managers kowtow to China. Case in point: In the China office at the bank in Washington, one staffer’s job, according to a recently retired senior bank official, is to closely examine every World Bank document the bank creates that mentions Taiwan to make sure that it uses language China approves of. If it doesn’t, the language is altered.

When Zoellick took office five years ago, he instituted, he says, a flat budget on the agency-which, to outside eyes, remains at roughly $2 billion annually for administrative overhead. He did it because he felt it would instill discipline on the global staff and honestly felt they could do more with less. Unfortunately, FORBES has learned, the staff simply did an end-run around the president.

“No one believed we had a flat budget except him,” laughs a senior vice president. “We’re spending trust funds like there’s no tomorrow. So where is the flat budget? Everyone just got money from bank owners in a different capacity.”

“Trust funds” are the World Bank’s dirty little secret, their version of Congressional earmarks. There are hundreds of them, funded by dozens of countries and dedicated to virtually every poverty type project you can think of. And they have been growing so phenomenally that they now provide $600 million annually, or 30% of the bank’s total administrative budget.

Many donor countries do this because they don’t want their money sitting in a general bank fund that the bank can use for anything it wants. But since they have various arms of the bank administering these funds, there’s even less oversight than there would have been otherwise. And while those trust funds are generally not supposed to go toward administrative overhead, they often do anyway, say bank insiders, which many countries are unaware of. FORBES has turned up examples- such as with Italy-in which arms of the bank have been charging headquarters and individual countries for the same salaries and expenses, helping to enrich bureaucratic fiefdoms.

FORBES has also discovered a whole layer of bank officials who have learned how to game the system or expand their influence through its constantly revolving doors. It’s not unlike the way that U.S. officials retire and then go to work for the contractors they associated with while in government service. As just one example, “Lead Education Specialist” Luis Crouch helps manage the billion-dollar Global Partnership for Education, run out of the bank’s headquarters. Crouch is a revolving door within a revolving door- over the past ten years he has shuttled back and forth between the bank and Research Triangle Institute, a nonprofit that sells education tests to the bank and USAID, according to a USAID consultant familiar with the deals who says Crouch consistently favors RTI. Asked about his apparent conflicts of interest, Crouch declines to comment, while bank spokesmen also decline.

With such off-book shenanigans going on, perhaps it’s not shocking that last December more than $2 billion suddenly started appearing, disappearing and reappearing across the online budget accounts (and computer screens) of bank units around the world, according to staffers responsible for those budgets. In some accounts they showed huge deficits where none had been, while in others there were sudden surpluses. This was popping up in unrelated units across the bank’s computer networks-and driving every- one crazy trying to figure out what was happening. One insider likened it to the game whack-a-mole-only with hundreds of millions of dollars shooting up in different spots and vanishing from others. One possibility could be that it was massive hacking-an incessant problem at the bank. Another explanation is that it was simply “Computers Gone Wild”- perhaps the IT network on its own playing a game. Others suspect the explanation may be more nefarious. One thing for sure: It eroded confidence in the World Bank’s controls.

Zoellick’s hands-off management style didn’t help, either. He delegated most day-to-day functions to a deputy, Caroline Anstey, as well as delegating to her and two others the chairing of most board meetings-which is normally the function of bank presidents. The board meets twice a week, and yet Zoellick shows up maybe once a month. At the beginning they groveled for his attention, until he started going behind their backs to get information directly from their bosses (the finance ministers of their countries).

Indeed, Zoellick fashioned himself more in the role of a statesman than a bank CEO. He is rumored to be eyeing a senior job in a Romney Administration. Given this, bank insiders say that Zoellick’s goal with bigger career perch- es in mind-has been to simply manage the agency in a way that there is no noise or blame that could be affixed to him.

That meant not taking big risks. In late 2008 Zoellick tapped former Mexican president Ernesto Zedillo to chair an independent commission to study the issue of giving smaller and poorer countries a bigger seat at the World Bank governance table. That report was sent to Zoellick when it was completed last year, who promptly gave it to the board-but not before adding a cover letter saying it doesn’t necessarily represent his views. “Why did he have to do that?” Zedillo asks FORBES. “It was very obvious it was an independent report. He didn’t have to say that. He was not the author of the report at all. I think he’s afraid some country members will jump to his neck, blaming him for the report. They can blame me if they don’t like it.”

One of the Zedillo commission’s biggest conclusions is that “the board should be a real board and not an executive board,” says Zedillo. “The board should handle strategic matters and oversee seriously the activities of the bank. Right now it has a conflict of -interest.

“You cannot be the overseer and also the approves of the operations,” he adds with a laugh. “But that’s been a practice since the bank was established. … Do they really think the World Bank will be relevant in 10 to 15 to 20 years if you keep it the way it is now? The answer is no.”

– Bob Prouty, Forbes