66 Finance & economics The EconomistFebruary 8th 2020
A
dozenwomendressedinsarissiton
benchesatthebranchof theUjjivan
SmallFinance BankonKoramangala 80
FeetRoad,awaitingdisbursementsoftiny
loans.Themoneyisneededforschoolfees,
tofinancehomebusinessesor,ina couple
ofcases,biggerventuresthatwillhaveem-
ployeesandassets.Oneishopingtopro-
ducepickles;anotherwantsworkingcapi-
talfora weldingshop.
Ujjivan(“uplift”inSanskrit)wasfound-
edin 2005 tobringthegroup-lendingtech-niques being pioneered in rural micro-
finance to urban slums. The Koramangala
branch is now one of 552 in India. This
growth, and the extension of the ideas un-
derpinning microfinance to loans for small
rather than tiny businesses, reflect how the
approach is maturing. Samit Ghosh, the
founder, has held senior roles in Citibank
and hdfc Bank, both of which played big
parts in transforming Indian retail banking
for the middle classes and above. Yet, de-
spite that pedigree, raising a few hundred
thousand dollars as seed capital was, he
says, the hardest task of his career.
How times have changed. Many of In-
dia’s largest banks are on a perpetual hunt
for fresh capital or a government bail-out;
Ujjivan, which as a condition of its banking
licence was forced to list its shares in De-
cember, was flooded with eager investors.
Its share price is up 50% since then, doubt-
less a source of joy to its 17,000 employees,
who all hold stock.
What drew investors was its stunning
growth. It now has 5m clients and $1.8bn in
assets. Around 70% of its lending is admin-
istered through groups, with members re-
ceiving an average loan of under $500. The
rest goes to individuals in chunks that are
three times as large. The women in saris
have been solid borrowers. Losses are only
0.3% of assets per year, return on assets is
2.5% and return on equity 20%. Reinvested
profits have enabled remarkable loan
growth: assets are up by almost half in the
past year. Few lenders in India produce re-
turns anywhere close; among them are
Equitas and au Small Finance, which have
similar histories and clients.
Perhaps the most important factor be-
hind this success is the size of the potential
market—300m people who are just above
verypoor,saysNitinChugh,whotookover
aschiefexecutivefromMrGhoshinDe-
cember.ThecompetitioncomesfromloanBANGALORE
Ujjivan,a stepupfrommicrocredit,is
a rarebrightspotinIndianfinanceBankinginIndiaSmallchange
Safetyinnumbers1T
he high street and Wall Street feel
like very different places. One is lined
with soft-lit storefronts showing tempting
goods, to entice the customer in. The other
is home to rows of gleaming skyscrapers,
with snooty receptionists and fiercely
guarded lift banks, in order to keep the riff-
raff out. But the core purpose is similar.
Both are venues for interested parties to get
together and trade things—be they Dior
suits or shares in Microsoft.
On February 4th the Wall Street Journal
reported that Intercontinental Exchange
(ice), a company that owns various finan-
cial-markets platforms including the New
York Stock Exchange (nyse), was in talks to
buy eBay, an online marketplace for used
goods. The deal would value eBay at around
$30bn, roughly $2bn more than its market
capitalisation before the news broke. Its
share price jumped 9%.
The news baffled financial analysts.
Christopher Harris of Wells Fargo, a bank,
said the deal would go beyond ice’s “core
competency”. ice’s investors were similar-
ly befuddled. Its share price fell by 7% on
the news of the potential deal.
They have a point. icewas set up in
2000 to run a commodity-futures ex-
change. It now runs 12 exchanges world-
wide and operates six clearing-houses, en-
tities that manage counterparty risk for
financial transactions. These involve ar-
mies of—mostly—savvy participants and
are characterised by abundant liquidity,
high transaction volumes and low transac-
tion costs. By contrast, the market for used
goods involves amateur buyers and sellers
operating under uncertainty about quality,
price and authenticity.
ice has also proven adept at making
marketplaces that do not work very well
more efficient, though. Since buying nyse
in 2013 icehas cut its expenses, revamped
its outdated trading platform and renovat-
ed its historic headquarters.
EBay, for its part, is in a difficult spot.
The platform has lagged behind those of
Amazon or Walmart. Under pressure from
Carl Icahn, an activist investor, it spun off
PayPal, an online-payments business, in- Back then the combined firm was
worth $80bn, around $45bn of which was
in PayPal and the rest in eBay. Today PayPal
is valued at $140bn; eBay is worth a little
less than it was in 2015.
Activists have not left eBay alone. Elliott
Management and Starboard Value, two ac-
tivist funds, pushed for it to spin-off Stub-
Hub, a ticket reseller, and its classifieds
business. EBay later acquiesced, selling its
ticket business and giving the activists
board seats. But shortly after that Devin
Wenig, its long-standing chief executive,
stepped down, citing differences with the
new board. The firm has yet to find a per-
manent replacement.
Whether the deal goes ahead is still un-
clear. icehas acknowledged its approach,
but both companies say they are not in for-
mal talks. That icetook an interest at all,
though, is curious. Helped by better data
and whizzy algorithms, some retail plat-
forms are already exhibiting financial-
market characteristics, such as dynamic
pricing. That a financial-markets behe-
moth wants to muscle into retail suggests
that it too sees a future in which the high
street looks more like Wall Street. 7NEW YORK
How to explain a new and weird
putative corporate combinationICE bids for eBayMaking an offer