A Fistful of Rice - Vikram Akula and microfinance

"Doing well by Doing Good"

Why do some people succeed wildly while others, who seem equally capable, flounder?

When I first read about Vikram Akula in WSJ's front page back in 2006, I remember thinking about this question. I was only generally interested in the idea of microfinance.

Back in 2006, to satisfy myself, I reached for the easy answers – attributing others' success to some combination of luck and talent.

But this book, "A Fistful of Rice" by Vikram Akula shows me a lot more of why he succeeded. And why my simple answers are wrong. I have previously read a couple of books on micro-finance (including A Billion Bootstraps which I liked very much) but Akula's book is different.

Akula is a surprisingly good writer and story-teller, and I found his book very easy to read. (My wife was the one who spotted the book and brought it home, but I commandeered it and read it right away.) Ultimately, this is not at all a 'micro-finance' book, but it is a book about one idealistic guy who uses micro-finance as a backdrop to pursue his idea relentlessly, and ends up making a big difference in the world.

It is fascinating to look at India through the eyes of someone like Akula, whose parents are India-born, but who himself grew up in the US, in Schenectady, NY.

Most of the world heard about Vikram Akula (and his company SKS) when he became an "overnight sensation" in 2006. But the real story is what came before that, and all the hardships that he had to put himself through, starting in the 90's.

As an idealistic young man, right after graduating from Tufts, Vikram chose to go to India, to spend a couple years in rural Andhra Pradesh. He volunteered to hand out small loans and learned about the world of the poor. He maxed out his personal credit cards to pay for his expenses. With the best education in the world (Tufts, Yale and the Univ of Chicago) he could have had any job he wanted to, but he forsake all that to pursue what he believed in.

Entrepreneurs take risks that the rest of us shy away from. One particular example struck me as an example of why he has succeeded at such a grand scale. Even though he only devotes a page to this, I found it very telling.

After having watched the horrendously difficult account-keeping efforts of Grameen (in Bangladesh) where they struggle with notebooks and paper, Akula gets convinced about the need for automation and software to grow his operations. Even though his company, SKS has existed only for 2 years, and his total loan portfolio is only $25,000, he sets aside $250,000 for software development. Now, that is true power of conviction.

The other thing that struck me was how he had to ask his friends and family for small loans, so convinced was he about his model. He spends hours pitching to people and then they hand over $50 or $100. (An echo of exactly what Greg Mortensen went through, which he writes about his Three Cups of Tea.) Asking our friends and family for money is not something most of us want to do.

And when all the planets are aligned, good things happen. Along the way, Akula gets grant-writing advice from Michelle Obama back when she was a community volunteer in Chicago, his work is observed by Rahul Gandhi (a young leader of India's Congress party) and he gets written up in the media, which the WSJ picks up. Soon, he gets invitations from Bill and Melinda Gates, and a procession of Silicon Valley VC's come knocking.

Vikram Akula makes a very strong argument for "doing well by doing good" i.e. that it is perfectly okay to profit from lending to the poor. (The poor are not dumb, he says, nor do they want handouts. Mostly, they just need a little capital.) I happen to subscribe to this line of argument.

The book's last chapter, titled "Google Territory" is especially gratifying to read. Having built up such a vast consumer base, he is now able to do so much in terms of bringing amenities, medication, cell phone technology and education opportunities to India's rural poor.

Readers who are curious about micro-finance, about realistic attempts to make a dent in ending poverty, and most importantly about how one dedicated person can indeed make a difference should read this book. (176 pages, but you can read it easily in 2-3 sittings)

There seems to be no quick short cut to success. People succeed because they are fearless about the size of their vision, their belief in it, and are willing to put in 10-15 years of their life effort into what they believe in. They succeed because of sheer tenacity, where the rest of us easily give up.

Related post: All or Nothing Players

Higher Taxes for the rich - Simplistic

It is possible to experience a certain Robin Hood-like righteousness in contemplating about taxing the rich and sparing the poor. But in this article, Harvard professor Greg Mankiw shows me why my thinking is overly simplistic.

His point is that if the taxes were raised further, the proportion that he (and his family) can put away from each incremental dollar earned becomes so small that he might choose not to earn that extra dollar at all.

The following paragraph touches on a slightly different point and it resonated with me. I did notice a certain similarity in our thinking. My possessions, such as they are, are quite modest. Prof Mankiw writes:

Indeed, I could go so far as to say I am almost completely sated. One reason is that I don’t aspire for much more than a typical upper-middle-class lifestyle. I don’t fly around on a private jet. I have little desire to own a yacht or a Ferrari. I own only one home, in which I have lived since 1987. Paying an extra few percent in taxes wouldn’t create a lot of hardship.

Read the full article here.

What are these posts about?

The title of this blog is not accurate. It is difficult to be accurate while also being succinct.

When I was setting up this blog, I couldn’t possibly name it "An Attempt to Give Up A Regular 9-5 Corporate Job In Order to Obtain Lots Of Free Time, Pursue Leisure and To Get By with Occasional Paid Gigs." So, I went with something reasonably catchy.

But I hardly ever use the word "retirement" in conversations with respect to myself. I now feel that the words 'retirement' or even 'sabbatical' are too blunt for what I am attempting to do.

When I look at what ties the posts in this blog, I see two of my obsessions recurring.
They are 1) Financial independence and 2) Getting free time.

Actually, even those two are not very accurate. What I am really interested in is getting to choose how I spend my time (autonomy over time). And for most of us, that is only possible if we take care of the money question. In this blog, financial independence is narrowed down to 'freedom from dependence on a monthly paycheck.' So these are the two central underlying themes that I post about.

Staying Sharp: One of my big fears is that an unexercised brain will quickly go to mush. As our world gets increasingly complex, I especially worry about how I will stay sharp. Under the broad label of intellectual stimulation I post about puzzles and games.

Getting inspired by those who are trying very different lifestyles: I am fascinated by people who are trying out unconventional things, shunning traditional routes. Since we can't all try everything out, we have to learn from others who are trying to move off the conventional grid in small and big ways, and maybe find a few aspects to incorporate into our own lives. So I sometimes post about that.

The specifics of how each one of us can get away from a dependence on a monthly paycheck varies from person to person. So my posts are about a few basic financial guidelines and also about my situation.

I also wouldn’t presume to tell others what to do with the free time once they get it.

But why is getting autonomy over time so important?

Because deep down I believe that if all my friends and all the readers of this blog get autonomy over time (full control over how they choose to spend their time), each one will eventually get around to "doing good." Sure, the definition of doing good in society will vary for each of us. Doing good, as I repeatedly find, is actually not straightforward, and I sometimes post about that.

Staying sharp, and learning from others about how to get control over our time so that we can perhaps do a little good.

These are the things I post about.

Reference Anxiety

“Reference Anxiety” is basically the compulsion to keep up with the Joneses.

I came across this term a few years ago, in Lee Eisenberg’s book The Number. Lee mentions this as one big obstacle that keep people from attaining their “Number” – which is the estimated dollar amount in their nest egg so that they can retire comfortably.

Though I wasn’t aware of the term for it, I had experienced reference anxiety numerous times. I think most of us have.

I used to be a little proud of the fact that I drove a relatively old car to work. But that only lasted until my wife pointed out that Larry Summers, the director of Obama's National Economic Council still drives a 1995 Protege. Now there’s a man who is completely free of reference anxiety.

What struck me (and the reason I am posting this at all) is a side comment that Lee Eisenberg makes in his book. He mentions research that shows that it is not the Joneses who are raising the bar. Instead, he says, “we feel a great deal of pressure to keep up with ourselves.”

This, I find to be particularly insightful. There is no dearth of better things to acquire and enjoy. I know from first hand experience. I have many friends who are very successful in their chosen fields and not surprisingly, they live the good life. None of these friends would suggest that I go and buy or subscribe to the same things that they do. And yet it takes a lot of energy (if not courage) to consciously stay away from trying to keep up.

When it comes to reference anxiety perhaps I can fight it better if I realize that I am my own enemy.

Trading-In Money for Time

Every week, in my emails and phone calls, I find myself defending my decision to walk away from my job. With each variation of my response, I now realize that I am also articulating it for myself.

The underlying question is a tough one: If I am not independently wealthy, and I loved my job, why did I give it up mid-career? Every version of the answer involves time. I craved time-freedom so much that I gladly paid for it with my future earnings.

The succinct response, with apologies to the bard:
Not that I loved money less, but time more.


Related Posts:

1. What they think of time
2. Financial Self-help via T-shirts slogans
   

Your Dopamine, Your Retirement

There is a simple experiment with very significant consequences mentioned in Tim Harford’s ‘The Logic of Life,’ the book I am currently reading.

The Experiment In one case, experimenters offered a group of subjects a choice of a snack: fruit or chocolate. Seven in ten wanted the chocolate. A different group of subjects was offered the same choice, but with one small variation. They were told that they’d be given the snack one week after the question was posed to them. 75% of the subjects chose fruit.

What is happening here? The impatient part (the dopamine system) of our brain craves the chocolate right now, but the more sedate cognitive side opts for the healthier fruit because it is good in the long run. Harford very aptly dubs this ongoing tussle between the cognitive system and the dopamine system a ‘mental civil war’ that’s going on in all our brains.

The Relevance I first came across the various implications of the dopamine system in Jason Zweig’s excellent book Your Money & Your Brain (read it!). The book covers several interesting discussions around dopamine and the role it plays in the financial decisions we end up making and how we feel about them.

For me, personally, the cognitive side is able to assert itself over the dopamine side. When my dopamine side starts salivating at something, the cognitive side is quick to chide it saying things like “Don’t you remember? When you bought that other gizmo you used it for all of two times?” or “You know that in just two weeks you will outgrow it.” Consequently (most of the time) I am able to quell the instant-gratification urge. I will also try and wait six months to see if I am still interested in something.

This one aspect of my genetic lottery ticket has, I really believe, played a significant part in my being able to resist frivolous purchases, save up some money and be able to go with zero income for some time.

Though I haven’t seen it mentioned explicitly in the retirement context assertiveness over the dopamine system has to play a huge role in who is able financially to retire early. (Whether they choose to do so or not is a different matter.)

So if you are itching to give up your job and your current financial situation is the one thing that is stopping you, then start getting that dopamine system of yours under control.

IQ, Wealth and Income

The lecturer made a remark that was impossible for me to ignore. He said, "IQ has some correlation with income, but almost no correlation with wealth."
It didn't shock me, but I found the part about wealth difficult to accept at an intellectual level. So I checked the Web to see if there was truth to what the lecturer was saying. It looks like he was right. When the journal intelligence plotted IQ against net-worth, they found no real correlation. (See graph.) This is a difficult concept to come to grips with, especially for all those who suspect that their IQ is well above average. The accepted correlation of IQ and income seems to be around 0.4 to 0.5 (Wikipedia.)

In the context of retirement (or more accurately, financial indepence which is one facet of 'retirement') the lesson for most of us is fairly straight forward. If a certain net-worth is a goal, then work towards it diligently.

Thinking damn, I am quite smart, so I should be a lot richer than I currently am might actually be counterproductive.Your net-worth won't balloon all by itself just because your IQ is high.

It's all about timing

Going purely by market performance, this has got to be one of the worst times that anyone could have picked to stop working. All my savings are in S&P500, and in the last month alone, it has dropped >10%. If this trend continues, my "experiment in retirement" would , I am afraid, have to be a very short-lived one.