The Widow's Mite

Essay-going after the bottom of the pyramid and a broad bottom it is too


The widow’s mite

I have always found the Biblical parable from the Synoptic Gospels (Mark 12:38-44, Luke 20:45-47,21:1-4) about the Widow’s Mite fascinating, because, in the Kingdom of Heaven, her offered mite, actually two of them per the parable, count for more than all the gold and silver offered by the rich and powerful. I found this parable fascinating because it forced me to get my child’s mind around relative value as a concept even though I wouldn’t have known enough to call it that at the time.

For God, the fact that the widow was putting all she had into the church collection counted for more than the rich putting in a miniscule portion of all their wealth into the self-same collection. But fine and fair as this may be, it almost made a mite sound like a button or something that merely felt like a coin if you felt for it in a church’s contribution sock. So what actually is a mite you might ask, and ask indeed you might! It makes you think of a miniscule bug as in “dust mite”, but it is, or was, the smallest Roman coin, made of bronze, minted by Alexander Jannaeus, King of Judea, 103-76 B.C. and was extant in the time of said widow in parable.

But going at a tangent from the meaning emphasised in the Bible here, I have to speculate that there must have been a lot of mites in the possession of a lot of poor people of the time, people, in fact, like poor people anywhere today, who were unlikely to see, let alone possess, any measure of gold and silver coinage nestling in suitably fancy purses. Mites however, were likely to have been fairly common in their poverty stricken lives, minted as currency for their daily survival by the state; minted with a pretty anchor upside-down in a circle on the obverse (heads) and a star of eight rays on the reverse (tails).

Quaint and touching as this talk of mites may be to those who regard the poor with a patronising eye, it is also seen as a fair and square business opportunity to others. Ones who see all money, however humble the denomination, as worth having. After all, it is self-evident to any monetarist and quite a few market strategists, that if you piled up a hill of bronze mites you’d be able to exchange it for a neat and impressive compact of gold or silver anytime you wanted. And by inference, the poor, living in a local economy ruled by mites, can be persuaded to lay out one or two or even a clutch of them-oh, on a flutter, a gamble, a bet, even an investment!

The latest move to increase the penetration of mutual funds in India, inspired, no doubt, by a variation on the theme of the Widow’s Mite, is from ICICI Prudential Mutual Fund, the second largest mutual fund in India, with assets under management tipping the scales at Rs. 42, 268 crores as of April 2007. In a move that illustrates the axiom that runners up try harder, ICICI Prudential MF lowered the minimum limit for its systematic investment plan (SIP), to just Rs.50 per month in the third week of April 2007. In a SIP, an investor invests the same amount month after month in any scheme of his choice. This lowering of the bar has set a new bench-mark and paradigm in the mutual fund industry for other houses to follow.

Mutual funds have for long maintained a minimum amount of Rs. 5,000/- in their investment schemes including SIPs, claiming that the administrative costs were unviable below this figure. Then, a year ago(April 2006), in a bid to broaden its customer base, UTI Mutual Fund reduced the SIP to Rs. 100 per month, but only for its “pension scheme” available to even those who did not have a bank account at all. Following on from this, in March 2007, the Number one Reliance Mutual Fund with Rs. 48, 828 crores under management, lowered its SIP limit to Rs. 100 for all its schemes. And it is likely, provided these fund houses succeed, that almost all the others will follow suit.

The current quantum of assets under management(AUM) in the mutual fund industry, composed of 30 fund houses, has grown to Rs. 3.5 lakh crores ( 3,50,441 crores in April 2007), according to the Association of Mutual Funds in India (AMFI). Not bad for an industry that only made its Indian debut in 1994, if you don’t count UTI and its now infamous Unit 64 scheme. The growth in the customer base has accelerated of late. According to Sundaram BNP Paribas AMC Managing Director, TP Raman, it has grown almost 300 per cent in the last three years.

The top five fund houses today are Reliance Mutual Fund at No. 1, ICICI Prudential MF at No. 2, UTI Mutual Fund (Rs.35, 517 crores) at No. 3, HDFC Mutual Fund (Rs.31, 485 crores) at No. 4 and Franklin Templeton Investments(Rs.24,510 crores) at No. 5. Even as these top five fund houses account for 52 per cent of the total present AUM, all 30 houses collectively have only managed to penetrate some 3 per cent of the population located in the top 20-30 cities and towns so far, according to Mr. TP Raman.

While the challenges going forward for the low-end SIP customer include education, particularly amongst the illiterate, and distribution at the micro-finance level, important in the 200 or more small towns being targeted now; the response to the moves made by the top three funds is encouraging, and Reliance Mutual Fund CEO Vikrant Gugnani has called his fund’s foray into the “small investor” segment a “striking success”.

Mr. Balbir Punj, in a recent opinion piece in The Pioneer (4th May 2007), quotes the latest National Sample Survey(NSS) to suggest that of the 100 million households in this country, only the top ten million households account for the bulk of the consumer expenditure and that this is expected to grow to about 25 million households in the next two or three years. But the other 75 odd million households, largely left out of the loop as it stands, need to be “directly addressed”.

It is possible that the parable of the Widow’s Mite as applied to the mutual fund industry might just be a step in this direction? After all, as Mr. Punj writes, quoting both the NSS and noted Professor CK Prahlad, there is a business opportunity in catering to the 75 million largely unengaged households in this country because they together represent a business opportunity as high as Rs. 31.11 trillion. Indeed, in this season of trillions, India having just become a trillion dollar economy also, this is a bracing prospect.

And combined with the findings of the latest McKinsey study that expects rising incomes in India to lift 291 million people out of poverty and create a 583 million middle class over the next two decades - targeting the bottom of the pyramid may make astute business sense for the early bird and the late comer alike. The Kingdom of Heaven knows what it is talking about.

(1, 229 words)

By Gautam Mukherjee
Saturday, 5th May 2007