Can Vikram Akula do a Yunus...

Microfinance... Can India create another Grameen !!!


Recently I finished reading one of the best books which can or has emphasized the much talked about financial inclusion. More in so, with a narrowed focus towards the Emerging countries like India and Brazil."The Bottom of the Pyramid" by the late CK Prahalad. His idea of looking into things (business) is a visionary one.

The next target segment of the markets will be the one where technology would not come for a price but still would be an indispensable part of the growing system, just like the Internet boomed trading and the style of doing business with ebusiness,take any service- none are untouched or unaffected by the internet.

In the same way lending would evolve where ‘tiny amounts of money to people with tinier assets’ (as The Economist magazine put it in an article published in 2006) will seem to be an obvious way of doing business with what is potentially the largest driver for markets- consumption.

Of late my tryst with the state has grown and thus have been hearing the suicide cases of the borrowers in Andhra Pradesh, which has bought this much talked and expected about business under the microscopic scanner of intellectuals in India.

Media reports about high interest rates charged on loans made to people who appear to be ill-equipped to pay such large sums — and thus the suicides, allegedly — have raised eyebrows, even as other stories have reflected on the crores of rupees in stock options that company executives of microfinance companies appear to have benefited from. The seemingly high interest rates charged by microfinance institutions (MFIs) stem from transaction costs, which is why banks have not been very successful in microfinance. Even in the era of priority- sector lending, the banking system had tended to lose a lot of money on loan defaults — apart from the subsidised interest rates prevalent then. In other words, the banks’ failure lay in their inability to see microfinance as a sustainable business, and more as a social obligation.

The fire had not yet subsided from the issue, SKS Microfinance's CEO,Suresh Gurumani was sacked without citing any specific reason. His 5-year contract was to expire on 2014 March. Interestingly, Ashish Lakhanpal, an Independent Director, is also relieved from his duties. The first company in its category to go public and raise 16.5 billion ruppees from the market, a lot more than the money are at stake with the company.

The industry runs on three types of costs which matter: the cost of funds, the cost of associated risk (of defaults) and administrative costs, all of which are integrated into deriving the final interest rate charged to borrowers. Microfinance depends heavily on personal contact, limiting loan officers’ reach to a small number of borrowers, unlike banks that rely on technology for credit scoring (almost all microfinance lending is cash based, and collections take up significant personnel time).The most critical factor in simpler terms is the administrative costs, which incidentally are not proportional to the loan size. The transaction costs of making a single loan of Rs 1 crore by a bank are significantly lower than the costs of making 500 loans of Rs 20,000 each (a typical microfinance loan). Loans by banks are repaid quarterly; microfinance loans are collected with greater periodicity, perhaps or actually every week.

Dealing with barely literate borrowers with no collateral and credit bureau records, requires time-consuming personal interaction, all of which drive up costs high enough that can only be covered by high interest rates. It is a simple principle of business that if you cannot cover costs, you will not stay in business. If there is one area that microfinance institutions need to focus their energies on, it is building technology platforms that will reduce their high administrative costs. A lot of light on the other side of the tunnel comes from the interest being seen in exploring, researching aspects of Mobile Banking and Electronic transfer.

Do mail me your feedback at avinash.aniket@gmail.com.
Connect at : http://www.facebook.com/#!/avinashaniketprof
http://www.linkedin.com/profile/view?id=47528683&trk=tab_pro

The battle between a Capitalist Ego and a Communist Strategy...

Communism has known to be the direct opposite of the capitalists and the very concept of communist ownership of a business in a capitalist economy is irrelevant. In reality, it creates a controversy and clash of policies and actions. There has been a wave of takeover, some hostile and some amicable, of American companies by Japanese firms in the 1980s. Since the acquisition of Germany based Mannesmann by Vodafone in 2000 to the recent plethora of increasing private equity and venture capital firms and their acquisitions have often irked the social fabric of national pride and anxiety of superpowers.

Social and Business Economists have highlighted the concerns which will not be easy to slide under the carpet and definitely will intensify over the next decade, as the BRIC countries and specifically Chinese state owned firms keep themselves active on the inorganic activity growth radar. Chinese companies have surpassed record numbers in terms of foreign M&A in 2010. They have been bidding for everything ranging from gas (Americas), oil (US) and electricity (Brazil) to cars (Swedish Volvo).
The very idea of communists buying the companies of capitalist is a disparity as far as economic theory of liberties is concerned. This is what has been irking the Republics and the Democrats alike. Take a 2009 story, where the National Energy Administration (US) agreed to establish a special fund for China's state-owned companies to buy oil and gas firms overseas. The beneficiaries being the Petrochina, Sinopec and CNOOC, which enabled benefit in terms of low interest loans and direct capital injections.

Chinese companies were seen as an example and epitome of state capitalism. Economic factors like emerging world's non credit culture and the huge reserves of public saving, their resource wealth and the collapse of free market model led to a hailing of state capitalism. The value of the globe’s emerging stock markets have risen fivefold ($80,000 billion from $14,000 billion), taking the emerging market share of global equity markets from 31 % to 55 %.

The so called ‘first world ‘has coped up with countries such as South Korea and Singapore, who have been on an acquiring spree of companies outside their countries. The developed world has the experience of tackling the rise of mercantile economies but China stands apart, it is already the world’s second biggest economy, and in another two decades is rightly poised to overtake America. Chinese firms, till the outbreak of recessionary times, have looked inwards. The rising oil prices and the recessionary pressures on the US have made them potential targets for their vast resources abroad. Nothing could be more apt then the case of Unocal.

China stands fifth in outbound investments globally. Unearthing the pages of history shows that both Britain and America had shares of about 50%, in 1914 and 1967 respectively at their prime of supremacy. The biggest weight on the scales will be the Chinese rate of government investments powered by the per capita savings of the people. These monies today are invested in government bonds and treasuries of the first world counties; tomorrow this will serve a pool which can be used to buy companies and insulate the Chinese people against the first world countries currency devaluations and financial defaults.

Taking a cue from the chapter of globalization, very similar to the old way of annexation of countries, a company (country) tries to inorganically for primarily three reasons: secure raw materials for future production, acquire better technical know how and the most important, to gain access to foreign markets.
In a normal situation, private companies around the atlas, find and allocate their resources towards the attainment of perfecting its strategy to maximize its customer’s base. These are governed by market and economic logic. So far so good, now the idea that a communist government might dominate the realms of global capitalism scenario is unappealing. The very idea of shift in the control of global resources to a body which would not be market driven but official driven, an establishment principled on politics (principle, if you please) and not profit are the real concerns. Developed countries like Australia and Canada, which were once open for takeovers from the foreign countries, are now escalating the barriers for Chinese, especially in the arena of exhaustible resources like oil and gas.

China has been most active in deal making for the natural resources, yet its way off the needed quantities to control the rigging capacity of the markets for such commodities. The Americas, Australasia and the Europe should consider subsidized capital of the Chinese. The major focus in these terms should be dealt with strengthening and plugging the loopholes in the competition law rather than trying to stop the investment flow, thus constraining the movement of capital around.
Taking the example of Geely, the new owners of Volvo. It made complete mutual sense for both the parties. Geely had been trying to launch itself into European markets but was losing on the pricing factor and Volvo was in deep crisis since it could not find distribution partners in Asia to sell its cars. Volvo's existence was threatened due to its inability to sell more care in Asia.

The Chinese firm, CNOOC was one of the greatest finds of Warren Buffet n the last century. Chinese firms are believed to come with a lot of perks such as lower operational costs and access to newer and fresh markets to otherwise flagging companies in the saturated markets. In BRIC, Indian and Brazilian firms have the maximum advantage of being the free and open market policy adopters. But China is catching up fast . . . really really fast.

The Evolution of a World Currency and its implications...1

The idea struck with the recent release of the trailer of Ice age 4. The kind of deranged systems in place is leading us to destabilizing the trade and investment correlation of economies, or to adopt a new standard dismantling the United States status of superpower in regards to its structural credit dependency and deficit balance of payments which can never be repaired.

Tracing back the system of exchange of economies prior to 1971, when the balance of payments were settled in precious metals like gold and silver formed the basis of domestic currency as well. Till that time, the Fed Reserve's note was backed 25% by gold, and an ounce was pegged at $35. If the economies wanted to increase their money supply even for general economic expansion, they had to keep gold in their hand by circulating trade and payments surpluses. The sovereigns reduced the supply of domestic credit in order to raise interest rates and either allied or lured other economies in order to attract foreign financial inflows when the rulers faced issues of trade deficits or had to undertake military campaigns.

The international financial dynamics self-operated itself with checks and balances. The countries reeling under the pressure of trade deficits, went ahead spiking their interest rates and lured foreign capital, on the other hand, it undertook measures such as reducing government spending, raising taxes on consumption, which in turn forced economic slowdown thereby reducing the purchase of imports. What a novel approach.

The only system destabilizer then, was spending on military and war. Such kinds of transactions which spanned across the World Wars, enabled the US to aggregate 80 % of the world's monetary gold deposit by 1950, giving the dollar the status of an substitute/proxy for gold standards. Lets now statistically be aware of the overseas military spending by US, the entire payments deficit for the next three decades happened with the expenditure cost of the Korean War. On the other hand, its private-sector trade and investments was exactly in tandem.

The scale of spending in the Vietnam war and other foray's of interference in the economic peace and war in the recent years made the US deficit volatile in international arena and thus making the dollar status of gold convertibility was suspended through the London Gold Pool. The status in the ground reality was not so easily detached as the Central Banks of countries, continued to settle their balance of payments in U.S. Treasury securities, just by the virtue of non-availability of any other asset in sufficient supply to signify the strength and reliability for central bank monetary reserves to replace a pure asset such as gold. This quality of the dollar made the US overconfident and its currency strength gave it the leverage to shift from an asset based country to a debt-based. Such kind of power to the T-bill standard made the US insulated from any disorder of balance-of-payments and financial restraints. Power corrupts, Absolute power absolutely; Such grant of invincibility status to its currency enabled its capital markets and the economy to be increasing debt-leveraged, allowing US the power to play with innovation of financial instruments. Politically, It also enabled the U.S. Govt to structure foreign policy and military campaigns without much thought for the consequences in regards to the balance of payments.

Currently, the problem is the potentially infinite supply of dollar credit. The subsequent growth in the reserves of central bank and the sovereign country funds ultimately, has been recycled into the dollar inflows by inducing more purchases of U.S. Treasury securities. Thus, in a sense, the foreign central banks and (indirectly the taxpayers) YOU are responsible for financing most of the U.S. federal budget deficit. The fact that this deficit is largely military in nature - for purposes that many foreign voters oppose - makes this lock-in particularly galling. So it hardly is surprising that foreign countries are seeking an alternative.

US is not suffering from a trade deficit, as one would like to think and believe. The country's foreign military spending has been accelerating, even after the end of Cold War. The other pointer has been the incessantly increasing capital outflows from the US. The reasons being the status of the "God Status"(check the reason in the next blog) of the financial institutions, especially Fed Bank and its money lending spree to foreign governments from the third world countries. It has also loaned money to countries who have been suffering from deficit to cover up their payments deficits, and even to private borrowers (people who have declared bankruptcy in 2008) to buy foreign infrastructure wen it was being privatized, foreign stocks and bonds, and even to the arbitraging industry, so that they can borrow at a low interest rate to buy higher-yielding securities abroad.

The manipulation for quick returns by banks and their arbitraging customers will be always distorting the prevalent exchange rates dynamics in the currency world. The Fed has been and will be flooding the economy with (QE) liquidity in their attempt to increase growth, but in reality they would be creating bubbles in the US asset prices.... more to come ... in this article..

Quantitative Easing and the Chaos in Global Markets.. lets make some sense out of it.

A recent furore in the international markets, made it unavoidable for me to dig deep down to know more about the Issues, Context and Solutions of Quantitative Easing. So here I present you a sojourn from Japan, Iceland, Europe and the inevitable US.

The global financial system already has seen a long and unsuccessful catastrophe in quantitative easing(QE) in Japan. The carry trade that sprang from Japan's financial bubble bursting event after 1990, BOJ's liquidity enabled the banks to lend yen credit to arbitrageurs at a low interest rate to buy higher-yielding securities. Iceland was paying 15 per cent. So the Japanese yen were converted into foreign currencies,which in turn pushed down its exchange rate.

Japan that refined the business of carry trade and is responsible for what it is today. After its financial and property bubble burst, BOJ empowered its banks to earn their way out of negative equity by supplying them with low-interest credit for them to lend out. Japan's recession shrunk the demand at home, so its banks developed something called as "the carry trade":a process of lending at a low interest rate to arbitrageurs at home and abroad, to lend to countries offering the highest returns. Yen were borrowed to convert into dollars, euros, Icelandic kroner and Chinese renminbi to buy government bonds, private-sector bonds, stocks, currency options and other financial instruments. This carry trade was capped by foreign arbitrage in bonds of high growth(read GDP)countries such as Iceland, who payed up to 15 per cent. This kind of funding was not used to finance formation of new capital or revenue generation. It was purely financial in character serving extractive, not productive purposes.

By the year 2006, after a self funded war on an already inflating budget deficit, the US and Europe started experiencing a Japanese dejavu financial and real estate bubble. After Freddie Mac and Fannie Mae pin-pricked the bubble in 2008, they did what Japanese banks had done after 1990. Seeking to help U.S. banks work their way out of negative equity, the Fed flooded the economy with credit. The idea was to provide banks with more liquidity, so that they would lend more to domestic borrowers. As was thought, the economy would engage itself in constructive investment and a new boom market would start. It was strongly believed the economy would borrow its way out of debt. But what happened was really dreadful, the extra sloshing money fuelled the speculative investments and re-inflated asset prices in real estate, stocks and bonds so as to stop home foreclosures and thus starting another series of optimistic loans from banks which ensured the total wipe out of all the collateral on bank balance sheets.

The same kind of Phenomenon is happening again,albeit on a much global scale, where the U.S. liquidity is spilling over to foreign economies, increasing their exchange rates. In a sense, instead of helping the global recovery, the "flood of liquidity" from the Fed and ECB is causing "chaos" in foreign exchange markets in the name of Quantitative Easing (QE).

The most recent debatable Quantitative Easing has been pinned on the echelons of hope and false optimism. It provides bank customers, not banks, with loanable funds. Central Banks supply commercial banks with liquidity in order to facilitate smooth functioning of interbank payments and customer and government transactions, but what banks lend is their own debt, not that of the central bank. The purpose of the funds will depend not only on the adequacy of the supply of fund, but evaluting if the environment is encouraging to real investment. QE subsidizes U.S. capital overdraft, and flushes money in a spillover effect to push non-dollar currency exchange rates. There is an amazing video which tells what is QE doing for America.

http://www.youtube.com/watch?v=PTUY16CkS-k.

The Team Bernanke's credit creation measures is not in any way increasing bank loans to real estate, consumers or businesses. The Banks are not lending, at least in the US. They are collecting on the past defaulted loans. This is why the U.S. savings rate is suddenly spiking. We could compare this phenomenon in the same way as hoarding diverts revenue away from being spent on goods and services, thus debt repayment shrinks the disposable income which can be spent.

So The Ben Bernanke(Fed) created $2 trillion in new Federal Reserve credit last year, and again another $1 trillion over the coming year. This is what has led gold prices to surge and investors to move out of weakening paper currencies, since September 2010. On the contrary, it is surprising to note that banks are not lending to an economy which is in need of liquidity and is being shrunk by debt deflation. The quantitative easing has been sent abroad with an purpose to gain from maximum returns. It is been pushed to the BRIC countries: Brazil, Russia, India and China. The frenetic borrowing from U.S., Japanese and British banks to buy bonds, stocks and currencies in the BRIC and Third World countries is on a self-feeding expansion. Speculative inflows into these countries are pushing up their currencies as well as inflating their asset prices.

Now lets see what it is doing for THE REST OF THE WORLD.

Central Banks are trying and insulating their economies, in a way immunizing or delineating itself from the Volatile Dollar. This measure has now come been criticized by the US. Japan is trying to hold down its exchange rate by selling yen and buying U.S. Treasury bonds. China has tried ways to recycle its trade surplus, by buying out U.S. companies. The US, on he other hand, did not let CNOOC buy into U.S. oil refinery capacity a few years ago and is now urging the Canadian government to block China's attempt to purchase its potash resources. This leaves little option for China and other countries but to hold their currencies stable by purchasing U.S. and European government bonds. Brazil has been more a victim than a beneficiary of capital inflow. The inflow of foreign money has pushed up the Brazilian Real by 6 per cent in just three months. This has eroded the competitiveness of Brazilian exports. Thailand's is considering taxes and currency trade restrictions like one on the purchases of foreign bonds in wake to stop the rising Baht. The RBI's steps are very shaky on acting against the threat of inward capital flows, albeit their government inclinations towards would diplomacy seems to be more than its people.

Such inflows cannot be trusted as they are very volatile and short term parkings. They can never be considered as tangible investment. These funds cause currency fluctuations and disrupts trade patterns as they create and serve the purpose of Short term Speculators. It is also a shame that Speculators also encompass large financial institutions and their customers. Most of the academic and policy-making discussions about the exchange rate treat the balance of payments and exchange rates as determined purely by commodity trade and purchasing power parity. The reality speaks a different tale where the foreign financial flows and military spending that actually have generally been seen dominating greater portion of the balance of payments.

This capital outflow from the U.S. has indeed helped the US banks rebuild their balance sheets, as the Fed wamted to. In the process, the international financial system has been plagued by more damages than it has rescued America.

Will Securitization Industry reforms bring a good news this time...Halloween's round the corner..Lets hope for the best.

Okay now lets try and analyse and see what things we can draw from the recent measures being taken worldwide in the arena of the most hush-hushed topic today - Securitization. This would get seriously financial so non-financial guys can give it a skip.
Lets imagine this. Can the U.S.and its financial institutions create tens of trillions dollars from their virtual financial system in order to buy up bonds, derivatives and stocks around the world, all the inexhaustible assets like land for sale in the assumption of making capital gains and in the process making a margin out of the arbitrage spreads by debt leveraging at interest cost which might be say less than 1%. Seems possible or similar...
This is the game which was played in 2008, resulting in Recession.

When the US received critical blame for the debacle, it decided to stop this but it was too lucrative an opportunity for the US not to use it especially when it was under such a deficit crises so it planned an complete overhaul of the Securitization industry, this time it would mandate the lenders to be responsible for a part of the credit risk of loans which would ultimately be sold to the investors. It wants to put an end to the "gain-on-sale accounting" rules, that helped spur the market’s fake boom. This is being done to restore confidence in asset-backed markets and allow US banks to resume pumping more credit to the economy, albeit doing away with the creating of non-systemic risks.

Securitization of mortgages and credit card loans, which were termed as assets, accounted for about half of the credit markets before the financial crisis struck.
Now the originators will be required to retain at least 5% of the credit risk of loans,which would be packaged into the rated (A,A+,B,B+,B++) securities and sold to retail investors. The 5% rule (is to be tested in Europe) would ensure that lenders have their own stakes in the deal, the move makes the lenders attached with the default of the bargain.
This measure of doing away with the “gain on sale accounting” would prevent financial companies from booking paper profits on loans, when the retail investor buys into the packaged into securities.
The 2008 recession story was penned because Securitization had made adulterated credit more widely available. It had breaken the link between borrower and lender, now this measure will be different, whenever the first seller is barred from authentication of genuineness, the product leads to a general erosion of standards, in this case lending standards, resulting in a serious market failure that fuelled the housing boom and ravined the housing bust”.

We've spoken quite often of the unrelatedness between those who bear the risk and those who move the product in the financial world.So let me explain you how bankers, industrialists, political lobbyists helping with huge funds for political campaign played the game of bloodbath soaked in the green economy.

A local institution (remember these are generally private companies)(XYZ) gave a mortgage to the owner, a NINJA person with a strong defaulting history. Even before the house went up for foreclosure, the mortage has been used by small and big fishes alike to create a bubble... the local XYZ has sold the mortgaged papers to a regional bank, which has in turn packaged it in groups of A B C class bundled categories and sold to thousands of people, dishing out a perfect piece meal of the biggest fraud in the streets. To tell a complex story in short, XYZ made its money from the borrowers monthly payments, and the regional one, from the commission and fees of the volume of business it has generated.

The financial industry barfs up a financial crisis about every five to ten years. Remember the South American bonds, Long Term Capital Management, S&L crisis, Russian bonds, and the recent subprime, etc mess. It needs strong regulations since they can't compute risk, that's talking in a sterile world and instead we have to deal with the real world of political connections and protectionism by those who provide the biggest campaign donations. So the new set of solutions need to work within the framework that financial oligarchs will never feel the full pain so we need to protect ourselves from them. Lets hope against the hope that the vulturous bankers would handle our future well this time, with the industry tom-toming about the latest reforms .

Peepli Live - An untold story ... A reality check of societal development.

Peepli Live ... I could not just escape it. You must be thinking me as absurd on a movie review post. Yeah, the hype around me for the film was too much to have evaded, so i too sat with a popcorn.

Its how amazingly a story so simple and non condesending has been used to portray so much...
The real story is not of Mr. Natha but of Hori Mahtoo, the earth digger, who died in his own dugged grave ...
The real story is of the mis-understanding of media, the foolishness of the ilk of Miss Nandita Malik.
The real story is the shame which espionage brings to the profession of journalism.
The real story is of people involved in the political and social system and the kind of accountability they have.

Each of these have such a gaping social angle to it. But lets pick up something more pertinent.The real story is the stark divergence and the story of how farmers are becoming labourers.
A very sensitive issue governing Developmental Economics.

A new generation among the farming community in India is not interested in taking up agriculture as a profession as it is increasingly getting less profitable. Agriculture’s share in the country’s GDP shrunk to 17.5% last year from nearly 30% in the early 1990s.

This thoughts echoes in unison with a growing and worrisome trend in the nation's agriculture sector: Indian farms are failing to attract capital or talent or the 21,000 students who graduate from India's 50 agricultural and veterinary universities. Majority of the farm graduates vie for jobs in the government, or financial institutions, or in private sector industry. They are seldom taking to farming as a profession.And Why should they..? What is the kind of money that is there for them...?

A survey showed 40% of Indian farmers would quit farming, if they had a choice – an alarming revelation for a country where two-thirds of the billion-plus people live in villages. India's farm sector has changed remarkably little since the advent of the Green Revolution, while other industries have been transformed over the past two decades. We have to start realising that farming is becoming an increasingly less profitable profession. There was a time when farmers had very little choice. Things have changed. Farmers would like to make a shift. This has raised concerns that India's farm output could lag demand and the country – which ranks among the world's top three consumers of rice, wheat, sugar, tea, coarse grains and cotton – will become a large food importer unless yields jump. The increase in yields in the past decades have been insignificant.

But the next revolution faces a tougher challenge – in part because of the environmental damage done by the previous one. Back then, abundant groundwater was available and the soil was not degraded by pesticides and fertilisers, which initially helped boost productivity.
With 60% of Indian farms depending on erratic rains, it took just one failed monsoon to force India to import 5 million tonnes of sugar in 2008-09, after exporting a similar quantity a year earlier. The drought, after the worst monsoon rains in 37 years, is also expected to slash rice output by 17%, encouraging India to begin importing rice, after being a leading exporter of the commodity for decades.

Climate change(aka Urbanisation) is having devastating impact on growth and productivity of several crops, particularly the food grain crops, Agriculture in India had always been a toss of heads and tails with monsoon playing such an crucial part. Millions of poor farmers don't have the resources to cope with the uncertainty of monsoons.

If you want to make farming more profitable, the price for farm products needs to be more remunerative. Will the middle class accept this?

The government have to allow genetically modified crops in order to improve farm revenue, and more so to counter the limitations on the supply side. Productivity improvement is the crux of the issue. That is why we need to have an understanding of GM foods. However, without taking any stand n this issue, We should be alarmed by the mammoth number of seasonal farmers becoming full time urban labourers, propelling India's infrastructure growth story.

A lot of the farmers have become wage labourers in the urban cities where their day earnings are 90-250 depending on the city and the kind of money slosh around. Today you find labourers, plumbers and welders, are all moving from a city like Kolkata to Kerala... and from Kerala to Gulf ...

8 million farmers have quit job in the census of 1991-2001. That is 10 years way back, would be waiting for the recent census to startle India and its intellectuals. Its time India realised it has looked into the Jai Jawan, (you are payng them well with one Pay commssions after another) but the Jai Kisan, is about to loose its identity... What would be our identity 20 years from now ... An pathetic America in the making ??? A question which should be answered fast and addressed soon.

Kudos to Anusha Rizvi... Mam you have just earned a fan... Its time academic institutions started adressing these issues with more seriousness than making case studies on films ... and awarding doctorates to Mr. Amitabh Bachchans, Shilpa Shettys and Akshay Kumars..

Valuation of Intellectual Property

Intellectual Property as the name suggests refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.

Now from a finance guy .. what kind of artistic and literary things can be expected... you are being too quick to judge ...

The scope of this asset( OMG, i beg your pardon... yes, an asset) usage and its manifold benefits are pushing the envelope further in the Asset Valuation Industry. Till lately, considered as an asset of undetermined value, it has suddenly gone to become one of important sources of Fund Raisimg and Valuation.
A key driver in consideration of :-
(1) Mergers & Acquisitions.
(2) Licensing & Assignment.
(3)Investment
(4)Enforcement
(5)Portfolio Investent & Management.

The scope encompassing this industry has been expanding bringing under its wake,right from bringing finance professionals from different walks to sourcing legal expertise in different capacities. The size of this industry going forward is estimated to be in hundreds of billion dollars.
The crux of the industry was formed, when people answered the question of
"Why to Value IP?."
To take a leaf from Prof. Drucker, "The value of the Invisible is more than the Visible."Enumerated below are the valuation methods we follow:

The cost method of valuating IP basically focusses on two of the criterias, Replacement Method and Reproduction Method.This valuation model either calculates value in terms of replacement or reproduction cost of the IP.The most important aspect in this method is that the valuation here is done at current and not at historic cost.For eg. A Pharma company which has been developing a molecule for the last 10 years would consider the cost incurred on the current date and not on the basis of last 10 years cost of inputs.
This method is used usually to value an asset at an early stage of development.

The next method is Market Value Approach method.This valuation is done by ascertaining the exchange value of an similar asset in the same industry.However, the difficulty of obtaining the transactional data poses a major challenge infron of the valuer.
Moreover, every asset of intangibe nature is unique and so does the valuation.This method is more prevalent in companies where there are a lot of substitutes available in the market, since the comparisons should be an "apples to apples comparison" and the industry per se has to be transperant in sharing its transactional data.

The next method in this industry is the Income Approach to Valuation. This considers the future income which can accrue from the asset in future.
It calculates (projections) the future earnings capacity of the IP(Intelletual Property), and its estimated years of life as per the patent filing.

The other method is one of the most prevalent and most talked about method in the valuation space, Discounted Cash Flow (DCF) method.

The other methods are :-
(1) Venture Capital Method, whose templates of valuation are very wide ranging and varied from the perspective of different Venture Capitalists.
(2) Relief from Royalty Method.
(3) Monte Carlo Simulation Method.
(4) Option Pricing Model Method.

The Intellectual Property derives its value in terms of :
(1)Accounting Value.
(2)Economic Value.
(3)Technical Value.

The IP Valuation Industry opens up a huge scope in another unexplore vertical, Securitization, which is presently ... crores. An Industry waiting to explode as far as emerging markets like India are concerned...