Money De-laundering

A few months back I got my kitchen remodelled. It set me back by a couple of lakhs, and the guy who did the work for me insisted that I pay him fully in cash. I, who has had all cash inflows so far via bank transfers, was thus forced to withdraw (in several iterations) from the ATM perfectly white money and then hand it over to this guy and permanently convert it to black. Now that I think about it, I overpaid.

The key fact here is that people pay to get their money laundered. If you have Rs. 100 of unaccounted money in wads of cash, you are willing to give it to someone who puts Rs. 80 in your bank (the spread has been pulled out of thin air. Don’t go after me for that) and also some documentation to prove that you legally earned the Rs. 80.

So you have this bunch of people who want their money laundered. And then there are bank-only guys like me who sometimes have to produce wads of hard cash. Why isn’t there an exchange (illegal, of course, but who’s talking legality here? I’m only talking money) where money can be laundered and people with excess bank balances (and little hard cash) can be paid for it? For example, instead of paying Rs. 200000 in hard cash to my carpenter, I would have paid (say) Rs. 160000 to someone by cheque and got a receipt for it, and that person would have paid Rs. 200000 cash to my carpenter.

What does it say about the black economy that no such exchange exists? Does it mean that the market is skewed in a way that the demand for money laundering is much larger than its supply, because of which people who would otherwise have been intermediaries doing one side of the deal themselves? Or does an exchange like this actually exist but I’m not aware of it partly because it’s underground (for obvious legal reasons) and partly I’m seen as too small a fry to be accosted by the exchanges?

Next time I pay wads of hard cash, though, I’m going to try and see if I can get a discount.

What rate of interest did Kubera charge?

It is fairly well established that Tirupati Venkataramana (it is Venkataramana and not Venkateshwara – remember that it is a Vaishnavite temple) took a loan from Kubera in order to finance his wedding to Padmavati. And till date, Venkatarmana has been soliciting contributions from visitors to his shrine in order to help him pay off this loan. Given that the loan was for the purpose of getting married, I think we can quickly establish that it was a Personal Loan. What I’m trying to figure out, however, is what rate of interst did Kubera charge Venkataramana.

For starters, I think somewhere in our scriptures, we can find out the amount that Venkataramana borrowed. Rupees didn’t exist in that era, but I’m sure we can find some figures in terms of gold, or other commodities. And we should be able to estimate the rupee value of this loan by suitable backward extrapolation.

What might be slightly tougher is the time period. When did Kubera exist? When did Venkataramana exist? When did he get married to Padmavati? The date is important, for we should know how many years to discount for when we do the IRR calculations. However, I’m sure that with sufficient effort, we should be able to find the date of this particular transaction to the nearest millenium.

Then, there are the loan repayments. Let us assume that Venkataramana is in general a poor man, and his repayments can be approximated to the amount of offerings he receives from visitors to his shrine. Catch a few people sitting for McKinsey interviews, and estimating this amount is also not going to be very tough. We should be able to get fairly accurate figures for the last few years, and then we should be able to appropriately extrapolate backwards accounting for various regime changes (I’m assuming here that the temple, for whatever reason, will refuse to cooperate in this noble endeavour – else we can get the repayment amounts from the temple books).

We also need to remember that the repayment is not complete. People still contribute generously to the Venkataramana Personal Loan Repayment Fund. However, if we assume that the loan has already been repaid, we can get a floor on the rate of interest that Kubera charged. It is intuitive right – that if more money pours in, the interest rate would’ve been higher? Let us also assume that there were no repayments till about five hundred years ago, which was approximately when the temple was built. Assuming zero repayments till then, it again gives a floor on the interest rate.

Obviously, I don’t already have any of the data that I’ve mentioned here, so I can’t actually do the calculations. However, if McKinsey decides to solve this problem, they can do so in March during their interviews at IIMs. My prediction, however, is that the rate of interest will come out to be a number which, in normal circumstances, would be found to be usurious. Thus, we might probably be able to show that people are contributing to funding a greedy usurious rich moneylender when they contribute to the Venkataramana Personal Loan Repayment Fund. I don’t know what further use this might be put to, but I think the process will be an end in itself.

On a closing note, I would like to point out the greatness of our culture – which, even in mythological times, could boast of complicated financial products such as Personal Loans. This one factor, I think, is enough to show that our Indian culture is superior to all other cultures.

PS:  Sometime back, I was wondering if the Venkataramana Personal Loan Repayment Fund could be the largest money-laundering operation in India. However, a little thinking revealed that our political parties are definitely far far ahead when it comes to that.