Sabyasachi Ray: Drop In Bank Fi­nance Will Hit SMEs Badly

In an ex­clu­sive email in­ter­view with Soli­taire, the Gem & Jew­ellery Ex­port Pro­mo­tion Coun­cil’s ex­ec­u­tive di­rec­tor, SABYASACHI RAY, shares his views on a range of hot- but­ton top­ics in­clud­ing shrink­ing bank fi­nance, the im­por­tance of MyKYC Bank, self- regu

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The In­dian gem and jew­ellery in­dus­try has at­tracted some un­scrupu­lous play­ers, whose ac­tions have tar­nished the whole sec­tor’s rep­u­ta­tion, thereby dent­ing con­sumer con­fi­dence in jew­ellery to some ex­tent. What is GJEPC’s strat­egy for deal­ing with this crit­i­cal is­sue and keep­ing out un­savoury el­e­ments?

I think it is wrong to blame the en­tire in­dus­try for the wrong­do­ings of a few peo­ple. The re­cent in­ci­dent of fraud, which re­sulted due to col­lu­sion be­tween some play­ers from the sec­tor and an em­ployee of a par­tic­u­lar bank branch, could have hap­pened in any in­dus­try. One needs to un­der­stand that the same hap­pened out­side the set rules and reg­u­la­tions of the bank as stip­u­lated and fi­nan­cial in­stru­ments were used, which the in­dus­try does not use as a prac­tice.

How­ever, the Coun­cil was quick to re­act when the is­sue be­came pub­lic, and took a slew of mea­sures to in­stil con­fi­dence in the bankers ser­vic­ing the gem and jew­ellery in­dus­try and also im­ple­mented sys­temic changes, which will help bankers to pre­vent such in­ci­dents in the fu­ture.

The Coun­cil re­leased a White Pa­per dur­ing a re­cent bank­ing sum­mit ‘Di­a­mond & Jew­ellery Fi­nanc­ing’ at­tended by the com­merce min­istry and lead­ing banks and fi­nan­cial in­sti­tu­tions like SBI, Cen­tral Bank of In­dia, In­dusInd Bank, ECGC, etc. The White Pa­per by the GJEPC had a host of sugges­tions and mea­sures to bring in more trans­parency. For in­stance, it was sug­gested that the Coun­cil will pro­vide crit­i­cal data on trade at reg­u­lar in­ter­vals, which will help the bankers to bet­ter an­a­lyse and as­sess the in­dus­try sce­nario; the Coun­cil will or­gan­ise we­bi­nars, con­fer­ences, open-house dis­cus­sions and ac­tively par­tic­i­pate through plat­forms like TED Talk, to give an in­sight about the trade to all its stake­hold­ers

and help in solv­ing trade-re­lated prob­lems per­tain­ing to bank­ing, GST, RBI guide­lines, ECGC mat­ters, etc.; the Coun­cil will also make it oblig­a­tory for all its mem­bers to reg­is­ter un­der MyKYC Bank for bet­ter in­for­ma­tion dis­sem­i­na­tion of in­di­vid­ual com­pa­nies for the banks.

What were the cir­cum­stances that prompted the GJEPC to con­cep­tu­alise MyKYC Bank? How does MyKYC Bank tie in with the Coun­cil’s ob­jec­tives for greater trans­parency and eth­i­cal busi­ness prac­tices?

The com­pli­ance re­quire­ments on the gems and jew­ellery sec­tor have been in­creas­ing over the last 10-15 years and are be­ing driven by the Fi­nan­cial Ac­tion Task Force (FATF) guide­lines. The na­ture of the prod­ucts makes it sus­cep­ti­ble to be­ing used for money laun­der­ing pur­poses. Typ­i­cally, such per­sons are not part of the in­dus­try but only use the prod­uct as a con­duit. In In­dia, the Pre­ven­tion of Money Laun­der­ing Act (PMLA) was mod­i­fied in late 2012 and it brought the in­dus­try un­der its am­bit, wherein the in­dus­try was ex­pected to carry out due dili­gence on the lines of banks. That was not prac­ti­cal for the in­dus­try, es­pe­cially as there are quite a few play­ers who are small and medium-scale en­ter­prises. Hence a com­mon plat­form, i.e. the MyKYC Bank was con­ceived and cre­ated.

The plat­form aims to make the process of KYC shar­ing and avail­abil­ity seam­less, not just in In­dia, but glob­ally, which, in turn, will aid ex­ports from In­dia. This trans­parency will go a long way in help­ing the busi­ness and en­cour­ag­ing eth­i­cal busi­ness prac­tices.

The stated goal of GJEPC’s MyKYC Bank project is to iden­tify “gen­uine” com­pa­nies and their com­pli­ance risks. How­ever, MyKYC Bank is lim­ited in its abil­ity to de­ter­mine a com­pany’s trans­ac­tion risks and credit-wor­thi­ness. Is the Coun­cil’s think tank work­ing to­wards ad­dress­ing th­ese two is­sues?

The pri­mary ob­jec­tive of the MyKYC Bank plat­form is to es­tab­lish the iden­tity and easy shar­ing of KYC in­for­ma­tion among in­dus­try par­tic­i­pants. It is unique in the fact that only mem­bers of trade bod­ies which have signed up with MyKYC Bank are al­lowed to reg­is­ter on the plat­form. All trade bod­ies com­ing onto the plat­form of MyKYC Bank are ex­pected to have a code of con­duct in place.

The plat­form is in the process of strength­en­ing its Ad­vi­sory Coun­cil as well as the dis­ci­plinary ac­tion-tak­ing pro­cesses. Th­ese en­sure that only gen­uine com­pa­nies are al­lowed onto the plat­form and, in the event of any se­ri­ous lapses, ac­tion can be ini­ti­ated on the com­pa­nies us­ing the trade body they are af­fil­i­ated to. In se­ri­ous cases, this could mean that the busi­ness of the de­fault­ing com­pany is af­fected. This helps ad­dress the “gen­uine” com­pany is­sue and the com­pli­ance risk.

Though the MyKYC Bank plat­form has the abil­ity, it cur­rently does not cap­ture any trans­ac­tion data, and this au­to­mat­i­cally means that it can­not help in ad­dress­ing trans­ac­tion risks or credit risks. The GJEPC is in di­a­logue with the banks and in­sur­ers to dis­cuss var­i­ous op­tions which are used glob­ally to ad­dress some of th­ese is­sues. Based on the dis­cus­sions, the Coun­cil might pro­pose so­lu­tions to ad­dress their con­cerns about in­for­ma­tion and trans­parency. We have seen that in the past, though ef­forts were made by the GJEPC on th­ese lines, the banks them­selves were not forth­com­ing to share in­for­ma­tion. We be­lieve that this mind­set of the banks has changed.

GJEPC has pro­posed for­ma­tion of a think tank, con­sist­ing of a few lead­ing bankers, a few in­dus­try par­tic­i­pants, in­sur­ers and the gov­ern­ment, who can meet and for­mu­late guide­lines to frame poli­cies for the sec­tor by the banks. The avail­abil­ity of fi­nance re­mains a con­cern, es­pe­cially to the smaller and medium-sized units, which un­for­tu­nately get af­fected the most by any ad­verse ac­tion taken by the banks in terms of fi­nanc­ing the sec­tor.

Fol­low­ing the re­cent bank­ing sem­i­nar, has the sit­u­a­tion eased with re­gard to avail­abil­ity of bank fi­nance? Are banks rea­son­ably sat­is­fied with the self-reg­u­la­tory KYC ini­tia­tive be­fore dis­burs­ing loans?

The sit­u­a­tion has gone from bad to worse with new and some­times im­prac­ti­cal reg­u­la­tions be­ing ap­plied by the bank­ing sec­tor on the in­dus­try. If you keep aside the frauds out of the non-per­form­ing as­sets (NPAs), this in­dus­try has mi­nus­cule NPAs hap­pen­ing from reg­u­lar in­dus­try ac­tiv­i­ties.

We un­der­stand that there is a 10% cut on fi­nance that has been ex­tended by the banks to the in­dus­try in re­cent times after the un­for­tu­nate in­ci­dents. This will af­fect ex­ports di­rectly. In ad­di­tion to com­mis­sion­ing MyKYC Bank, we are work­ing with the bankers to ex­plain to them and cre­ate the in­sti­tu­tional in­ter­face be­tween the bankers and the in­dus­try, which we hope will take care of the sit­u­a­tion.

We are also in talks with ECGC for recog­nis­ing the good work done due to the introduction of MyKYC Bank and restart ex­tend­ing Whole Turnover Pol­icy cover to ex­porters from the gems and jew­ellery in­dus­try.

Un­til re­cently, 1,450 com­pa­nies were reg­is­tered with MyKYC Bank and 627 were un­der process. What are the cur­rent fig­ures?

Cur­rently about 1,720 mem­bers are reg­is­tered on the plat­form, with ap­pli­ca­tions of more than 500 mem­bers un­der process.

What ac­cord­ing to you are the other self-reg­u­la­tory mea­sures that the in­dus­try mem­bers should put into prac­tice?

In our in­dus­try, where prod­ucts are not al­ways ho­mo­ge­neous, self-reg­u­la­tion is the key as it takes time to de­velop an un­der­stand­ing of our prod­ucts in the sec­tor, pro­ce­dures or the in­tri­ca­cies of the trade. How­ever, sel­f­reg­u­la­tion should only be used to stream­line pro­ce­dures and make the trade a re­spon­si­ble one. It should not be used to sub­sti­tute the func­tion of the gov­ern­ment, which is en­force­ment.

An­other is­sue is that though self-reg­u­la­tion will be sen­si­tive to the world or­der that is evolv­ing and the re­quire­ments of con­sumers, at the same time it should take care of sovereignty is­sues of the coun­try where it’s ap­plied. In other words, self-reg­u­la­tion can only be in spe­cific ar­eas and un­der the aus­pices of the law of the land.

In the past, the GJEPC as an or­gan­i­sa­tion has been very suc­cess­ful in im­ple­ment­ing self-reg­u­la­tion in spe­cific ar­eas where the In­dian Gov­ern­ment has stip­u­lated it, for in­stance, the is­suance of KP cer­tifi­cates, the Regis­tra­tion Cum Mem­ber­ship Cer­tifi­cate (RCMC) cer­tifi­cate, de­cid­ing on which di­a­mond min­ing com­pa­nies will be el­i­gi­ble to get un­lim­ited for­eign ex­change ad­vance, per­mis­sion to take pre­cious goods abroad for exhibition, etc.

The MyKYCBank ini­tia­tive, con­sti­tuted to drive sel­f­reg­u­la­tion in the in­dus­try un­der the amended PMLA in line with FATF guide­lines, will be an­other step in this di­rec­tion. From a gov­ern­men­tal per­spec­tive, ar­eas of trade which are dif­fi­cult to un­der­stand and man­age for out­siders are good can­di­dates for self-reg­u­la­tion. We are con­sid­er­ing de­vis­ing a method­ol­ogy to ex­tend self-reg­u­la­tion in ar­eas such as valu­a­tion of goods, etc., and sug­gest the same to the gov­ern­ment to in­crease trans­parency and ease of do­ing busi­ness for the in­dus­try in In­dia.

Do you think the adop­tion of ad­vanced tech­nol­ogy like cryp­tocur­rency and blockchain, with its fool­proof peer-val­i­dated mech­a­nism, could lead to greater fi­nan­cial trans­parency in the gem and jew­ellery in­dus­try?

Th­ese are very early stages to com­ment on th­ese is­sues. How­ever in the cur­rent world, adop­tion of evolv­ing tech­nol­ogy can al­ways give an edge to busi­ness for en­sur­ing com­pli­ance and trans­parency.

What we un­der­stand is that the blockchain tech­nol­ogy is be­ing adopted by a num­ber of con­cerns in the sec­tor as a way and means to achieve sup­ply chain due-dili­gence. How­ever, we also hope that such mea­sures would not act as an im­ped­i­ment in do­ing busi­ness seam­lessly for small play­ers in the in­dus­try and in­volve ad­di­tional costs for them.

The Coun­cil may also think about cre­at­ing blockchain plat­forms for its mem­bers and the in­dus­try at large. We have al­ready got of­fers for col­lab­o­ra­tive ef­forts from di­a­mond trade as­so­ci­a­tions of other coun­tries.

Your thoughts on the Tracr blockchain pi­lot pro­gramme de­vel­oped by De Beers that traces di­a­monds from the mine to cut­ter and pol­isher through to the jew­ellery re­tailer. Is the GJEPC study­ing this ini­tia­tive? Do you think some­thing sim­i­lar could be im­ple­mented in­dus­try-wide to fur­ther strengthen KP com­pli­ances?

I have al­ready men­tioned that the Coun­cil wel­comes all in­dus­try-driven ef­forts which will ben­e­fit the in­dus­try at large in fu­ture. How­ever, look­ing at the fact that the GJEPC also looks after all forms of pre­cious goods like gem­stones, di­a­monds, jew­ellery, etc., it is ex­tremely im­por­tant for it to in­te­grate all play­ers un­der one plat­form which serves all, es­pe­cially small play­ers in re­mote cor­ners, rather than serv­ing one ver­ti­cal or se­lect few play­ers.

De Beers has given us and to lead­ing play­ers from the in­dus­try a pre­sen­ta­tion about how they are de­vel­op­ing their blockchain pro­gramme. We are, of course, study­ing their pro­gramme and try­ing to un­der­stand the ben­e­fits and short­com­ings vis-a-vis the In­dian in­dus­try sce­nario.

In the KP ses­sions, too, pre­sen­ta­tions on blockchain had been given to its mem­bers, and right at this mo­ment dis­cus­sions are on to un­der­stand how KP can ben­e­fit from such tech­no­log­i­cal means.

The AWDC re­cently un­veiled an au­to­mated di­a­mond pol­ish­ing sys­tem that can pol­ish stones up to 20 times faster than by hand. Are you wor­ried?

World­wide dis­rup­tions in busi­ness pro­cesses

have be­come the norm and our sec­tor also can­not avoid the same. Def­i­nitely, the In­dian di­a­mond in­dus­try, which is the largest di­a­mond cut­ting and pol­ish­ing in­dus­try in the world, has rea­sons to get con­cerned with this devel­op­ment. But till now, the in­dus­try has al­ways em­braced in­no­va­tion and tech­nol­ogy to ex­pand its busi­ness, and hence the em­ploy­ment in the in­dus­try has al­ways grown through the years.

The in­dus­try is also aware that they are in the busi­ness of cre­at­ing value and hence the in­ter­ven­tion of hu­man brain to achieve ex­cel­lence in cre­at­ing value through dili­gence, hard work, de­sign and in­no­va­tion will al­ways be there.

We as the Coun­cil and the in­dus­try at large will con­tinue to reskill the work­ers to adapt to sit­u­a­tions and adopt new tech­nolo­gies. How­ever, th­ese are very early days. We will have to wait and watch how the com­pa­nies adopt or use this au­to­mated di­a­mond pol­ish­ing ma­chine, as this will be avail­able to the pub­lic in Septem­ber; only then can we come up with a strat­egy.

The numer­ous Cor­po­rate So­cial Re­spon­si­bil­ity (CSR) ac­tiv­i­ties of the In­dian gem and jew­ellery in­dus­try are not pub­li­cised enough. What ac­cord­ing to you is the best way to en­sure that this reaches a wider au­di­ence and sends a strong mes­sage that the in­dus­try is giv­ing back to so­ci­ety?

Ac­cord­ing to In­dian be­liefs, so­cial work is an ac­tiv­ity which a per­son needs to do as part of his or her re­li­gion and such acts should not be pub­li­cised as it loses sanc­tity and may cause a hin­drance in achiev­ing ‘mok­sha’.

Hence the gem and jew­ellery in­dus­try, which has been in­volved in large-scale phil­an­thropic and char­i­ta­ble ac­tiv­i­ties, par­tic­u­larly in the field of ed­u­ca­tion and health, never chose to re­port th­ese good deeds or sought any pub­lic­ity. And this was long be­fore CSR be­came manda­tory and also a buzz­word. Some of the CSR ac­tiv­i­ties un­der­taken by the in­dus­try are: • The in­dus­try had re­sponded to na­tional calami­ties and emer­gency sit­u­a­tions with great prompt­ness. When an earth­quake dev­as­tated Gu­jarat in 2006, GJEPC ini­ti­ated the set­ting up of the Gem & Jew­ellery Na­tional Re­lief Foun­da­tion (GJNRF) with the sup­port of other trade bod­ies. • GJNRF, which did com­mend­able work by pro­vid­ing re­lief mea­sures for the earth­quake af­fected vic­tims, went on to also pro­vide re­lief to those who had been af­fected by the Kargil War; vic­tims, or fam­i­lies of vic­tims, of the bomb blasts that shook the di­a­mond and jew­ellery hubs of Opera House and Zaveri Bazaar in Mum­bai, and the flood vic­tims of Orissa. More re­cently, it has come for­ward to pro­vide re­lief to the fam­i­lies of the vic­tims of the Uri mas­sacre. • In 2014, the GJEPC formed Jew­ellers of Hope, an an­nual event which raises funds from the In­dian gems and jew­ellery in­dus­try to pro­vide aid to de­serv­ing char­i­ties or NGOs for their so­cial wel­fare projects. • The Coun­cil has made sig­nif­i­cant con­tri­bu­tion to­wards causes of girl child ed­u­ca­tion, san­i­ta­tion, tribal ed­u­ca­tion and can­cer pa­tients. It has also been as­so­ci­ated with Make-A-Wish Foun­da­tion, Nanhi Kali, Girl Ris­ing, Swades Foun­da­tion, and Friends for Tribal So­ci­ety. In my opin­ion, the in­dus­try and the Coun­cil will keep on do­ing good work for so­ci­ety and will help the needy. With the ad­vent of so­cial me­dia and the con­scious­ness around CSR by the pub­lic at large, we need to make the pub­lic aware of the good deeds of the in­dus­try. We will use so­cial me­dia to pro­mote and drive aware­ness of the CSR work by the in­dus­try and at the same time, have more such ac­tiv­i­ties un­der­taken by the in­dus­try play­ers.

Any­thing else you may wish to add.

For long, In­dia has been con­sid­ered as a fol­lower of norms and pro­ce­dures in terms of reg­u­la­tion, gov­er­nance and prin­ci­ples of sus­tain­able gov­er­nance. We have been prac­tis­ing it for thou­sands of years, only the same was not well-doc­u­mented and prop­a­gated in a right way.

We have achieved global lead­er­ship in the man­u­fac­ture and trade of di­a­monds, coloured gem­stones and some forms of jew­ellery. That ex­pe­ri­ence should be used to also frame rules in the ar­eas of gov­er­nance which the world can fol­low.

MyKYC Bank, Com­mon Fa­cil­ity Cen­tre, Spe­cial No­ti­fied Zone for trad­ing of rough di­a­monds or the work­ers’ health in­sur­ance schemes are some ex­am­ples of how in­no­va­tive means can be the right way to drive reg­u­la­tion and sus­tain­abil­ity in busi­ness side by side. We are ready to share our ex­pe­ri­ence with the world to drive value in the busi­ness glob­ally as we live to­day in a very well­con­nected world.

SABYASACHI RAY GJEPC Ex­ec­u­tive Di­rec­tor

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