Session 4: Finance

Chair: R Gopalan (Public Enterprises Selection Board)


  • Demat trading and market liquidity: Evidence from the NSE in India – Madhav Aney (Singapore Management University), Sanjay Banerjee (Nottingham University)

  • Informal Insurance under group lending with individual liability: Evidence from India – Abhirup Sarkar (ISI Kolkata), Souvik Datta (IIM Bangalore)

Discussant: Ila Patnaik (Ministry of Finance)

The first presentation was by Madhav Aney, Singapore Management University on “Dmat trading and market liquidity: Evidence from the NSE in India”.


It is well understood that technological progress affects total surplus through its effect on the production function.  In addition to this, technological progress also affects market efficiency in matching buyers with sellers. In this work, authors look at a particular technological innovation, dematerialised (demat) trading, at the National Stock Exchange (NSE), and its effect on financial market performance.

About Demat

In December 96, the NSE introduced demat trading, an innovation eliminating the need to transfer paper share certificates from sellers to buyers. Instead, buyers and sellers held accounts in a centralised depository, like a bank account, containing records of their portfolio. The introduction of demat led to a reduction in the potential loss or theft of share certificates and cancellation of the stamp duty for transfer (previously charging 0.5%).

The authors find:

  1. Post-demat, the volume of trade at the NSE relative to the BSE, increased by around 10-15 %.
  2. Similarly the number of transactions at the NSE relative to the BSE, increased by around 15 %.

The authors conclude that the introduction of demat trading had a big effect on the level of liquidity in the NSE. However, increased liquidity was more pronounced for firms that were less-liquid at the start.

The second presenter- Souvik Datta Indian Institute of Management, Bangalore, presented his work “Informal Insurance under Group Lending with Individual Liability: Evidence from India”.


There has been a recent shift from joint liability to group loans with individual liability by the Grameen Bank and some other prominent micro-lending institutions across the world. Under the joint liability lending mechanism, a group of individuals were given a loan and individuals in a group were jointly liable for the loan given. Under the new lending mechanism although borrowers have to be in a group in order to access the loans, individuals are not liable for the default of other group members. Their study conducted a detailed analysis on individual liability lending in groups.

Their survey was carried out in November and December 2014 in the two districts of West Bengal – Purulia and East Midnapore. Bandhan operates 7 branches in Purulia and 28 branches in East Midnapore. Authors randomly chose a branch in each district – Raghunathpur in Purulia and Kanthi in East Midnapore. In each branch, two groups from Raghunathpur and three groups from Kanthiare were randomly selected. A total of 113 interviews were conducted, 57 in Purulia and the remaining 56 in East Midnapore.

Findings from their pilot survey are as following:

  1. They find evidence of informal insurance in the sample. On average, there is approximately 30% informal insurance in most of the groups except Jyotsna. This may be far less than the full potential of informal insurance as noted, but it shows evidence of informal insurance. The idea of informal insurance is naturally built up in the mechanism of joint liability lending, but it is not clearly evident in case of individual liability lending and this study is a first step in showing that informal insurance may still exist under individual liability lending and hence needs to be studied in greater detail.
  2. They also show that microfinance loans affect the lives of many poor households by increasing access to credit improving earnings, living standards and fostering social integration. Mirco-loans also helped empower the women by increasing their voice in decision-making on important household matters and more importantly by boosting self-esteem and morale (with respect to stress, anxiety, confidence etc).
  3. The study also finds evidence that significant fractions of group members deposited money into ponzi schemes. It is likely that misinformation about these schemes was spread through group networks. This again requires further probing in the main survey.

Summary was written by Vikas Dimble, Country Economist, IGC India Central