The CEO of Builder.ai, a British artificial intelligence startup supported by Microsoft Corp. and the Qatar Investment Authority, announced that a major creditor had taken the majority of the company’s funds, prompting the company to file for bankruptcy.
Manpreet Ratia, the CEO of Builder.ai, stated in an interview on 20 May that Viola Credit, which gave the software company $50 million in debt last year, had taken $37 million from the company’s accounts, leaving it with $5 million.
Ratia did not provide a clear explanation for the seizure. According to Ratia, the business, which has operations in the US, UK, India, the UAE, and Singapore, will declare bankruptcy when the time comes, in accordance with the procedures in each of those countries.
Ratia stated that he had to make the tough choice to fire the majority of Builder.ai’s staff due to the startup’s financial difficulties. According to him, the company’s remaining $5 million is in Indian banks and was unable to be utilised for employee payments because of limitations on the flow of funds beyond the nation.
Downfall of Builder.ai
One of the largest sovereign wealth funds in the world, QIA, spearheaded a $250 million fundraising round for the company two years prior, and the current proceedings represent a remarkable fall from grace. In 2023, Microsoft also invested equity as a component of a strategic alliance.
Builder.ai disclosed to a news agency less than two months ago that it had engaged auditors to review two years’ worth of accounting and that it had been compelled to reduce sales predictions given to investors. This was in response to enquiries from the agency on the worries of former workers regarding the company’s exaggerated sales figures.
The mistakes made by Builder.ai highlight the dangers of investing in promising AI firms too quickly, as investors aim to duplicate the achievements of industry titans like OpenAI and Anthropic.
Following ChatGPT’s launch, London-based Builder.ai capitalised on investor excitement in AI to draw in well-known investors. Ratia took over as CEO in February after Sachin Dev Duggal, the company’s founder, resigned.
At the time, Builder.ai also demanded Duggal to give up four of the five seats he controlled and reduced the size of its board from nine to five.
According to a statement from Builder.ai, the company has not been able to bounce back from prior decisions and historic setbacks that have severely strained its financial position. It further stated that the corporation will designate an administrator to oversee its operations.
More Trouble for Builder.ai
The business has also received investments from the World Bank Group’s International Finance Corp., Hollywood tycoon Jeffrey Katzenberg’s WndrCo, Lakestar, and SoftBank Group Corp.’s DeepCore incubator.
Bankruptcies in the US are not the same as insolvency cases in the UK, where Builder.ai is headquartered, and other nations with comparable legal systems. A court-approved administrator oversees insolvencies in the UK, working directly with creditors and avoiding the incumbent managers.
In the US, managers remain in their positions, and a federal judge must authorise any significant moves, such as borrowing funds or selling assets.
After turning down a takeover offer from its departing CEO, the US genetic testing business 23andMe has declared bankruptcy and is searching for a buyer. Late on 23 March, 23andMe, a company that charges less than $200 for a mail-back saliva test that can identify ancestry or specific genetic features linked to health, announced that it had “filed a voluntary petition for reorganisation” with a Missouri state bankruptcy court. Additionally, the Silicon Valley-based company stated that it plans to carry on with business as usual during the selling process. Furthermore, it stated that there would be no modifications made to the way consumer data is stored or protected.
23andMe Rejected Takeover Offer
According to the announcement, 23andMe declined a takeover approach from its CEO and co-founder, Anne Wojcicki, who has resigned but will continue to serve on the board of directors. Wojcicki wrote on X that she was upset by the brand’s decision to reject her bid, but she nevertheless offered the business her entire support. Strategically, she claimed, she resigned as CEO in order to “be in the best position to pursue the company as an independent bidder.” Despite the company’s difficulties, Wojcicki, who co-founded 23andMe 19 years ago, highlighted her “unwavering” faith in its future. According to regulatory documents, 23andMe, which claims to have 15 million clients, has suffered a drop in sales in recent months and has also agreed to pay about $37.5 million to settle allegations relating to a 2023 data breach. Due to the challenges, 23andMe said in November that the company was firing around 200 employees, or 40% of its workforce. Additionally, it halted its research initiatives.
What will Happen to the Genetic Data Collected by the Company?
Although 23andMe’s privacy regulations state that the genetic data may be sold to other companies, officials, including California Attorney General Rob Bonta, had expressed concerns about what would happen to the data. According to the enterprise, the bankruptcy procedure won’t have an impact on how it handles, preserves, or maintains client data. When 23andMe went public in 2021 at a $3.5 billion valuation through a special-purpose acquisition vehicle (SPAC) led by billionaire Richard Branson, it attracted a lot of interest from investors. Due to a surge in demand for DNA testing kits, its market value reached a peak of about $6 billion later that year. However, since then, demand has decreased, harming 23andMe and its rival AncestryDNA, which is owned by Blackstone. The holiday season usually saw a spike in sales of the consumer kits, but 23andMe has had trouble keeping consumers because they would use the kits just once and find little incentive to buy more.
The market for ancestry testing kits may be nearing saturation, according to Bernstein analysts. Over the course of five months in 2023, hackers compromised the personal information of around 7 million 23andMe consumers, severely harming the company’s reputation and making its growth issues worse. Customers who were worried about their privacy and the way DNA testing companies handled their data were alarmed by the incident. In a lawsuit pertaining to the breach, 23andMe ultimately consented to a $30 million settlement late last year. As part of what will be a significant restructure, the San Francisco-based company has also terminated the development of all medicines and fired off 200 people.
AGS Transact Technologies (AGST.NS), an Indian payments services company, announced on March 1 that a creditor intends to file for bankruptcy against the business for failure to pay debts. According to an exchange filing by AGS Transact, Maxwel Aircon India Private Limited, one of the business’ operational creditors, has accused the company of nonpayment and requested that corporate insolvency be initiated in the National Business Law Tribunal. According to AGS Transact, the business is looking for the right legal counsel and will do everything in its power to safeguard its interests in the aforementioned issue. AGS Transact offers corporate clients and banks cash-based and digital solutions, including ATM services. After the ailing company fell behind on its payments in recent months, all four of its independent directors left, citing personal reasons, and at least two credit ratings were downgraded. According to exchange records, the business and a division that supplies cash to ATMs had fallen behind on debts totalling 7.26 billion rupees ($83.1 million).
Who Flagged Off the Default?
On February 4, the credit rating agency Crisil noted the default and reduced the company’s debt rating; on February 5, India Ratings also downgraded the company’s credit rating, suggesting that it might not be able to make its debt payments. A week following Crisil’s downgrade, the firm revealed the default. Due to the company’s inability to achieve service-level agreements with its clients, the agencies pointed to a delay in receivables. This resulted in a severe decline in liquidity, which caused the company to miss interest payments on term loans in December and January. AGS Transact also reported a loss for the December quarter as a result of the delay, and its auditor expressed concerns about the company’s capacity to continue as a going concern. Its lenders include Federal Bank, State Bank of India, Bandhan Bank, HDFC Bank, Dhanlaxmi Bank, SBI Global Factors, Investec Bank, Aditya Birla Finance, IDFC First Bank, SBM Bank (India), and IndusInd Bank. Commentary from the lenders was not immediately available.
How NCLT Handles Corporate Bankruptcy Cases?
Under the Insolvency & Bankruptcy Code (IBC), NCLT plays a crucial role in managing the entire corporate insolvency resolution procedure. The NCLT assesses whether an insolvency petition is comprehensive and eligible for admission after receiving it. Following admission, the tribunal designates an Insolvency Resolution Professional (IRP) and starts the Corporate Insolvency Resolution Process (CIRP), in which the resolution specialist assumes control of the debtor’s resources and business operations. With a 180-day period (extended by 90 days) for developing a resolution plan to bring the company back to life, the CIRP is designed to effectively address insolvency. The NCLT may start the debtor company’s liquidation and supervise the fair division of assets among creditors if no workable settlement plan is accepted. The NCLT’s decisions may be appealed to the National Company Law Appellate Tribunal (NCLAT).
Kodak, as we know it today, was founded in the year 1888 by George Eastman as ‘The Eastman Kodak Company’. It was the most famous name in the world of photography and videography in the 20th century. Kodak brought about a revolution in the photography and videography industries. At the time when only huge companies could access the cameras used for recording movies, Kodak enabled the availability of cameras to every household by producing equipment that was portable and affordable.
Kodak was the most dominant company in its field for almost the entire 20th century, but a series of wrong decisions killed its success. The company declared itself bankrupt in 2012. Why did Kodak, the king of photography and videography, go bankrupt? What was the reason behind Kodak’s failure?Why did Kodak fail despite being the biggest name of its time? This case study answers the same.
Kodak, for many years, enjoyed unmatched success all over the world. By 1968, it had captured about 80% of the global market share in the field of photography.
Kodak adopted the ‘razor and blades’ business plan. The idea behind the razor-blade business plan is to first sell the razors with a small margin of profit. After buying the razor, the customers will have to purchase the consumables (the razor blades in this case) again and again; hence, sell the blades at a high-profit margin. Kodak’s plan was to sell cameras at affordable prices with only a small margin for profit and then sell the consumables such as films, printing sheets, and other accessories at a high-profit margin.
Using this business model, Kodak was able to generate massive revenues and turned into a money-making machine.
As technology progressed, the use of films and printing sheets gradually came to a halt. This was due to the invention of digital cameras in 1975. However, Kodak dismissed the capabilities of the digital camera and refused to do something about it. Did you know that the inventor of the digital camera, Steven Sasson, was an electrical engineer at Kodak when he developed the technology? When Steven told the bosses at Kodak about his invention, their response was, “That’s cute, but don’t tell anyone about it. That’s how you shoot yourself in the foot!”
Steven Sasson with the First-Ever Digital Camera in 1975
Kodak ignored digital cameras because the business of films and paper was very profitable at that time and if these items were no longer required for photography, Kodak would be subjected to huge losses and end up closing down the factories which manufactured these items.
The idea was then implemented on a large scale by a Japanese company by the name of ‘Fuji Films’. And soon enough, many other companies started the production and sales of digital cameras, leaving Kodak way behind in the race.
This was Kodak’s first mistake. The ignorance of new technology and not adapting to the changing market dynamics initiated Kodak’s downfall.
After the digital camera became popular, Kodak spent almost 10 years arguing with Fuji Films, its biggest competitor, that the process of viewing an image captured by the digital camera was a typical process and people loved the touch and feel of a printed image. Kodak believed that the citizens of the United States of America would always choose it over Fuji Films, a foreign company.
Fuji Films and many other companies focused on gaining a foothold in the photography & videography segment rather than engaging in a verbal spat with Kodak. And once again, Kodak wasted time promoting the use of film cameras instead of emulating its competitors. It completely ignored the feedback from the media and the market. Kodak tried to convince people that film cameras were better than digital cameras and lost 10 valuable years in the process.
Kodak also lost the external funding it had during that time.
Kodak’s Management Ignored Change
Around that time, a magazine stated that Kodak was being left behind because it was turning a blind spot to new technology. The marketing team at Kodak tried to convince the managers about the change needed in the company’s core principles to achieve success. But Kodak’s management committee continued to stick with its outdated idea of relying on film cameras and claimed the reporter who said the statement in the magazine did not have the knowledge to back his proposition.
Kodak failed to realize that its strategy which was effective at one point was now depriving it of success. Rapidly changing technology and market needs negated the strategy.
When Kodak finally understood and started the sales and the production of digital cameras, it was too late. Many big companies had already established themselves in the market by then and Kodak couldn’t keep pace with the big shots.
In the year 2004, Kodak finally announced it would stop the sales of traditional film cameras. This decision made around 15,000 employees (about one-fifth of the company’s workforce at that time) redundant. Before the start of the year 2011, Kodak lost its place on the S&P 500 index which lists the 500 largest companies in the United States on the basis of stock performance. In September 2011, the stock prices of Kodak hit an all-time low of $0.54 per share. The shares lost more than 50% of their value throughout that year.
Diversified into Unrelated Businesses
Kodak’s decline wasn’t just due to not adopting digital photography. The company made several bad decisions, like diversifying into unrelated businesses such as chemicals and healthcare, which took focus and resources away from its main photography business.
Mismanaged Intellectual Property
Kodak didn’t manage its patents well and refused to license its technologies to competitors. This made it harder to adapt, allowing rivals to take the lead and speed up Kodak’s downfall.
Misjudging Market Trends and Customer Needs
The management wrongly thought that the shift from film to digital would take time. They didn’t expect consumers to switch to digital cameras and smartphones so quickly. Kodak’s failure to understand the market and customer needs made things worse and sped up their decline. People also realized that digital photography was way ahead of traditional film photography. It was cheaper than film photography and the image quality was better.
Acquisition of Ofoto
Kodak made a smart move by buying the photo-sharing site Ofoto in 2001, but it missed a big opportunity. Instead of embracing its slogan “share memories, share life,” Kodak focused on using Ofoto to promote printing digital photos. If Kodak had rebranded Ofoto as Kodak Moments and expanded it into a social platform, it might have led the way in sharing photos and updates online. Instead, Kodak sold Ofoto to Shutterfly for less than $25 million in 2012 as part of its bankruptcy plan. Kodak invested its funds in acquiring many small companies, depleting the money it could have used to promote the sales of digital cameras.
Kodak’s Failure Represented In Graph
Kodak’s Bankruptcy Protection
By January 2012, Kodak had used up all of its resources and cash reserves. On the 19th of January in 2012, Kodak filed for Chapter 11 bankruptcy protection which resulted in the reorganization of the company. Kodak was provided with $950 million on an 18-month credit facility by the CITI group.
The credit enabled Kodak to continue functioning. To generate more revenue, some sections of Kodak were sold to other companies. Along with this, Kodak decided to stop the production and sales of digital cameras and stepped out of the world of digital photography. It shifted to the sale of camera accessories and the printing of photos.
Kodak had to sell many of its patents, including its digital imaging patents, which amounted to more than $500 million in bankruptcy protection. In September 2013, Kodak announced it had emerged from Chapter 11 bankruptcy protection.
Ressurection of Kodak: Kodak in the mobile industry?
Celebrated camera accessory manufacturers of yesteryear, Kodak, is looking to join Chinese smartphone manufacturing giant Oppo for an upcoming flagship smartphone. This new smartphone is rumored to have 50MP dual cameras, where the cameras of the device will be modeled upon the old classic camera designs of the Kodak models.
The all-new flagship model of Oppo was designed to be a tribute to the classic Kodak camera design. The camera of this Oppo model will allegedly use the Sony IMX766 50MP sensor. Furthermore, the phone will also embed a large sensor in its ultrawide camera as well along with a 13MP telephoto lens and a 3MP microscope camera.
No other information on this matter is currently available as of November, 2024.
The collaborations between Android OEMs and camera makers are not something new. Yes, numerous other companies have already come together with other camera manufacturing companies like Nokia, which joined hands with German optics company Carl Zeiss earlier in 2007 to bring in the camera phone Nokia N95. This can be concluded as the first of such collaborations that the smartphone industry has seen. Numerous other collaborations happened eventually, which resulted in outstanding results. OnePlus’ partnership with Hasselblad, Huawei pairing up with Leica and the recent news of Samsung’s associating with Olympus are some of the significant collaborations to be mentioned.
Kodak had earlier made a leap into the smart TV industry and is ushering in success through this new move. Kodak TV India has already commissioned a plant in Hapur, Uttar Pradesh in August 2020, designed to manufacture affordable Android smart TVs for India. Furthermore, the renowned photography company is looking to invest more than Rs 500 crores during the next 3 years for making a fully automated TV manufacturing plant possible in Hapur. The company committed to this plan as part of its ‘Make in India’ initiative and will leverage its Android certification. Kodak’s announcement, as it seemed, was further recharged with the Aatmanirbhar Bharat campaign launched by PM Narendra Modi in the wake of the coronavirus pandemic in 2020.
The TV industry of India imports most of its raw materials and exhibits a value addition of only about 10-12%. However, with the investment that Kodak has promised the company has aimed to increase the value-added to around 50-60%. The Hapur R&D facility will foster the manufacturing of technology-driven products and introduce numerous other lines of manufacturing aligned with the “Make in India” belief.
Super Plastronics Pvt Ltd, a Noida-based company has obtained the license from Kodak Smart TVs to produce and sell their products in India in partnership with the New-York based company and has already launched a range of smart TVs already, as of September 2021 including:
Kodak’s failure was due to its inability to adapt to changing technology and market trends. The company stuck to outdated strategies, ignored digital innovation, and made poor business decisions. While Kodak had opportunities to lead in the digital era, its reluctance to change and focus on old products led to its downfall. The company’s story highlights the importance of staying flexible and responding quickly to market shifts.
FAQs
What happened to Kodak, why did kodak go out of business?
Kodak was ousted from the market of camera and photography due to numerous missteps. Here are some insights into the same:
The ignorance of new technology and not adapting to changing market needs initiated Kodak’s downfall
Kodak invested its funds in acquiring many small companies, depleting the money it could have used to promote the sales of digital cameras.
Kodak wasted time promoting the use of film cameras instead of emulating its competitors. It completely ignored the feedback from the media and the market
When Kodak finally understood and started the sales and the production of digital cameras, it was too late. Many big companies had already established themselves in the market by then and Kodak couldn’t keep pace with the big shots
In September 2011, the stock prices of Kodak hit an all-time low of $0.54 per share
Kodak declared bankruptcy in 2012
Give 5 reasons why Kodak failed and what can you learn from its demise?
Below are the main 5 reasons why Kodak failed:
Failure to Adapt to Digital Innovation
Kodak’s Management Ignored Change
Diversified into Unrelated Businesses
Mismanaged Intellectual Property
Misjudging Market Trends and Customer Needs
Acquisition of Ofoto
Kodak failed to understand that its strategy of banking on traditional film cameras (which was effective at one point) was now depriving the company of success. Rapidly changing technology and evolving market needs made the strategy obsolete.
Is Kodak still in business?
Kodak declared itself bankrupt in 2012. Kodak’s bankruptcy resulted in the formation of the Kodak Alaris company, a British organization that part-owns the Kodak brand along with the American Eastman Kodak Company.
When did Kodak go out of business?
Kodak faced its demise in 2012.
Is Kodak a good camera?
Kodak’s cameras and accessories were of premium quality and the first of the choices professional photographers and others. The company was a winner in the analogue era of photography. However, the company dived down to hit the rock-bottom level.
What does Kodak do now?
Currently, Kodak provides packaging, functional printing, graphic communications, and professional services for businesses around the world. Better known for making cameras, Kodak moved into drug making and has secured a $765m (£592m) loan from the US government in 2020.
Why was Kodak so successful?
Kodak adopted the ‘razor and blades’ business plan. The idea here was to first sell the razors with a small margin of profit. After buying the razor, the customers will have to purchase the consumables (the razor blades in this case) again and again; hence, sell the blades at a high-profit margin. Kodak’s plan was to sell cameras at affordable prices with only a small margin for profit and then sell the consumables such as films, printing sheets, and other accessories at a high-profit margin.
People usually think that they just need a paycheck to become rich. If they keep making money and spending it simultaneously, they’ll be rich. But we very well know the secret to becoming rich is way beyond just paychecks. A better understanding of this can be taken from the example of those billionaires who didn’t think twice before spending and ultimately, filed for bankruptcy.
This article covers those billionaires who declared bankruptcy or claimed to be completely broke at some point in their lives. Now, you might be thinking, what makes a person bankrupt, especially when they have billions of dollars? Various factors come here such as lousy investment, massive fraud cases, economic downturn, and many more. But the bottom line here is, that they didn’t plan any backups and went on and on with their money. And that’s what sank their ship!
As we have a basic understanding here, let’s get on with knowing the stories of how these billionaires become bankrupt.
We can get started with Mike Tyson, the super famous fighter who used to earn up to $22 million per fight, which ultimately became a lifetime earning of half a billion dollars. Even after such big paychecks, he filed for Chapter 11 bankruptcy in 2003 as per the Benjamin Law. The reason for this bankruptcy is the huge debt that sank him.
The debts were so high that the law firm reported that Mike Tyson owed $38.4 million to the creditors which included the Internal Revenue Service along with his ex-wife, Monica Turner.
Elizabeth Holmes
Occupation
Founder and CEO, Theranos
Bankruptcy Year
2013
Reason for Bankruptcy
Fraud
Elizabeth Holmes – Billionaire Who Became Bankrupt
The woman who made it to the cover of Forbes for founding the incredible startup worth $9 billion, Elizabeth Holmes, was forced to declare bankruptcy. She was convicted of criminal fraud through her company, Theranos. Her company claimed to be developing a revolutionary blood test that will come in the form of testing hundreds of diseases and medical conditions with just a few drops. But later it was proved that the company was not even close to developing such technology. This resulted in Elizabeth Holmes awaiting sentencing for facing up to 20 years in prison.
Aubrey McClendon – Billionaire Who Became Bankrupt
The next in the line is Aubrey McClendon, co-founder of Chesapeake Energy, which is an oil and gas company with a net worth of $1.2 billion. He was accused of unfair manipulation of bids for drilling rights along with charges of federal conspiracy. However, due to an unfortunate car accident, McClendon died a day later of the accusations.
A very well-known name in India, Vijay Mallya was an airline and liquor tycoon famous for his luxurious and high-flying lifestyle. He was the owner of Kingfisher Airlines, which is a now-defunct Indian airline.
Eike Batista, the name that was made the seventh richest person in the world, ultimately declared bankruptcy. He was an oil baron with the oil company, OGX. However, due to his failure in managing the production target, he started losing money. And the situation worsened when Brazil’s economy suffered a tough time.
And when in the year 2012, Eike Batista’s net worth was estimated to be $30 billion, it fell into money laundering and corruption and he filed for bankruptcy.
Sean Quinn
Occupation
Founder, Quinn Group
Bankruptcy Year
2011
Reason for Bankruptcy
Debts
Sean Quinn – Billionaire Who Became Bankrupt
This Irish Businessman who was once noted as the richest man in Ireland according to Forbes went bankrupt because of huge debt from the banks. Starting with cement manufacturing, Quinn’s biggest decision of entering the hospitality industry turned the way. In 2008 it was estimated the Quinn group owed 2.8 billion British pounds to the Anglo-Irish Bank. A lavish lifestyle without debt repayment and owning luxurious hotels as a new venture put down Quinn completely.
Another hard fate that hit Quinn was Quinn’s insurance levied a sum of 3.25 million pounds and 200000 million pounds personally. This was due to Quinn Insurance issuing loans against the Financial regulation of Ireland. The wholesome amount was used in investing in stocks and for other luxuries.
In the year 2012, the Ireland government declared Sean Quinn bankrupt and was sent to jail for 9 weeks. Perhaps Quinn used the law “Right to be Forgotten” to delete his lavish lifestyle details from the internet.
Bernie Madoff
Occupation
Founder, Bernard L. Madoff Investment Securities
Bankruptcy Year
2008
Reason for Bankruptcy
Ponzi Scheme
Bernie Madoff – Billionaire Who Became Bankrupt
Bernie Madoff, the biggest fraudulent sentenced to 150 years punished ever in the history of mankind. This man ran the biggest and longest Ponzi Scheme over 17 continuous years. The Ponzi Scheme was worth 65 billion dollars. He netted many investors to invest in the scheme by attracting them to an investment firm named Penny Stock Brokerage. The fraud worth was 65 billion dollars. But it was all known to the world when Madoff confessed the whole matter to two of his sons and that’s where the game began. The unimagined thought of Madoff was his sons Mark and Andy revealed the entire story to the FBI. The shocked FBI arrested Madoff and punished him serving 150 years sentence with forfeiture of 170 billion dollars. Many of his investors killed themselves, Mark’s suicide two years after the tragedy, and the entire fraud life of Madoff remains.
Björgólfur Guðmundsson
Occupation
Chairman, Landsbanki
Bankruptcy Year
2008
Reason for Bankruptcy
Global financial crisis and business troubles
Bjorgolfur Gudmundsson – Billionaire Who Became Bankrupt
Iceland’s second richest man Björgólfur Guðmundsson went bankrupt for over 500 million Euros in the year 2008. He was already jailed for about a year on a bookkeeping offense in the early 1990s. After becoming the chairman of the bank Landsbanki, Björgólfur Guðmundsson misused a lot of money and became a disaster for Iceland’s economy. He owed more than 500 million dollars personally which devastated his faith.
Robert Allen Stanford alleged massive ongoing fraud of 7 billion dollars and over amounts uncalculated. This biggest fraud ran the biggest Ponzi scheme under the name of Stanford Financial Groups which is defunct now. In 2009 FBI and SEC imposed several violations of acts on Stanford such as a money laundering case, a Ponzi scheme, violated financial securities, and many more. This mesmerizing brain manipulated many clients by showing hypothetical records as real data to pitch them and invest in him. Although tried to fly off from the US to Antigua with failed attempts he surrendered himself to the FBI in 2009 and the same year the Judicial Law of Florida sentenced him to 110 years. Being absent of guilt he even applied for an appeal in 2014 but got rejected in 2015.
Sam Bankman-Fried
Occupation
Founder, FTX
Bankruptcy Year
2022
Reason for Bankruptcy
Liquidity crunch
Sam Bankman-Fried – Billionaire Who Became Bankrupt
Sam Bankman-Fried had made his fortune through FTX exchange and Alameda Research trading firm and established himself as Crypto King. FTX crashed in November 2022 due to a liquidity crunch. The crypto exchange collapsed after it emerged Alameda had been using FTX customer assets to cover trading losses. Its users began withdrawing their investments at a rapid pace. As a result, Sam filed for bankruptcy for both of his firms.
On Nov 11, 2022, FTX filed for Chapter 11 bankruptcy protection in the US. The fall of FTX and bankruptcy filing have impacted the crypto industry worldwide.
Before FTX’s collapse, he ranked the 41st richest American in the Forbes400 and the 60th richest person in the world by The World’s Billionaires. His net worth peaked at $26.5 billion.
The US Court has charged him with Securities fraud, Wire fraud, and Conspiracy. He faces a maximum of 115 years in prison if convicted on all eight counts and sentenced to serve each charge consecutively. He has been released on a $250 million bond and is under house arrest. On Jan 03, 2023, he pleaded not guilty to fraud and other charges.
Jocelyn Wildenstein
Occupation
Socialite
Bankruptcy Year
2003
Reason for Bankruptcy
Debt
Jocelyn Wildenstein – Billionaire Who Became Bankrupt
The woman was famous as a “Catwoman” because of her looks, Jocelyn Wildenstein was a big socialite. Based on reports, she used to spend $1 million on shopping and $5,000 on her phone bill per month. She is a former wife of the late Alec Wildenstein, who used to be a billionaire in his days.
Later in 2018, Jocelyn Wildenstein declared bankruptcy and claimed that she had $0 in her bank account.
Anil Ambani
Occupation
Businessman
Bankruptcy Year
2020
Reason for Bankruptcy
Bad Investments, Debt
Anil Ambani – Billionaire Who Became Bankrupt
The younger son of Dhirubhai Ambani, Anil Ambani hasn’t had much luck since 2002. After his father’s death, the $15 billion Reliance business split, with Anil getting control of companies like Reliance Communications, Reliance Capital, and Reliance Infrastructure, while his brother Mukesh took over Reliance Industries.
In the past 15 years, he has gone from being the world’s sixth richest person with $42 billion in 2008 to facing bankruptcy, selling family assets to pay lawyers, and seeing his companies auctioned. He was even threatened with jail by the Supreme Court. Recently, the Securities and Exchange Board of India (SEBI) banned him from the stock market for five years in August 2024.
Conclusion
We can say that with mere paychecks, one doesn’t stay rich. Some of the billionaires are or were forced to file for bankruptcy in their lives. Many of these served jail time because of money laundering and severe debts, such as Allen Stanford, Eike Batista, and many more. To make you familiar with this, we rounded up these above-mentioned billionaires who filed for bankruptcy.
FAQs
Has a billionaire ever gone broke?
Usually, billionaires and their teams are smart enough to protect their wealth. However, unfavorablesituations can make them bankrupt. Adverse economic scenarios, bad investment decisions, or fraud can make billionaires file for bankruptcy.
Which billionaires went Bankrupt?
Some billionaires who became bankrupt are:
Mike Tyson
Elizabeth Holmes
Aubrey McClendon
Vijay Mallya
Eike Batista
Sean Quinn
Bernie Madoff
Björgólfur Gudmundsson
Allen Stanford
Sam Bankman-Fried
Jocelyn Wildenstein
Anil Ambani
Was Vijay Mallya a billionaire?
Yes, Vijay Mallya was a billionaire with a net worth ranging from $1 billion to $1.5 billion. in years 2006-2012.
How many billionaires are there in the world?
There are 2781 billionaires in the world as of 2024.
Following a number of years spent attempting to revitalize the company in the face of declining demand, Tupperware Brand is reportedly making preparations to file for bankruptcy as soon as this week, according to media reports.
After violating the conditions of its debt and enlisting legal and financial experts, the home-goods business, which has defined food storage for a significant portion of a century, is seeking to enter court protection.
After an extended time of negotiations between Tupperware and its lenders regarding how to manage more than 700 million dollars in debt, the company has begun the process of filing for bankruptcy. This year, the lenders reached an agreement to provide the company with some breathing room about the loan terms that were breached; yet, the company continued to decline. However, these plans are not yet finalized and may undergo modifications in the future.
Tupperware Made Several Re-Arrangements but Failed to Hit Profit
Tupperware has been warning for years that there is uncertainty over the company’s capacity to continue operating. It announced in June that it intended to close its one and only factory in the United States and lay off over 150 workers. Last year, as part of an effort to turn the company around, it appointed Laurie Ann Goldman as the new Chief Executive Officer. This was done in addition to replacing Miguel Fernandez, who had been serving as Chief Executive Officer, and other board members.
It was in 1946 when Tupperware made its plastic products available to the general public, following the invention of their flexible airtight seal containers by the company’s founder, Earl Tupper. To a significant extent, sales parties that were organised by suburban women were responsible for the brand’s explosion into American homes.
Throughout its nearly eight decades of existence, the company has maintained its reliance on direct sales conducted by a huge number of amateur vendors. As of the year 2022, the corporation’s regulatory filings estimate that it has more than 300,000 independent salesmen.
Other Companies That Have Declared Bankruptcy
In June 2024, Red Lobster filed for bankruptcy, which resulted in the closure of at least fifty outlets and the request to a judge for permission to close one hundred more. The seafood restaurant has been engulfed by problems, including questionable management by the private equity firm that controlled it and an Endless Shrimp campaign that went wrong, according to sources. All of these problems had been hurting the operation. Over the course of the previous month, it was bought as a component of a restructuring agreement.
In March 2024, the store of fabrics and crafts known as Joann submitted a petition for bankruptcy. A bankruptcy judge gave his approval to a restructuring agreement that enabled the company to keep its 815 stores operational while simultaneously reducing its debt by $505 million.
Earlier this year, in April, the clothing retailer Express filed for bankruptcy, and shortly thereafter, a consortium led by the brand management company WHP Global bought the company.
The recent bankruptcy of WeWork, the once $47 billion office-sharing startup, serves as a stark reminder of the dynamic nature of work and the imperative for businesses to adapt to evolving cultural norms. At its core, WeWork’s concept of providing flexible office spaces resonated with the growing number of gig workers and those seeking alternative work arrangements. However, the company’s decline underscores the importance of aligning business models with underlying cultural shifts and avoiding excessive risk-taking.
Redefining “Office”: A Linguistic and Cultural Exploration
The recent collapse of WeWork, with its valuation plummeting from $47 billion to nearly zero, has prompted substantial losses for SoftBank, calling for contemplation on the central concept of Neumann’s vision—the “office.” In contemporary terms, the term “office” is synonymous with a physical building, embodying white-collar work in 20th-century Western culture, exemplified by the popular television show sharing its name. Ironically, the original Latin roots of the word Officium signified “task,” “service,” or “[divine] position.” This linguistic nuance holds significance, leading English speakers to refer to politicians “running for office.” Beyond being a cultural and etymological curiosity, this linguistic history serves as a reminder to investors of two vital points.
Firstly, working practices, like other cultural aspects, are not fixed, even if each generation perceives its social patterns as inevitable and permanent. Memes and mores evolve. Secondly, in our post-pandemic, highly digitized world, the Latin concept of officium, emphasizing work as centered around tasks and people rather than buildings, gains newfound relevance. The “office” culture is evolving towards the future, defying the expectations of commercial real estate investors.
Transformation in the Mental Map of Work
The evolving landscape goes beyond the binary discussion of remote work during the pandemic. Although levels of remote work surged significantly during the pandemic and have since decreased, it remains prevalent. A recent US Federal Reserve survey indicates that a quarter of employees engage in hybrid or remote work, up from 10 percent in 2018, with expectations of further growth. Gallup’s survey suggests an even higher hybrid ratio, around 50 percent.
More intriguing than the shift to remote work is the subtle transformation in the mental map of work. In the 20th century, “offices” in the West were associated with temporal, spatial, and social boundaries. The idealized vision involved work occurring outside the home, during defined hours (nine to five), with non-family colleagues, and at a specified life stage (before the age of 65). However, the pandemic and digitization have blurred these boundaries, leading individuals to seamlessly integrate home and workspaces, work at varied hours, and continue working beyond retirement. This departure from 20th-century norms aligns with the historical norm but marks a significant shift.
Some executives hope this shift is temporary, with a survey by KPMG indicating that two-thirds of executives believe in a full return to the office within three years. However, doubting a complete return to last-century norms is reasonable, especially as digitization fosters a cultural shift toward personalized consumer choice. A new generation is emerging, assuming it is normal for consumers to customize various aspects of their lives, including food, media, music, politics, families, and identities according to individual tastes.
This pick ‘n’ mix approach also influences attitudes towards work, with employees increasingly demanding flexibility in their jobs, even if they work in an office, and many employers feeling compelled to offer such flexibility. While this shift may be infuriating for older executives, it is considered natural and desirable by younger workers. This presents a challenge for commercial real estate investors today.
The Rise of Personalized Work: A New Generation’s Demand
Adam Neumann, the founder of WeWork, was attuned to these cultural shifts, aiming to provide flexible contract options for gig workers. However, WeWork’s downfall resulted from a misalignment between its 15-year leases and customers’ 1.5-year membership agreements, coupled with excessive leverage and a misguided belief in the new generation’s affinity for physical offices. This does not necessarily predict the failure of other co-working models; well-run alternatives may align better with current trends.
Additionally, urban spaces can thrive, especially those embracing mixed-use concepts and flexibility, provided policymakers show imagination in amending rigid zoning laws. The key lesson for commercial real estate investors and SoftBank from the WeWork saga is the imprudence of modeling the future solely on recent past trends during cultural flux and amid an influx of excessively cheap capital. The “office” is not dead; it thrives in both its Latin form and the 20th-century sense. Perhaps it is time for a clever entrepreneur to create an officium app?
Regarding the impact of bankruptcy on WeWork’s business in the US and Canada, the company assures that its co-working spaces remain open and operational, including in the UK. An email to London tenants emphasizes the firm’s full commitment to providing services, intending to remain in the majority of its buildings. The company expresses dedication to proactive communication with members about potential changes.
Reports indicate WeWork’s closure of at least one office on London’s South Bank as it grapples with financial challenges. One UK tenant contemplates alternative co-working spaces, reflecting on the flexibility, larger meeting rooms, and events enjoyed at WeWork. Concerns arise that if WeWork cuts back on member perks and events to save money, it risks losing tenants to competitors. The challenge for WeWork lies in the multitude of alternatives available, eroding the early differentiation that was once its strength. Even if the company continues trading for a period, increased business evaluations and potential churn are expected.
As of the end of June, WeWork boasted over 700 sites worldwide and approximately 730,000 members. The company’s bankruptcy marks a significant development affecting its operations in the US and Canada. WeWork’s commitment to keeping co-working spaces operational in the UK underscores efforts to maintain service continuity.
The Icarus of the Coworking World: WeWork’s Narrative
Annual Revenue and Net Loss of WeWork
The downfall of WeWork, a once highly-touted venture, stems from a series of missteps and challenges. Acknowledging its status as a loss-making entity with substantial liabilities, the company opted for bankruptcy protection to streamline its commercial office lease portfolio while ensuring continuity for its users. WeWork’s CEO, David Tolley, expressed gratitude for the support of financial stakeholders during this restructuring process.
However, the company faced setbacks, notably in 2019, when a failed attempt to raise money publicly damaged its reputation, leading to Neumann’s ousting. The subsequent global pandemic further impacted demand as remote work became prevalent. Weighed down by losses exceeding $1 billion in the first half of the current year, WeWork grappled with the challenges of its tech-business demeanor. Efforts to sell business segments and renegotiate leases and debts ensued, reflecting a shift from its initial exuberance.
The narrative of Adam Neumann’s journey with WeWork resembles a parable featuring elements of colossal ego, ambitious aspirations, and a trusting public. Neumann, with his eccentric persona, envisioned a future where WeWork would transcend earthly boundaries, even reaching Mars. However, the stark reality is the company filing for bankruptcy protection, a far cry from its peak as the largest tenant of office space in major cities. WeWork’s inception tapped into a timely opportunity, capitalizing on a market where commercial premises were vacant, landlords were eager, and technology-enabled flexible work arrangements. Its unique blend of functionality and fun, offering more than a coffee bar but less than a traditional office, attracted a following that perceived it as a movement rather than a business.
Adam Neumann’s journey began humbly with the establishment of Greendesk in 2008, embodying communal living and shared office spaces. A strategic rebranding to WeWork, rapid expansion with investor support, and a valuation reaching $47 billion marked its ascent. However, the company’s financial challenges were concealed by an unsustainable model of buying long-term leases and subletting short-term, a risky game that drew scrutiny. WeWork’s decline was evident before the pandemic and interest rate changes. Questions arose about its valuation as a tech company rather than a real estate subletter.
The ill-fated IPO in 2019 unveiled larger losses and a questionable relationship between Neumann’s finances and the company’s. Following the IPO failure, the value plummeted by $40 billion, and Neumann resigned. Despite the dramatic decline of WeWork, Neumann successfully disentangled his finances from the company, walking away with over a billion dollars while the company’s value plummeted to about $50 million. The pied piper of investors, Neumann, now involved in various investments and backed by venture capital firm Andreessen Horowitz, symbolizes a cautionary tale of ambition meeting harsh reality.
The era characterized by easy tech funding, fueled by low-interest rates, enabling WeWork’s rapid expansion, has concluded, according to Claire Holubowskyj, a senior research analyst at Enders Analysis. She asserts that WeWork has become the “poster child of overhyped start-up” and points out that the culture of staunchly supporting tech companies has undergone a shift in the broader economy. The sustainability of WeWork’s vision for the office as a space fostering entrepreneurial activity, complete with communal elements like ping pong and kombucha, remains uncertain. Property firms grappling with altered financial prospects due to the pandemic and a significant rise in interest rates face challenges in the current landscape.
Despite these challenges, WeWork and its competitors express optimism, arguing that the prevailing uncertainty about property needs should drive increased demand for flexible leases. IWG, the owner of Regus and Spaces, reported a 48% profit surge for the first half of the year, maintaining a “cautiously optimistic” outlook for the future. Teddy Kramer, a former director at WeWork and current founder of co-working firm Neon, suggests that WeWork may have lost its way, presenting an opportunity for others in the industry. Analysts caution about the inherent risks in the co-working business model, emphasizing its ease of replication and the substantial financial investment required to establish and maintain offices with a unique appeal.
Russ Mould, investment director at AJ Bell, underscores the distinction between popularity and profitability, emphasizing that enjoying a service does not guarantee a viable business model. Former clients, particularly those dissatisfied with WeWork’s pandemic-era actions, may be hesitant to return, as expressed by David Born, who acknowledges the value of shared workspaces but is wary of WeWork.
WeWork’s Media Spotlight
WeWork’s extensive media coverage has delved into its substantial losses, insider dealings, and controversies, including the depiction in the Apple TV Series “WeCrashed,” featuring Anne Hathaway and Jared Leto as Rebekah and Adam Neumann. Questions about the links between Neumann’s personal finances and WeWork, along with unconventional business expansions, have been raised. As discussions with landlords and financiers intensified, WeWork disclosed non-payment on loans, and major shareholder SoftBank continued substantial financial support.
Anticipating a bankruptcy filing, Adam Neumann expressed disappointment but suggested that with the right strategy and team, a reorganization could enable WeWork to emerge successfully.
The multifaceted challenges faced by WeWork and the broader shifts in workspace dynamics underscore the need for adaptability and innovation in the commercial real estate sector. The lessons learned from WeWork’s decline should guide investors to avoid the repetition of rigidly basing the future on recent past trends during cultural flux and an era of excessively cheap money. The evolution of the “office” reflects a dynamic blend of Latin roots and contemporary ideals, challenging entrepreneurs to explore innovative solutions in this changing landscape.
Adam Neumann’s Current Status: Post-Bankruptcy Lifestyle
Adam Neumann – CEO of Flow
As WeWork plunges into bankruptcy, its founder, Adam Neumann, is currently enjoying the sunshine in Miami, where the beaches are adorned with billionaires. Neumann, 44, once the charismatic leader of the office-sharing giant, faced a tumultuous exit during a flawed IPO in September 2019, leading the company on a downward spiral culminating in this week’s bankruptcy declaration.
Despite WeWork’s disheartening internal atmosphere, Neumann seems unfazed. Sources reveal to The Post that he is actively skateboarding, socializing, and soliciting investors for a new startup, asserting that this venture will revolutionize how people live at home. Neumann, characterizing himself as a “creator, not a destroyer,” still boasts an estimated fortune of $1.7 billion and resides in South Florida with his wife Rebekah and their six children.
Known for their close friendship with Jared Kushner and Ivanka Trump, who live nearby on Indian Creek Island, the Neumanns spent the summer at their Amagansett home, adjacent to Rebekah’s cousin Gwyneth Paltrow’s property. They have now settled in an exclusive Miami neighborhood, hosting social gatherings and actively engaging with the local Jewish community. Rebekah, 45, has intentionally kept a low profile since the WeWork fallout, staying out of the public eye.
In 2021, Neumann made a substantial real estate purchase, acquiring two properties for $44 million, where he planned to construct a mansion. Despite WeWork’s challenges, Neumann remains a charismatic figure, participating in panel discussions and speeches, presenting a seemingly reformed image.
In recent years, Neumann has focused on his latest venture, Flow, securing a $350 million investment from venture capital firm Andreessen Horowitz in August 2022, valuing the startup at $1 billion before even commencing operations. Flow aims to create rental communities, fostering a sense of ownership and community.
Neumann has transferred at least six apartment buildings he owns in Florida and Nashville to the company. Speaking from Saudi Arabia to CNBC’s “Squawk Box” last month, Neumann highlighted Flow’s engagement with Fortune 500 companies and emphasized the enduring need for community. Despite the WeWork boom’s extravagant spending, the Neumanns acquired various properties, including a Greenwich Village townhouse, a Gramercy compound, a Westchester farm, two Hamptons estates, and an 11-acre property near San Francisco featuring unique amenities such as a guitar-shaped living room and a three-story waterslide.
Adam Neumann’s First Public Interview Since Leaving WeWork
Reflections on WeWork’s Bankruptcy and the Evolution of Modern Workspaces
The WeWork saga serves as a compelling narrative of a once-promising venture that soared to unprecedented heights before plummeting into bankruptcy. The demise of WeWork underscores the critical importance of aligning business models with cultural shifts, especially in the dynamic landscape of the modern workplace. As the definition of the “office” evolves, marked by a shift towards personalized work and flexible arrangements, commercial real estate investors must embrace innovation and adaptability to navigate the changing demands of the workforce. WeWork’s downfall offers valuable lessons for investors, emphasizing the need to avoid rigidly relying on past trends during times of cultural flux. Despite the challenges, competitors in the co-working space express optimism, highlighting the potential for increased demand for flexible leases in an era of uncertainty. Meanwhile, Adam Neumann’s post-bankruptcy endeavors reflect resilience and entrepreneurial spirit, illustrating the ongoing pursuit of innovative solutions in the ever-evolving landscape of work and living.
FAQs
What is the main problem of WeWork?
WeWork’s investors inflated its valuation with billions but later withheld additional funding, forcing the company to go public prematurely. The resulting financial turmoil exposed the consequences of the inflated valuation.
Who is the CEO of WeWork now?
David Tolley is the current CEO of WeWork.
Is WeWork still losing money?
Yes, WeWork is still losing money. In the first half of 2023, the company reported a net loss of $700 million after losing $2.3 billion in 2022.
Why was Adam Neumann forced out of WeWork?
Adam Neumann, the co-founder and CEO of WeWork, was forced out of the company in September 2019 due to:
Café Coffee Day (CCD) CEO Malavika Hegde has been both praised and slammed over the company’s slow growth of Rs 250 crore in FY21 and FY22. Some call her farsighted, determined, and resilient, while others criticize her approach as the CEO.
Once India’s leading coffee chain, Cafe Coffee Day, faced its biggest challenge when its founder and the then Managing Director, V.G. Siddhartha, tragically passed away in 2019. Several marketing pundits anticipated an exit from the market following the staggering debts and lack of prominent leadership. Most thought the corporation would not manage to recover from its existing condition.
Cafe Coffee Day: the brand that refuse to die | Mint Explains | Mint
Siddhartha committed suicide by jumping off to the Netravat River near Mangalore. According to a typewritten note, reportedly found after his demise, Siddhartha took this extreme step following his overwhelming debts and his failure to create the “right profitable business model.” He also shared that the extreme pressure from the lenders, private equity partners, and the harassment from the Income Tax Department had made his life unbearable. He expressed his grievances by saying that his intention was “never to cheat or mislead anybody, I have failed as an entrepreneur.”
Malavika Takes Charge as CCD CEO
Without leaving much room for speculation regarding the company leadership, Malavika Hegde, the widow of Siddhartha, addressed all realities and showed radical honesty by taking charge of the sinking ship in December 2020. She is the daughter of the former Chief Minister of Kerala SM Krishna. She has a degree in engineering and has been associated with the coffee business since 2008. She was appointed as a non-executive director of the company in 2013.
Malvika took office at the most unprecedented time, burdened with the multiple responsibilities to take the company out of the debt mountain of whooping Rs 7000 crore, make the company profitable, and retain the trust of her employees.
However, as a thoughtful leader, Malavika issued a letter to her 25,000 employees to win their trust, to assure them of her commitment to the future of the company, and to assure them that the Coffee Day story was “worth preserving”. She also communicated in the letter assuring that she would significantly reduce the company’s debts to a manageable level by selling a few more investments and assets.
Malavika took a courageous approach to save her company from the verge of bankruptcy. She decided to:
Fast forward three years since taking office, Malavika’s resilience, determination, and leadership have driven CCD towards the light and instilled in employees’ and investors’ confidence. The company’s overall debt has been reduced by over Rs 6,000 crore, with the current debt standing at Rs 465.25 as of March 31, 2023. Following the reduction of debts, CCD stock soared by 56% on January 14, 2023. Once the sinking ship, now has been profitable for the last two consecutive years, with a net profit of Rs 100 crore and Rs 125 crore in 2021 and 2022 respectively. As compared to Rs 2,000 crore in 2020, the revenue has also increased by Rs 250 crore, making it to Rs 2,250 in 2023.
Consolidated Revenue of Coffee Day Global from FY 2018 to 2022
Criticisms of Malavika
However, Malavika’s success in turning CCD into a profitable venture came with its fair share of criticisms as well. She has been blamed by some marketing experts for focusing more on debt reductions and not on growth. According to reports, CCD had 1,752 outlets in FY19, but the figures drastically dropped to just 469 outlets across the country in FY23. CCD has also experienced stark competition in the market from competitors like Starbucks, Barista, and Costa Coffee among others, leading to a substantial decrease in the market share by 7% with the current share reduced to 18%. Malavika has also been criticized for not being innovative enough. She has been accused of being slow to introduce new products and services, and her branding has been said to be backdated as well. Some experts, who are still doubtful regarding her leadership qualities, commented that she is still far away from making CCD a sustainable company.
Current Market Strength
Currently, CCD owns 572 cafes along with 332 CCD Value Express kiosks spread out over the nation. It is a “substantial business” with more than 36,000 vending machines providing coffee to CCD customers.
Malavika, so far, has been an example of strategic leadership. Moving on from her loss, she has dedicated her efforts to fulfilling her husband’s vision. It is too early to comment on how they will behave in the future, but for now, it can be assured that, against all odds, CCD is not going to exit.
FAQs
How did Malavika Hegde try to overcome the heavy debt amount?
Malavika took a courageous approach to save her company from the verge of bankruptcy. She decided to cut costs, improve operational efficiency, diversify revenue streams, and renegotiate company debts.
How many cafes and kiosks does CCD own in India?
CCD owns 572 cafes along with 332 CCD Value Express kiosks spread out over the nation.
How much debt does CCD have at present?
The company’s overall debt has been reduced by over Rs 6,000 crore, with the current debt standing at Rs 465.25 as of March 31, 2023.
Who are the competitors of CCD?
A few cafe coffee day competitors are Starbucks, Costa Coffee, and Barista.
The US Dollar is the most commonly held currency in the world today holding over 60% of global foreign reserves. All the countries across the globe, including India, measure their currency values against USD in the global market. The fluctuating value of any currency against USD 1 is called the exchange rate.
Global trade is possible because of the existence of exchange rates and it is an important determinant of any country’s economic prowess.
It has been 75 years since India became a free country. Since then, the country’s currency has been on a roller-coaster ride against the US dollar. There have been various reasons for the largely downward trajectory of the INR’s journey including economic reforms, geopolitical issues, and even international issues. Currently, the Indian Rupee’s value against USD 1 is approximately INR 82.
It all began with the Bretton Woods Agreement in 1944 which required each country to measure its currency against the US Dollar. The dollar itself was convertible to gold at the rate of USD 35 per ounce. Being a part of this agreement, India followed the par value system of relative exchange rates. As the country was under British rule, INR value was derived from the British pound which was GBP 1 equaled INR 13. Similarly, GBP 1 equaled USD 2.73, which roughly translated to USD 1 equalling INR 4.76.
History of Indian Rupee vs US Dollar
INR Journey Post Independence
The journey of the Indian Rupee against the US Dollar can be mapped in different phases since India won independence.
Phase I – From Independence to the 1960s
India gained independence from British rule on 15th August 1947. It was a time of great turmoil as the country’s economy was in shambles. In a bid to jump-start the economy, the first prime minister, Jawaharlal Nehru adopted the five-year plans from Russia and began consistent loan borrowing in the 1950s which substantially increased in the 1960s.
However, even with increased borrowing, the country’s economy was facing a budget deficit which was further aggravated by the two wars in the decade. The first was the Indo-China war of 1962 and the second was the Indo-Pak war of 1965. Then struck the natural disaster of drought in 1965-1966. All of these added to increased spending on defense which reached a high of 24.06% of the total government expenditure.
Also, by 1966, the Indian Rupee finally moved away from the rate comparison of GBP 1 equalling INR 13 to a direct comparison with the US Dollar. All the economic upheaval of the previous years led the then Prime Minister to devalue the Indian Rupee to INR 7.50 against USD 1, which till then, had held a constant value of INR 4.76 against USD 1. This devaluation, in return, led to cheaper exports and expensive imports resulting in sharp inflation.
Phase II – Reduced Oil Production by OAPEC – The 1970s Decade
This was a decade of two major changes. First, the Bretton Woods Agreement collapsed in 1971, which meant India adopted the fixed rate system, linking its currency exchange rate to the UK Pound Sterling. A couple of years later, in 1973, the Organisation of Arab Petroleum Exporting Countries (OAPEC) decided to reduce oil production. By 1974, the INR value further deteriorated to INR 8.10 against USD 1 in reaction to the oil crisis. In a bid to ensure stability and to its currency and to ensure that the increasing disadvantages of associating with a single currency were curbed, the Indian Rupee was pegged to various other currencies as well.
Phase III – The 1980s and 1990s
The two decades of the 1980s and 1990s were politically unstable for India. The assassination of Prime Minister, Indira Gandhi, in 1984 reduced foreign investor confidence in the economy. A few years later, in 1991, the Soviet Union collapsed, which was, till then, a crucial trade partner of India. This led to a sudden and large export fall. The Persian Gulf nations had doubled crude oil prices just a year prior leading to India facing a serious balance of payment crisis. The fiscal deficit of the country decreased to 7.8% of the GDP and the interest payment rose a whopping 39% of the total government’s revenue. Furthermore, the WPI inflation within the country was around 14%. The country was on the brink of bankruptcy and had no choice but to further borrow money from IMF (International Monetary Fund) against its gold reserves.
This severe economic crisis of 1991 was dealt with by the then government by further devaluing the Indian Rupee and by 1992 the exchange rate of USD 1 was INR 25.92.
Phase IV – The 21st Century
The Indian Rupee’s decline continued into the new century and by 2002 it was valued at INR 48.99 against USD 1. However, this also proved to be a turning point in the country’s economy as Foreign Direct Investment (FDIs) increased within India and sustained till 2007 when the Indian Rupee appreciated reaching INR 39.27 against USD 1.
Unfortunately, the global financial market collapsed in 2008 ending the upward trend of the Indian Rupee and by 2009 it fell to a record of INR 51.75 against USD 1. Contributing global and domestic factors saw the INR further fall to 56.57 against USD 1 by early 2013.
Three years later, in an effort to combat corruption and black money within the economy, the Indian government announced demonetization which discontinued Rs. 500 and Rs. 1000 notes with immediate effect. This led to almost 86% of the country’s currency being invalid adversely impacting consumption patterns, investment, and income. It was also a major push to a new digital India, thereby increasing cashless transactions. However, in 2016, the value of the Indian Rupee further decreased to INR 68.77 against USD 1.
Last but not least, was the global economic crises that followed in the wake of the coronavirus pandemic of 2020 and the ongoing war between Russia and Ukraine. Currently, the exchange rate of the Indian Rupee against the US Dollar is approximately INR 82.7.
The journey of the Indian currency against the US dollar is also a testament to the economic journey of the country since independence. Being one of the fastest-growing economies today and also one of the top 5 in the world, India is in a strong position of recovery. It will be interesting to watch how the Indian currency fares against the US dollar in the coming days.
FAQs
What factors affect the exchange rate between the Indian rupee and the US dollar?
Several factors can affect the exchange rate between the Indian rupee and the US dollar, including:
Interest rates
Inflation
Economic performance
Political stability
Trade balance
Capital flows
Monetary policies
How has the exchange rate between the Indian rupee and the US dollar changed over time?
The exchange rate between the Indian rupee and the US dollar has varied over time due to economic and political factors. The rupee has appreciated and depreciated against the dollar at different times, influenced by global economic conditions, monetary policies, and geopolitical events.
How do changes in oil prices affect the exchange rate between the Indian rupee and the US dollar?
Oil price changes impact India’s import bill and can affect the exchange rate between the Indian rupee and the US dollar. Higher oil prices lead to a higher import bill, putting pressure on the rupee, while lower oil prices can support the value of the rupee.
What is the role of the Reserve Bank of India in managing the exchange rate between the Indian rupee and the US dollar?
The RBI manages the exchange rate by intervening in the foreign exchange market, using monetary policy tools, and managing India’s foreign exchange reserves.
The Islamic Republic of Pakistan was formed in 1947 after the partition of the British Indian Empire. The country was, initially, a dominion of the British Commonwealth until 1956, when it drafted and framed its own constitution. Ranked among the emerging and growth-leading economies through its rapidly growing middle class, the country’s political history since independence is characterized by periods of significant economic and military growth as well as economic and political instability.
Pakistan is geographically, ethnically, and linguistically diverse and is a member of the United Nations, the Shanghai Cooperation Organisation, the Organisation of Islamic Cooperation, the Commonwealth of Nations, the South Asian Association for Regional Cooperation, and the Islamic Military Counter-Terrorism Coalition.
It was Pakistan’s rising economic crisis that led to a political stand-off between the then Prime Minister Imran Khan and the current Prime Minister Shahbaz Sharif, who took office in April 2022. However, the country’s economy has been steadily dwindling as its forex reserves fell to a 9-year low reaching below USD 3 billion in early February 2023. The country’s currency, the Pakistani Rupee, has seen a steep fall to reach Rs. 271.50 against one US dollar. Inflation within the country is at a 48-year high with just enough foreign reserves to cover imports for less than a month. The country’s consumer price index in January 2023 had increased by 27.6% and the wholesale price index increased by 28.5%.
Unsurprisingly, the rising inflation has led to an exponential price increase in essential commodities like wheat, onions, gas cylinders, etc. To add to its woes, the oil companies of the country are on the verge of collapse due to the ongoing economic crises and its currency devaluation. This has also led to a lot of petrol pumps running out of fuel disrupting everyday life. The breakdown of the national electricity grid of the country also led to nationwide power outages, specifically affecting Karachi, Islamabad, Lahore, and Peshawar.
Pakistan’s rising expenses are adding to its troubles as the country’s high borrowing led to total debt and liability of Pakistani Rupees 59,697.7 billion in FY ’22. This amount was approximately 89% of the country’s total GDP. Unemployment and poverty are proving huge hindrances to food, healthcare, and wages for the citizens of the country.
Bail-Out Loans & History
By the year 2008, Pakistan’s external debt was Pakistani Rs. 6435 billion. Being an election year, Pakistan People’s Party came to power in that year and during its five-year tenure, increased the country’s debt by 135% to reach Pakistani Rupees 15096 billion by the year 2013. This amounted to 64% of the country’s GDP. A large increase in this debt was domestic with external debt increasing by 22%. Hence the external debt which was at USD 42.8 billion in 2008 reached USD 52.4 billion in 2013.
Pakistan’s Economic Crisis Deepens
The elections of 2013 brought Nawaz Sharif to power under whose rule, the external debt increased by 226.8% from USD 52.4 billion to USD 75.3 billion. The primary reason for this debt increase was the China-Pakistan Economic Corridor through which Pakistan procured loans from China and, in return, awarded contracts to only Chinese companies. This also resulted in high imports from China. Imran Khan came to power in 2018 and subsequently added to the increasing external debt to USD 110.6 billion during his rule.
As per IMF data, it has disbursed 21 loans to Pakistan over the years, the first request emerging from the country as early as 1958. Since then, IMF had agreed to disburse a total loan amount of USD 31.73 billion of which USD 20 billion has been disbursed through different transactions like Stand by Arrangements (SBA), Extended Fund Facility (EFF), Extended Credit Facility (ECF) and Structural Adjustment Facility Commitment (SAFC). An IMF loan is released in these different installments based on certain norms that are set by the lender.
Talks With IMF For Loans
Nathan Porter, leading the IMF mission began talks with the Pakistan government represented by their finance minister, Ishaq Dar, on January 31st, 2023. The talks failed to reach a satisfactory conclusion for Pakistan regarding its immediate requirement of USD 1.1 billion loan amount to prevent the country’s bankruptcy. The country is on the verge of defaulting on its external liabilities and is heavily dependent on the IMF’s loan. The loan amount is a part of the USD 6.5 billion loan program. IMF said – “Virtual discussions will continue in the coming days to finalize the implementation details of these policies.”
Conclusion
As inflation mounts and poverty rules the country, Pakistan is in dire need of monetary help from the IMF. However, this loan is also feared to increase inflation and price hikes for the common citizens of the country, further increasing their burdens. The ongoing Russia-Ukraine hostilities are adding to rising inflation around the globe as well. It remains to be seen, how the current government of Pakistan handles the ongoing economic crisis.
FAQs
Why is Pakistan in an economic crisis?
Pakistan’s economic crisis is caused by economic mismanagement, political uncertainty, high inflation and energy prices, and urgent foreign debt payments.
What role can international organizations, such as the IMF, play in helping Pakistan navigate its economic crisis?
IMF and other international organizations can help Pakistan by providing financial assistance, technical expertise, policy advice, and coordination to support economic growth, but such assistance may come with conditions that could be politically and socially difficult to implement.
What impact has the economic crisis had on the daily lives of Pakistani citizens, particularly those living in poverty?
The economic crisis in Pakistan has made it harder for people, particularly those in poverty, to afford basic necessities like food and healthcare due to rising inflation, unemployment, and expensive imported goods.
What is the impact of the economic crisis on Pakistan’s job market?
The economic crisis in Pakistan has led to rising unemployment rates, limited job opportunities, and job losses in the manufacturing, construction, and public sectors.
