Sunday, May 21, 2017

A bank heist in Paraguay’s ‘wild, wild west’ reveals the dark underbelly of free trade

by Caroline Schuster, Australian National University and previous IMTFI Fellow~

It was as brazen as it was spectacular: on April 24 2017, a commando team of bank robbers assaulted a private security company in Ciudad del Este, Paraguay, making off with US$11 million dollars.

Some dozen operatives, whom police believe were working for the Brazilian organised crime group First Capital Command, blew through the fortified offices of Prosegur, a company known for its fleet of armoured vehicles, before fleeing across the border into neighbouring Brazil.

The heist made headlines not for the relatively modest sum taken but for its dazzling Hollywood style. According to local papers, the team came armed with heavy weaponry and explosives, and 15 cars were set ablaze. The robbers escaped via speedboat, crossing lake ItaipĂș to reach Brazil. A private getaway plane was impounded by the authorities.

This dramatic scene fits neatly with stereotypes about Ciudad del Este, a Paraguayan commercial hub in the notorious Triple Frontera area where Argentina, Brazil and Paraguay intersect. It is one of the most active border economies of the hemisphere, and Ciudad del Este is often portrayed as its lawless capital.

At its peak in the 1990s, Ciudad del Este allegedly moved US$10 billion per year in merchandise – more than Paraguay’s entire gross domestic product.

The city even featured in the 2006 blockbuster film Miami Vice, the backdrop for scenes in which smuggled documents find their way into the hands of a network of baddies.

What it takes to build free trade

That reputation as Paraguay’s Wild West (or, better yet, East), though perhaps well earned, is also incomplete. Ciudad del Este is, above all, a laboratory for global free trade. As anthropologist Carolyn Nordstom has found, “a veritable smorgasbord of goods travel these (global) circuits.

I spent two years (2009-2010) immersed in Ciudad del Este’s informal economy, conducting anthropological research on credit and commerce. My research shows that, far from being ungovernable, this Paraguayan free-trade zone is built on a sophisticated legal, commercial, and financial infrastructure that has made a small group of political and business elites very, very rich.

Ciudad del Este has prospered because of its unique legal and economic status as a duty-free zone (zona franca). All sorts of consumer goods, from digital cameras and sneakers to pharmaceuticals, are imported – both legally and illegally – and sold tax-free there.

Even before the city was founded in 1957, trade flowed across Paraguay’s porous land and water borders with Argentina and Brazil. The 1970 “special customs zone” legislation just gave that freewheeling frontier capitalism a legal and regulatory imprimatur.

Today, some Paraguayans work in lucrative import-export companies and own cavernous duty-free warehouses. Many more work as small-time smugglers engaged in “ant contraband” (contrabando de hormigas) – walking, cycling, trucking or floating goods across the border to Brazil.

Shopping tourists (known locally as sacoleiros, or “bag carriers”, for their large satchels of goods) come from Brazil or Argentina. And many international travellers drop in to buy affordable smartphones or imported perfume while vacationing nearby at the spectacular IguazĂș Falls.

Inside, the bustling duty-free malls of Ciudad del Este, which are advertised on billboards lining the highways on all three sides of the border, look identical to those in international airports.

Read more and get to "the dark underbelly of free trade" in the full blogpost found at The Conversation here:

Monday, May 15, 2017

IMTFI takes second place honors at Blum Center competition

Converting savings game into app earns the team $5000 in seed money 

The Institute for Money, Technology & Financial Inclusion (IMTFI)'s Loy Loy Team won second place ($5000) at the UCI Blum Center's Designing Solutions for Poverty Competition for converting a financial education board game "Loy Loy - The Savings Game" into an app.

The innovative financial education boardgame, ‘Loy Loy’ (which means "Money Money"), has been successfully piloted in Cambodia and the United States with low-income communities and among stakeholders in policy and industry. It made its debut at the 2016 Mekong Financial Inclusion Forum and has proven to be a valuable interactive tool for teaching and testing financial inclusion solutions. An electronic version of Loy Loy will be developed and distributed worldwide to NGO partners, universities and governments and enable better savings practices and a more complex understanding of the social and economic dynamics of poverty.

IMTFI's Loy Loy Team, one out of nine semi-finalist entrepreneur groups, presented their project on May 1 to a panel of distinguished OC judges and made it as one of the top three finalists to present on May 4 at The Paul Merage School of Business at UCI. They will be receiving their award check at the New Venture Competitions Awards Ceremony on May 12th sponsored by the Beall Center for Innovation and Entrepreneurship.

Loy Loy Team - IMTFI Fellow Andrew Crawford, IMTFI Postdoctoral Scholar Mrinalini Tankha, Institute Manager Jenny Fan with the supervision of IMTFI Director Bill Maurer.

- See original post at:

Monday, May 8, 2017

Strange Intersections: Humans, Technology and Insects in a Himalayan Valley

By IMTFI Fellow Kabir Mansingh Heimsath

I study the complex material, technological, and financial practices surrounding the yartsa market as a case study of human-nature-technology relations in Manang, Nepal. "Yartsa gunbu" is an inter-species medicinal fungus. In my work it acts as a touchstone for understanding the transitional nature of life in the high Himalaya, illuminating the interdependence of technology, economy and place. In this ethnographic essay drawn from my fieldwork, I recount the experience of one day of the harvesting season.

Manang, Nepal

We crossed the 15,000ft pass without problems, the rain comes and goes, and the valley stretches out for hours. We don’t know how far it is to Naar and our companion is slow. I decide to move ahead, with thoughts of getting a horse in the village to come back for Poonam if it gets too late. I enjoy the rhythm of walking alone and it’s an easy trail through meadows dusted with wildflowers. Softly humming, and watching clouds move across the peak opposite, it takes me a several moments to realize that the village has materialized on an unexpected ridge directly in front of me.

photo by Kabir Mansingh Heimsath

Naar is one of the two major villages in the most remote region of upper Manang called, eponymously, Naar-Phu. It’s a special-permit zone with restricted access for tourists ($90 fee, trekking guide required, 7 day maximum stay) and limited proprietary rights for non-residents. Some forty families stay there now and, refreshingly, it bustles with a domestic energy missing in the easier access and more tourist-oriented villages elsewhere in the region. The fields suspended below the village in a wide basin are brilliant green with ripening barley. Two young men and an older woman with bright eyes herd a bunch of goats towards me and they stop to say hello. I ask for “Tiger,” the contact given by a friend in the last town, and the woman breaks off from her companions to show me the way. We dodge the remaining goats, stop to chat with a horse-rider, pass several houses and then she directs me up a ladder carved from a tree trunk. I climb onto a neighboring family’s porch, over their roof, and then back down via the roof of Tiger’s house to his open porch. Before I can explain the situation about my friends coming slowly Tiger’s wife insists I put down my pack, come inside, relax and have some tea. She is nursing an infant as she talks and prepares the wood stove. Tiger comes in, yes, he’s heard we’re coming, and will go out to find my friends in case they don’t reach the village before dark.

The hospitality continues during the four days we stay in Tiger’s sister’s lodge. The kitchen functions as an informal meeting point for villagers throughout the day and evening. Drolma, Tiger’s niece, has been out of school for only two years, but already manages the place, and all those who visit, with capable authority. She prepares bread, tea, liquor, snacks and full meals for the eclectic guests. Teenage friends of her brother back from school in Kathmandu for the monsoon holidays spend the evening watching Justin Bieber videos downloaded to their smartphones; elderly grandparents who while away the day exchanging stories; several young men waiting around for the yartsa picking season to open; and many of her own contemporaries who drop by to chat in between chores at their own homes. It takes me a full day of hanging out to realize that she is actually running a business with all this socializing. The payments are infrequent and informal, but Drolma keeps a running tab for everyone involved.

photo by Kabir Mansingh Heimsath

Tirtha is a regular visitor. He looks like someone from South India, a round face with an open smile. He recognizes us from when we walked through the district town of Chame, almost a week ago. He came a more direct route up the valley and is waiting for the picking season to begin. He’s come early the last several years to be amongst the first to buy from the local harvest, which has a reputation for being of very high quality and corresponding intensity. In 2012 several people were murdered in a conflict over access to territory. Tirtha is clearly an outsider here, but he has many friends and seems to be well liked and trusted by the villagers. Nevertheless, he and several other young men involved with yartsa dealing in Naar-Phu, insist that the picking season is a dangerous time and they are careful never to walk the trails alone or do anything unexpected that might arouse suspicion. When he’s not out buying yartsa, Tirtha runs a guesthouse in Chame and also works at the Honda motorcycle dealership in Pokhara (he received a complementary motorcycle last year for having the highest sales). He bought between 8-9kilos of yartsa from Naar-Phu last year - that is roughly half a million dollar’s worth of cash and/or worms he carries around in a backpack. He tries to buy and sell early because the prices are usually higher at the beginning of the season, then they drop. Three years ago he lost some 32 lakh NRs (approximately US$32,000) but shrugged it off with a smile, “Usually I do OK.” He deals with buyers in Kathmandu that he already knows, negotiates the deal over the phone with pictures and descriptions of provenance and quality, and takes his supply down once the deal is verbally confirmed.

The full-on picking season when everyone migrates to the upper pastures is delayed by a few days because of a funerary ceremony. They say it’s been a bad year, with ten deaths already by the fifth month. With ceremonies generally carried out every week for seven weeks, and the entire village participating, I wonder when they have time for much else. Today we all spend time in one of the three village temples, and there are at least fifty people there at any given time saying prayers. The family is responsible for feeding all of us.

photo by Kabir Mansingh Heimsath

We make donations. In between prayer recitations a young lay-lama reads out a teaching on death from his smart phone. I meet an ex-monk who was responsible for arranging logistics for the escape of the Karmapa from Tibet back in 2000, propitiously during my first visit to Manang. I remember a helicopter flying overhead and an old woman bowing, “there is the Karmapa.” I had visited him at his monastery outside Lhasa two months earlier and thought I didn’t understand correctly; two days later I heard an announcement come through on BBC shortwave. This was the most high-level escape from Tibet since the mass exodus accompanying the Dalai Lama in 1959; the man I was speaking to had arranged the helicopter. He had the bloodshot eyes and dazed look of an alcoholic, the rugged body and sinewy arms of a pastoralist; they said he had been in prison, had a price on his head, gone into hiding and had “problems” since the escape.

We’re waiting in the same kitchen for an announcement from the village committee - will the exodus to the upper meadows take place tomorrow, or later in the week?

photo by Kabir Mansingh Heimsath

Finally, well past 8pm, there is a call out of the darkness, “Attention, attention…” The voice carries over the suddenly quiet village without the help of any amplification. Tiger cocks his head to listen better - they announce the opening of a lower, more accessible, picking area for two days, and then the primary upper meadows three days hence. There was some consternation over me accompanying the villagers on the big trek, so Tiger is happy to take me picking to the more accessible grounds instead. We leave relatively late at 7am (the village starts moving around dawn, at 5am), but quickly scramble past other pickers on the lower slopes to join three of his cousins in the upper reaches of the range across from the village. Short alpine grass clings to the ravines between rocky ridgelines. The slope is crisscrossed with goat and yak grazing paths and scattered with wildflowers. Our group of five men wander up and down the steep slope, four of them looking intently at the ground, myself trying hard to frame photographs with the harsh backlight and struggling to keep-up without tripping. Only occasionally is there an exclamation, “alloooh-ah!” and we all scramble over to check the discovery. The forager uses his hand-axe for a quick swipe at the soil, and pulls the worm with its fruiting grass out of the extracted lump. The worms are certainly bigger then those I was seeing near Manang, but every other one is limp, mushy - as if the fungus has not fully occupied the caterpillar larvae. The cousins do not seem surprised or overly discouraged by the poor finds, they already know not to expect much from this season. There had been hardly any snow over the winter, and the many deaths in village were foreboding of a hard year to come.

photo by Kabir Mansingh Heimsath
Despite the poor yartsa showing, the group seems to enjoy the outing. We spend plenty of time snacking on wild herbs and shared food, chatting with other groups on the hill, and simply sitting, breathing, and staring across the valley. Even the few pieces each member has found counts for several thousands of rupees more than they would otherwise have. Despite two decades of extremely profitable harvests, the yartsa is still viewed as a boon, a symptom of luck and good fortune, rather than a factor of subsistence or necessity.

Read Kabir Mansingh Heimsath's Final Report here

Thursday, April 27, 2017

In fast-moving world of money and payments, anthropology finds a niche

by Jonathan Miller, Mario Einaudi Center for International Studies at Cornell University

Bill Maurer with cash, cards, and a new payment app.
Apple Pay, Venmo, Square – few aspects of modern life are changing more quickly than systems for moving money.

Ethnography, participant observation, domain analysis – few academic fields require as much time and patience as anthropology.

Yet the anthropology of finance is more urgent and relevant than ever, says Bill Maurer, professor of anthropology and dean of social sciences at the University of California Irvine.

“It’s been amazing to me how much people in IT, folks in the payment industry, really want to hear from us,” he said during a recent visit to Cornell. “Whether they call it anthropology, or the end-user perspective, or computer-human interaction, they want to know what people are really doing on the ground.”

Maurer, a leading figure in the social sciences of finance, was at Cornell to help kick off the Institute for African Development’s symposium “Mobile Money, Financial Inclusion, and Development in Africa.” His talk, “The Problems of Cash and the Perils of Cashlessness: Researching Mobile Money and Payment Infrastructure after M-Pesa,” looked at the “Cambrian explosion” in payment systems after the African telecommunications giant Safaricom launched M-Pesa, its cell-phone-based service, in Kenya in 2007.
That explosion has brought millions of people into the financial system, making everyday payments easier while providing access to credit and other services. That can make a huge difference for people who need money for seeds, farming equipment, or other modest but crucial investments.

“That said, there are some pretty big risks in the extension of credit to people who haven’t had it before,” Maurer said in an interview.

“Often such people do have their own systems of credit, through patrons and family and kin, or through livestock or access to land,” he said. “When they are given a credit card or access to a formal line of credit it can be difficult at first to figure out how that is meant to interoperate with those other, older forms.”

He cites the case of South Africa, where workers began receiving their paychecks by direct deposit at the same time that banks got the power to reclaim debts directly from their clients’ accounts.

Mobile money grew out of the trade in phone card airtime as a substitute for cash in Africa. This retail stand is in Uganda.

Mobile money grew out of the trade in phone card airtime
as a substitute for cash in Africa. This retail stand is in Uganda
“Anthropologist Deborah James showed how folks went into a financial tailspin because they found they couldn’t negotiate with the bank the way they could negotiate with their relatives. With the bank, if you didn’t pay when it was due, they just took it,” he said.

In societies where loans, gifts, and other forms of exchange are central to social cohesion, the “financialization” of transactions can damage more than just the solvency of an individual borrower.

“So there is this big downside, but there’s tremendous upside” in developing new forms of payment, Maurer said. “It’s just that getting to that upside is going to involve doing some work that some of these service providers have not really been willing to do in the past – to really get to know their customers, to really understand what their needs are, what kinds of informal credit arrangements they’re already using, and really actively trying to educate their potential users on how this new service can work together with those things.”

That is where anthropologists come in.

“If you were trained in a business school, you’re going to miss things like familial relations as involving exchanges that are themselves forms of credit,” Maurer said. “You’re going to miss things that happen on timescales that you’re unfamiliar with.”

With his colleagues at UC Irvine, Maurer founded the Institute for Money Technology and Financial Inclusion to bring together social scientists, technology developers, and financial system practitioners from around the world, particularly from developing countries. The institute has set up a regional center in Pakistan and is planning to establish others in Mexico and Senegal. That is because the technology and culture of finance can vary dramatically from place to place.

“We have a researcher who worked on the Russian side of the Mongolian border with former nomadic herders who had only been settled into villages in the past generation,” he said. “They sit at the crossroads of all kinds of physical cash, some of which they don’t know what to do with. So they throw it into the river as an offering to the river god.”

Cultural issues can arise much closer to home. Maurer recently gave a talk to bankruptcy judges in Orange County, California, near where he teaches. They told him about recent Southeast Asian immigrants whose ideas of communal or familial property can put them at odds with a legal system that sees ownership as an individual responsibility.

“I had one judge tell me that she had a back-and-forth with a guy facing bankruptcy where she was saying, ‘You don’t understand, this is how American law works’ and he was saying, ‘No, no, you don’t understand, this is how gifts work,’” he said.

Maurer sees meeting with practitioners as an important part of his work. “I think that we have a fundamental duty to be willing to speak to people about what we’re doing and the insights that we have to offer,” he said. “Too often I think, especially in anthropology, we adopt this role of cultural critic, which means we come with a holier-than-thou perspective on everything. When we deal with people outside academia, doing work that touches on our own, we either get judgmental toward them or we think of them as data.

“But there’s a hunger out there for the kind of insights we have to offer, especially for people in the trenches who are really seeing what’s going on.”

Read the original interview here:

Tuesday, April 25, 2017

Micro Insurance Claim Payments through Pre-paid Cards: Technology and Regulation Driven Financial Inclusion in India

By Debashis Acharya (University of Hyderabad) and Tapas K. Parida (State Bank of India)

It was the sweltering summer of April 2016 and we were with a few microfinance clients of Utkarsh Micro Finance (one of India’s leading MFIs granted a Small Finance Bank license) near an ATM machine located in Harhua, a small town close to the city of Varanasi. The executives of Utkarsh led by Mr. Atul Tripathy were distributing the first set of pre-paid cards to some clients. The cards were loaded with their insurance claims. These five to six clients came from nearby villages located about 4 km away from the Harhua branch of Utkarsh. Except for one person all the others saw this M2P-DCB providing pre-paid card for the first time. In fact, none had never used an ATM card before. The executives explained to them how to use the card, how to withdraw their claim amount and helped them with inserting their PIN number to withdraw the money. We could see the anxiety on their faces. In fact, we were anxious too. The ATM machine dispensed part of the cash for the first client when the card was inserted. But since the claim amount was not a rounded number and the machine was not dispensing Rs100/- currency notes, the client was advised to visit another ATM machine to withdraw the full balance. The second case also had difficulty because the machine didn’t read the card in the first instance and only upon repeating the operation did the client succeed in getting his cash.

We had already interviewed several senior executives about this pre-paid innovation and were well aware of its background. Regulations by the Reserve Bank of India (RBI) mandated not to pay by cash to micro finance clients while settling death claims. Adding to this the Insurance Regulatory and Development Authority of India (IRDAI) mandated direct payment of the claim dues to the client and outstanding to the MFI, the master policy holder. Because many clients did not have bank accounts, payment by cheque or electronic funds transfer was out of the question. Many claim payments were stalled for a long time and many cheques turned stale since they could not be cleared by banks due to KYC mismatches. The option of mobile-based payments was also ruled out since it hasn’t taken off in general among the rural population. During our visits to Varanasi and nearby villages we saw sign boards of Airtel Money and Vodafone M-pesa but our interactions with the locals revealed very limited use of mobile money. Mr. Satyen Dash of Bajaj Allianz Insurance, Mumbai says, “There were difficulties in going for mobile phone-based solution due to issues of connectivity, non-possession of smart phones by poor people, KYC issues and the individual perceptions.” Hence came the idea of pre-paid cards as they comply well with the regulatory requirements of the RBI and IRDAI and pay the claim amount directly to the client. The process is illustrated in the figure below.

Our project moved further with a survey of 200+ MFI clients to elicit their salient beliefs and we also conducted a few in-depth interviews. Societal image and perceptions of enhanced financial security and hassle free claims settlements were the most important determinants for acceptance of the technology. Many of these clients benefitted from the use of cards since their claims were pending due to regulatory changes restricting the insurance company from settling claims in cash. A good number of cheques had also not been realized since these clients didn’t have bank accounts. Vodafone M-pesa has not really taken off in this region and mobile-based payments were almost non-existent. The primary use of mobile has been to be in touch with families and recreation/entertainment. Overall, absence of formal banking coverage, distance to ATMS being 3-7 miles, and difficulty in using mobile based payments have made the pre-paid card experiment successful in this case.  

An interesting finding was that people often preferred soiled banknotes to new banknotes for fear of counterfeit currency. This emphasis on tangibility and trust based on physical signs of repeated use explains in part why mobile money has not taken off as a mode of payment and why some did not take as well to the pre-paid cards. A female respondent from a village near Varanasi said, “I don’t believe in new notes. The MFI agent once refused to accept them because the metallic part [the machine readable security thread and electrotype water mark] were damaged in the new currency note I had as part of  my fortnightly deposit. The new notes have not been used before and I don’t know if they are genuine. I think many of my friends share this feeling too.” Other beneficiaries felt that cards were better substitutes of cash. They felt that they could store their cash in this mode and use it as needed, which made them save a bit more in the process. The spouse of a female client said, “I think I overspend if I have cash. If I have money in my card I will spend when I need and save the rest.” This implies that employing card-based services for even collection and disbursement of loans by MFIs could be useful and could also serve other existing needs of potential clients.

Some design issues in this experiment also merit attention. The seven cases of settlement of claims by cards that we witnessed in our field visits were related to first time users of such cards. None of them previously had bank accounts or ATM cards. Though their perception of the utility of such cards was positive, one could see potential problems of using this new instrument. First, ATMSs dispensing cash belong to different banks and possess distinct display features. Second, the cards used in these machines are either credit or debit cards and the accounts too are of different types. Finally, the currency dispensed by the machine is sometimes limited to relatively high denominations. For instance, some machines do not dispense notes of Rs100/- denomination. In such cases some quick user guides for these pre-paid cards would help the users to effectively use the card. As mentioned earlier, claim amounts were not rounded off and the clients ended up losing a few Rupees in every transaction. If the claim amount was Rs. 5329 the machine would not dispense Rs. 29. But the MFI executives became aware of this lapse and there was an attempt to correct it in the next lot of cards by rounding off the amount to benefit the client.

The Prayer/Pledge - A Financial Literacy Move by Utkarsh
It is also important to note that the level of insurance and financial literacy among these rural poor was very high. Most clients knew how much they paid for the insurance premium, the purpose of insurance, and how much was expected in case a death occured. They were also aware that due to some technical difficulties, their payments could get delayed. This can be attributed to Utkarsh’s financial literacy drive by executives specifically appointed for training clients in literacy. One example is that of a pledge taken by members at end of each meeting to adhere to the financial discipline of spending loan amounts on the activity for which it’s taken, paying the fortnightly instalments on time, spending income earned on family’s wellbeing, not applying for loan beyond one’s repaying ability and helping each other at bad times. The MFI representative also reciprocates by pledging to advance loans on time.

Is the pre-paid card based settlement/payment method sustainable in the changing environment of MFIs in India? Are MFIs fading away or are their roles shifting since some of them have been granted Small Finance Bank (SFB) licenses? These are some of the questions that remain. So far only eight MFIs have been issued SFB licenses by the RBI and others may follow in future. A majority of them will however probably continue as MFIs of small & medium sizes with the use of not very high-end technology. Pre-paid cards seem to fit that bill and may be well-suited to providing services like disbursement of loans and collection of repayments in addition to insurance claim payments discussed in this study.

Read more in Acharya and Parida's Final Report.


Wednesday, April 12, 2017

Part Three: Informal Loan Trap - Bombay 5-6 lending's effect on Micro-entrepreneurs in Tacloban City, Philippines

By IMTFI Researchers Rosalita M. Dula and Marilou P. Grego

This is the third and final post in a three-part series about the informal loan negotiation practices between ambulant vendors and a group known as "Bombay 5-6 lenders" in Tacloban City, Philippines. Dula and Grego describe the effects of these lending practices on the household and business activities of vendors who live and work on the edge of a precarious existence.

Businesses are put up to generate income. For some micro-scale entrepreneurs like the ambulant vendors, there is a starker purpose in engaging in their trade. For those who live a hand-to-mouth existence, their business is their bread and butter - maybe more.

Maria, 51 years old - Ambulant Vendor (Photo Credit: Rosalita M. Dula)

The results of our study indicated that most respondents borrow money for either educational or medical expenditures for the family. Moreover, the frequency of their loans are significantly related to poor health conditions of family members and lack of savings. Since household subsistence has higher precedence over repayment of loans, vendors rely heavily on daily income to sustain daily household needs and are always a day away from potential default. Once an ambulant vendor experiences default, there is a high possibility that a series of such defaults will be experienced. Because lack of income is the primary cause of default, defaults have a domino effect as daily income goes toward loan repayments in a circular course.

To have a debt is hard. To be caught in a cycle of debt is even harder. To be bound in a cyclical debt for a long period of time is beyond comparison. A person would normally feel ashamed if anyone knows that they are mired in debt. At the onset of this research study, we struggled to find prospective respondents because no one would ever admit to having a loan with a Bombay 5-6 lender. Realizing this, we re-phrased our question asking instead; “Do you know anyone among your fellow ambulant vendors who have existing loans from a Bombay 5-6 lender?” Amused by our question, one vendor referred us to another, who then referred us to another, until we found ourselves back with the first three (3) ambulant vendors we spoke with (who initially denied having such a loan). If only we knew then what those colorful beach umbrellas stood for.

Most of the respondents have children who are still attending school. Most are in secondary school and at college level. Education for them is very important, as is their health. Most of our respondents have lost some perception of the magnitude of the economic situation in which they are entrenched. But one remarkable thing we discerned from our respondents is their sense of responsibility to provide their children with a chance for a brighter future - one quite different from parents’ own current situation. Earning at a subsistence level from their businesses is challenging for heads of family who work to maintain the robust health of family members or confront financial challenges when one person in the household requires medical attention.

Focus Group Discussion with ambulant vendors (Photo Credit: Ericson D. Acebedo)

During our focus group discussions and in-depth interviews, one of our central questions was “Why Bombay 5-6?” We received a plethora of answers, of course, and as extensive as those documented in previous studies. In substantiating how accessible the Bombay 5-6 lenders are, one of our participants explained rhetorically: “If you have a sick family member and you don’t have money for their medication, would you approach formal financiers for a loan whence you’ll have to wait a month for the proceeds?” The answer would be the same when we asked why they go for a loan. It’s a matter of urgency, even survival.

We have heard many justifications from ambulant vendors about why they have messed up with Bombay 5-6 lenders. With this study, we were able to gain insight - from a financial perspective - on how these marginalized traders are operating their businesses. Though not exhaustive or comprehensive, our study provides an important overview of the economic system encompassing vendors and lenders. Referring to the segmented cycle illustrated above, money borrowing can commence at any point (household, Bombay 5-6, or business). This is due to the absence of savings that could serve as a buffer between the three entities involved. Since the scale is at a daily subsistence level, an active and ongoing spin is understandable.

In the long run, what was once considered disruptive becomes normal. This is one reason why most of our respondents showed no remorse over having a loan. Domingo Omoy, Sr. who has been an ambulant vendor for more than three (3) decades, said he cannot recall anymore a night where he had trouble sleeping because of a loan with a Bombay 5-6 lender. He reaffirmed that so long as the intention of taking on debt is for the welfare of his family, he will always find peace within himself and the determination to settle it. He admitted, though, that he does get a bit anxious whenever he fails to keep up with the repayment.

Today, Domingo has two children who have finished college and who now work as elementary school teachers. And yet, he still borrows money from Bombay 5-6 lenders. Three more kids to support, he said, but soon the two of them will be done with their college studies. When asked if he would be over with his Bombay 5-6 affair by that time, he replies that he certainly does not know for sure. But one thing he is sure of, he said, is that he will make it through.

An artist's depiction of Bombay 5-6 lending (Artist: Jakes)

The level of courage and endurance that Domingo and the rest of our respondents show is amazing. They have withstood the battle, but seem to have forgotten the urge to retire from their cyclic money borrowing activities. Some may already have achieved fleeting financial freedom on their own terms, but remain unaware that they are kept in a trap by deeply ingrained habits of making do.

Maria, 51 years old and an ambulant vendor in Tacloban city imparted to us: “For thirty years of peddling and thirty years of borrowing from Bombay, life is still the same. Constrained, striving, and impoverished - yet we still endure. I hope that assistance from the government can reach to those who are marginalized - like us.”

For earlier posts in this series, see part 1 here and part 2 here

Read their final report, Informal Loan Trap: Bombay 5-6 And Its Effect On Micro-Entrepreneurs In Tacloban City, Philippines, here 

Tuesday, April 11, 2017

Part Two: Up close with informal money lending - Loan Negotiation Practices between Bombay 5-6 lenders and Micro-entrepreneurs in Tacloban City, Philippines

By IMTFI Researchers Rosalita M. Dula and Marilou P. Grego

This is the second of a three-part series about the informal loan negotiation practices between ambulant vendors and a group known as "Bombay 5-6 lenders" in Tacloban City, Philippines. Dula and Grego describe the effects of these lending practices on the household and business activities of vendors who live and work on the edge of a precarious existence.

Tacloban City is the center for trade, commerce and culture in the Eastern Visayas Region of the Philippines. It has attracted both local and multinational franchises to invest in the city. At present, Tacloban City has a total of 43 financial establishments comprised of 15 bank companies and other formal financial institutions from government and private sectors. On the other end of the spectrum are the informal money lenders who are thriving in the area. The most interesting of these are the Bombay 5-6 lenders who, based on word-of-mouth, have been continuously operating and dominating this business for the longest period. A majority of their client base are those engaged in micro-scale businesses like those of the ambulant vendors.

Ambulant vendors' most popular food items (Photo Credit: Rosalita M. Dula)

Our study used purposive sampling to identify as respondents a total of 100 ambulant vendors who have existing loans from Bombay 5-6 lenders. The study looked into respondents’ socio-economic and business profile, the determining factors of preference that led ambulant vendors to strike a deal with Bombay 5-6 lenders in Tacloban city, and the loan negotiation practices of lenders and ambulant vendors.

Females comprised seventy-eight percent (78%) of all respondents. Lenders consider it to be easier to begin business relationships with female ambulant vendors than with male vendors (Sonny, Bombay 5-6 lender). Aside from the actual instances where it is mostly women who are left to oversee and operate the business, women are often highly approachable and can easily be pressured to re-pay debts. In contrast, their male counterparts are described by lenders as stubborn and not easily persuaded to repay. A Bombay 5-6 lender would typically lend money to a male ambulant vendor with quite a bit of hesitation. In addition, women - especially the wives of male vendors, are customarily the ones who manage financial matters in a Filipino household.

Forty-eight percent (48%) of the respondents depend solely on their entrepreneurial income, which averages to P10,001 – P15,000 per month, to cover all their business and household expenses – from food, to utilities and education, among others. Forty-one percent (41%) of the respondents are engaged in street food vending. Street foods are both budget-friendly and handy at the same time, making it very popular among Filipinos. On an ordinary day of hustle-bustle in the city streets, it is usual to see pedestrians stopping to grab some street food as they go about their day. Prices per serving seldom exceed twenty pesos (approximately USD 0.50). Banana cue, camote cue, fishballs, squid balls, hotdog on a stick, kwek-kwek and tokneneng, kikiam, sorbetes, peanuts, corn, batchoy, and barbeque are some of the street foods sold near schools, churches, plazas, and public transport terminals. Street food vending requires a small starting capital, and its appeal for ambulant vendors gets an added boost from its potential to realize a return on investment within a shorter period of time (Domingo Omoy, Sr.).

An aggregate of eighty percent (80%) of our respondents’ loans are taken out as capital for starting or maintaining their businesses. Forty-nine percent (49%) of respondents’ loan transactions were offered by a Bombay 5-6 lender. Instead of offering cash loans up front, Bombay 5-6 lenders will initially entice their client to purchase various goods to be paid for on an installment basis (Ligaya, ambulant vendor). Beach umbrellas, towels, and appliances are some of the first commonly recommended goods. It is even amusing to learn that beach umbrellas – aside from providing shade – also serve as an indicator among ambulant vendors of those who have messed up with Bombay 5-6 lenders.

On the very first transaction, Bombay 5-6 lenders do not directly mention the total cost of the merchandise they sell. They undermine clients’ prudence by blowing the small details out of proportion so that numerical figures appear to be clearly surmountable. A transaction amounting to PhP500.00 will be carried out as a good sold for only PhP25.00 per day in a 20-day period (Maricel, fruit vendor).

The virtually omnipresent beach umbrellas providing a silhouette
 for ambulant vendors (Photo Credit: Marilou P. Grego)

Trust and confidence built up through the debtor’s good payment standing becomes the basis for a Bombay 5-6 lender to eventually offer a cash loan. The sum offered depends on the value - inferred by the lender - of the merchandise on display. More volume and variety of merchandise suggests a larger amount is dispensable. A borrower’s background is not checked, hence also making the lender vulnerable to acts of deception. For instance, in an isolated incident, a person pretended to be one of the ambulant vendors by borrowing goods and merchandise from a friend, occupied a space in the open thoroughfares as if they were the owner, and was thus able to borrow money from a Bombay 5-6 lender. The following day, the perpetrator was nowhere to be found (Evelyn, ambulant vendor).

Loans are paid out daily for a nominal 45-60-day period. However, the loan duration may be shortened or extended depending on the capacity of the vendor to pay. Bombay 5-6 lenders conduct their daily collection routine during idle times in the afternoon when most, if not all of their clients have already accumulated money from sales. Bombay 5-6 lenders explained that they collect payment on a daily basis in order to check up on a client’s business status and to ensure that the latter will be repaying the loan in manageable amounts. For the ambulant vendors, this arrangement is preferable in order to circumvent the burden of paying the full amount all at once and reducing the likelihood of the amassed funds being misappropriated. Collection is sometimes undertaken by the lender alone or in groups. On rare occasions, a Bombay 5-6 lender is accompanied by a local in anticipation that this will guarantee them safety. In worst cases where a robbery can’t be averted, the local individual can help them identify the culprit. Sonny recalls incidents of robbery that have occurred over Bombay 5-6's twenty-five years of money lending operations in Tacloban city, but they reported none of these to authorities.

Seventy-eight percent (78%) of the respondents in our study reported some experiences of default in repayment. A majority (67%) of all such cases were attributed to lack of sales. To mitigate the consequences, most (83%) of the respondents who were in default pleaded for an extension, while others (10%) doubled their payment the next day. On the worst end of the arrangement are those in the remaining seven percent (7%), who secured yet another loan from another source or multiple sources in order to repay their loan to the Bombay 5-6 lender. Sonny explained that lenders grant extensions in order to regain the capital they lent to vendors. But for vendors without a good repayment standing, further loans will not be granted. Bombay 5-6 lenders do not take goods as payment. They only accept cash. In extreme cases where the vendor is at a great disadvantage and can’t keep up with repayments, lenders arbitrarily lower the interest rate to help clients liquidate their debts.

The hallmark of informal lending is a lack of fuss over documentation. Thus, keeping a record of payments is not much of an issue for either the ambulant vendors or the Bombay 5-6 lenders. Payment records may be written on a notebook or a piece of paper and kept by either the vendor or the lender in some cases, while others don’t record payments at all.

Bombay 5-6 lenders are the most preferred lenders according to the majority of the respondents in our study, based on the following attributes arranged in descending order: 1) no collateral, 2) no imprisonment, 3) no formal requirement needed, 4) easy and fast loan transaction, 5) fast cash, 6) Bombay 5-6 lenders are approachable 7) accessibility, 8) flexible mode of payment, and 9) they have no other choice. Many respondents prefer informal lenders even if the interest rate is high because the borrower’s transaction cost is minimal (Limpao-Osop, 1998*). Other than the interest rate, the borrower does not incur additional costs such as commissions, application/processing fees, other indirect charges, or transaction costs such as feasibility studies and financial statements, among others.

*Limpao-Osop, Arah D. (1998) "Case Study Informal (5-6) Money Lenders." Final Draft. November 23, 1998. Unpublished Report for Chemonics International Inc. Davao City, Mindanao, Philippines. Under contract No. 492-C-00-98-00008-00 USAID Office of Economic Development, Manila, Philippines. Pp. 1-21.

Stay tuned for Part Three and Final Report
For Part One, see here

Monday, April 3, 2017

Part One: In every economic crisis comes business opportunity - Bombay 5-6 lenders and the micro-entrepreneurs in Tacloban City, Philippines

By IMTFI Researchers Rosalita M. Dula and Marilou P. Grego

This is the first of a three-part series about the informal loan negotiation practices between ambulant vendors and a group known as "Bombay 5-6 lenders" in Tacloban City, Philippines. Dula and Grego describe the effects of these lending practices on the household and business activities of vendors who live and work on the edge of a precarious existence.

October 15th: a sunny day in Tacloban City, Philippines, and yet another busy day for Domingo Omoy Sr., 63 years old, and his 59-year-old wife, Paula. They have 3 children to feed and send to school. They’re one of the families that have worked as ambulant vendors, rolling their business on the streets of the city, for more than three decades.

A female ambulant vendor in the busy streets of a public market area,
Tacloban City, Philippines (Photo credit: Rosalita M. Dula)

Early this morning, Domingo went to the public market to buy the necessary supplies for their food vending business; afterwards, he and his wife began preparing various food stuffs. At around 8am, Domingo pushed a cart containing their merchandise to a nearby school where they set up before the class break. Around 3pm, a guy on a motorbike wearing a checkered long-sleeved polo shirt approached the vending couple. The guy’s look and physique did not resemble that of locals, but the guy and Domingo exchanged pleasantries in the local dialect, to no one’s surprise. While engaged in their brief conversation, Domingo handed over a tiny notebook and some cash to him. After scribbling something, the guy on the motorbike handed back the notebook to the old man. Everything went smoothly, as if their moves were well-rehearsed and expected. In a jiffy the guy and his motorbike vanished. Classes ended around 5pm. Domingo then pushed the cart back home, concluding a routine day of business.

Domingo is a native of Tacloban City, the regional center for education and trade of Eastern Visayas, Philippines. It is comprised of 138 barangays (villages) and a population of 242,000 based on a 2015 census by the Philippine Statistics Authority. It gained global publicity and attention after being massively hit by super typhoon Yolanda (internationally known as Haiyan) on November 8, 2013. Based on the severity of damage it was deduced that the city was the typhoon’s ground zero. Fortunately, not long after Haiyan’s devastation, prominent local and multi-national franchises have either opened or reopened their businesses in the city, allowing for a rapid bounce-back of the local economy.

Commensurate to the escalation of big corporations’ is the economic activities and contributions of micro entrepreneurs, specifically the ambulant vendors. Domingo and those belonging to this micro-enterprise sector who sell their merchandise in the open thoroughfares of the city, commonly live in a hand-to-mouth existence. Unable to buy or rent a stall, they market their goods along sidewalks, by transport terminals, in front of the market, or near public or private establishments. They are peddling goods such as street foods, fruits and vegetables, condiments, accessories, and they render services like shoe and cellphone repairs. Meanwhile, considering the nature of business and being known to have an income generally below subsistence level, ambulant vendors are not compelled by the Bureau of Internal Revenue to pay income tax returns. This somehow adds an appeal to ambulant trading as a viable prospect for those who want to start their foray into a micro-business venture with very minimal capitalization and low tax overhead. Ambulant vending is a boon to those on tight budget that demand easily accessible goods and/or services at a very affordable cost. A serving of banana cue, for instance, would only cost approximately $0.2 from an ambulant vendor compared to $0.3 at canteens or food stalls.

Most of the ambulant vendors rely on their daily business income to sustain their daily household needs. In lean seasons, when income hits rock bottom, a lack of savings spells doom for the family and business. It is during these vulnerable times when most of the micro-scale entrepreneurs like ambulant vendors would seek the help of institutions engaged in money lending to keep their business afloat. Unfortunately, with very little to no access to formal financing and the absence of property that could serve as loan collateral, these distressed traders eagerly grab hold of informal money lenders’ helping hands.

A Bombay 5-6 lender scurrying off after collection of payments from ambulant
vendors in the downtown area (Photo credit: Marilou P. Grego)

The prevalent practice of informal money lending in Tacloban City, and probably most other cities in the Philippines, is dominated by the “Bombay 5-6” money lenders. The term “5-6” is based on the two lowest numerical figures to clearly represent the nominal 20 percent interest rate. Hence, a person who borrows 5 pesos will have to repay 6 pesos over an agreed period of time (Kondo, 2003)*. Bombay 5-6 is a group of enterprising Indian nationals who have been covertly operating their informal money lending business in the Philippines for a long time. According to Sonny, a Bombay 5-6 lender, their family and relatives have been operating in Tacloban City for almost two and a half decades. Their business operation has been bequeathed from one generation to the next. The considerably high interest rate cleverly imposed on smaller amounts enables them to offer attractive loan deals to locals, and get the returns in two-month’s time or even less. Their clients are mostly micro-scale business entrepreneurs.

Bombay 5-6 lenders’ long-term presence in the area has paved the way for them to make friends with the locals, learn their language, adopt their culture, and engage in business with them. In turn, members of the group were able to create a persona, gain the trust of locals and attract them to borrowing money from them. As with many informal money lending practices, obtaining a loan from Bombay 5-6 is plain and straightforward with the absence of paperwork and required documents superficially sweetening the deal.

Domingo is amongst those who depend heavily on Bombay 5-6 lenders for business’ and even household’s financial needs. For him, even at its paramount, the interest rate fades into oblivion when he is glaring at the absence of means for survival. He is one of those who has stuck around and continued to push his business even beyond the silver-year milestone of peddling. He was able to go the distance because of his perseverance in bringing his trade close to those who needed it. Domingo and his family may be one of the few who deserve to be admired for exhibiting a vibrant picture of resiliency. Yet on the other side of this resiliency is his daily business visitor, the guy on the motorbike wearing his checkered polo shirt and rocking his motorbike across the distance, booting obstacles along the way to bring Domingo a link for the chain that holds their mutual existence on a continuum.

*Kondo, Marie. October 2003. “Bombay 5-6”: Last Resource Informal Financiers for Philippine Micro-Enterprises.”Issue 4. Kyoto Review of Southeast Asia. Retrieved from

See here for Part Two.

Monday, March 27, 2017

Would you pay more for soap when purchasing with mobile money?

Imagine that someone approached you and asked how much you would be willing to pay for a bar of soap or a bag of potato chips? It seems like a simple question.

You would probably, though, ask which bar of soap and which potato chips? Think a bit longer, and you might be asking “pay for them how?”

Researchers have found that the last question – about the form of payment -- matters. For example, paying by credit card rather than cash changes how consumers spend: Studies suggest that using plastic induces consumers to pay higher tips at restaurants, buy more junk food, and pay more for a chance to see a pro basketball game. These results are not always robust, and studies struggle to separate the liquidity effect of credit cards from the psychological effect of using plastic vs. cold, hard cash. Still, the weight of the evidence suggests that people spend more when using credit cards (or even when thinking about credit cards) for reasons that are at least partly psychological.

The digital financial revolution prompts us to update the question: As mobile money widens in use, will it also influence spending choices in the way that plastic has? Or is digital in fact different?

In 2014, we started a project on the impacts of mobile money in Bangladesh. The study focuses on users of mobile money in northern villages and Dhaka neighborhoods. Mobile money has spread extremely fast in Bangladesh, largely due to the growth of bKash and its competitors. The mobile money sector is one of Bangladesh’s great recent economic success stories, and bKash alone now provides mobile money services to over 20 million customers.

Midway through the study, with financial support from IMTFI, we asked two randomly-chosen groups of people questions about their willingness to pay for household basics and some small luxuries. We asked the study participants how much they would be willing to pay for a quantity of fine rice, a good bar of soap, particular pieces of clothing (a salwar kameez and a lungi), a bag of potato chips, and a packet of biscuits (cookies). We asked the participants to respond (hypothetically) in contexts when using cash or mobile money.

Given the set-up and the fact that the questions were hypothetical, we did not expect to see much difference. But, as the table shows (which is from our urban sample), in 5 of the 6 cases respondents indicated that they would be willing to pay a higher price when using mobile money to facilitate the transaction.

Summary Statistics for Willingness to Pay (WTP) in Taka
Cash Mean
Mobile Money Mean
Cash Median
Mobile Money Median
WTP for rice
WTP for Beauty Soap
WTP for Salwar Kameez
WTP for Lungi
WTP for Potato Chips
WTP for Biscuits

To dig deeper, we ran a set of regressions to control for the respondent’s age, education, income, work status and other key variables. The regressions again show that in 5 of the 6 cases respondents indicated that they would be willing to pay a higher price when using mobile money to facilitate the transaction. (The negative signs mean that they would not be willing to pay as much when using cash.) The standard errors are fairly wide, however, and only in three of the cases are the differences statistically significant with 95 percent confidence.

Regression Results for Willingness to Pay, With Controls


Beauty Soap
Salwar Kameez
Potato Chips
Standard errors in parentheses* p < 0.10, ** p < 0.05, *** p < 0.01

Since the same participants answered questions about each of the 6 items, there is little concern that a given respondent was considering different qualities of items in the two scenarios. Like much of the earlier literature, however, we cannot distinguish the liquidity effect from psychological effects.

Half a year before, we had introduced mobile money to the first group. Our research team had trained members how to use mobile money, and many had started using it. The second group was an experimental control, and we provided them with no training nor discussion of mobile money. Our initial results suggest that the training and exposure to bKash (and the greater likelihood of its subsequent use) strongly narrowed the difference in willingness to pay between cash and mobile money. The main differences in spending patterns with cash versus mobile money thus come from the control group, and it is possible that their preferences will narrow too with greater exposure to mobile money.

We are now analyzing the rural sample, and the initial results are opposite to the urban sample: In the village, there is greater willingness to pay in cash. Our next step is to investigate why, including whether the result reflects a lack of stores that accept digital payment in the villages (rather than a hypothetical willingness to pay), or whether the result stems from unfamiliarity with mobile banking.

Economists generally assume that money is fungible, a dollar is a dollar, a taka is a taka. However, in both our urban and rural samples, the form of payment clearly makes a difference. There does seem to be something different about holding 20-taka on your mobile phone rather than holding a 20-taka banknote in your hand. In Dhaka, being able to pay by phone appears to raise the price that customers are willing to pay for household goods. If these results stand, retailers may now have another reason to encourage their customers to use mobile money.

Read their Final Report

Jean Lee is an economist at the Millennium Challenge Corporation and was a Post-Doctoral Research Fellow at NYU. Jonathan Morduch is Professor of Public Policy and Economics at the Robert Wagner Graduate School of Public Service at NYU. Abu Shonchoy is Research Fellow at the Institute of Developing Economies (IDE-JETRO) in Chiba, Japan and a Visiting Scholar at NYU (2016-18).