Trust and Social Capital in the Old City of Hyderabad: A Study of Self-Help Groups of Women, India

by Rosina Nasir, Jawaharlal Nehru University

"Trust and Social Capital in the Old City of Hyderabad: A Study of Self-Help Groups of Women, India,"  The Oriental Anthropologist: A Bi-annual International Journal of the Science of Man, Vol 21, Issue 1, 2021.

ABSTRACT

Why do people trust each other? Do people form groups through mutual trust or self-interest? How does the theory of rational choice and accompanying individualism affect the concept of social capital? Are social cohesiveness in groups and financial success related? Such questions generate interest in conditions promoting association and group emergence, such as trust, reliability, reciprocity, and shared values, which are inherent factors for cohesion. Self-help groups (SHGs) in an urban context are used to comprehend the aforementioned questions. The proposed study is based on the following hypothesis: the formation of groups is not based on trust but on material- and non-material- need-based individual rational choices that force them to cooperate with each other. It is found that a sense of insecurity among migrant women, an emotional need, led the formation of the imagined communities and has paved the way to construct trust. Thus, trust is found to be secondary in construction and sustainability of social capital. Castes, regions, and religions are strong factors; however, they are found to be less effective for the migrants than native SHG members. Therefore, among migrants, trust channelized itself vertically around a sense of fear.

Access the full article at the following sites:
https://journals.sagepub.com/doi/10.1177/0972558X211004752
https://jnu.academia.edu/rosinanasir

Rethinking saving: Indian ceremonial gifts as relational and reproductive saving

Article in the Journal of Cultural Economy by Isabelle Guérin, IRD-CESSMA, Paris, France; Govindan Venkatasubramanian & Santosh Kumar, French Institute of Pondicherry, Pondicherry, India

Dalit Marriage Ceremony from a peri-urban village.
Photo credit: Santosh Kumar

Abstract

Economic anthropology has long advocated a broader vision of savings than that proposed by economists. This article extends this redefinitional effort by examining ceremonial gifts in India and arguing that they are a specific form of savings. Rural households, including those at the bottom of the pyramid, do save, in the sense of storing, accumulating and circulating value. But this takes place via particular forms of mediation that allow savers to forge or maintain social and emotional relations, to keep control over value – what matters in people’s lives – and over spaces and their own future. We propose terming these practices relational and reproductive saving, insofar as their main objective is to sustain life across generations. By contrast, trying to encourage saving via bank mediation may dispossess populations of control over their wealth, their socialisation, their territories and their time. In an increasingly financialised world of evermore aggressive policies to push people into financial inclusion, the social, symbolic, cultural and political aspects of diverse forms of financial mediation deserve our full attention.

Notebook for a Tamil puberty ceremony, Manjal Neerattu Vizha.
Photo credit: Isabelle Guérin  

Access Journal of Cultural Economy:
https://www.tandfonline.com/doi/full/10.1080/17530350.2019.1583594

Access pre-print version (click top-right corner for download): https://hal-inalco.archives-ouvertes.fr/ird-02112848/

Read up on original IMTFI-funded research project:
https://www.imtfi.uci.edu/research/2015/govindan_guerin_2015.php#

Human and non-human intermediation in rural agricultural markets

Article in the Journal of Cultural Economy by Elisa Oreglia, King's College, London and Janaki Srinivasan, International Institute of Information Technology 

Drawings courtesy of Krish Raghav (krishcat.com)

Abstract

A central trope of the information society is that of ‘information flows.’ The implicit assumption underlying such a vision involves the removal of gatekeepers and intermediaries who are perceived to impede such flows. Drawing from field research on information circulation, trade, and money in rural markets in Myanmar and India, we show why intermediaries persist alongside information and communication technologies (ICTs) in trade and financial transactions in the ‘Information Age.’ We examine the range of roles, (human and non-human) actors, and material practices that are involved in conducting financial transactions, and we show the importance of historical legacies and politics in explaining why both cash and financial intermediaries persist in the digital age. Focusing on the different value that human and non-human intermediaries bring to financial encounters helps explain what characteristics make each resilient or replaceable in a time of change. By situating intermediaries and mediations in the social relations within which they operate, we bring back the role of power and politics – an element that is often missing in accounts focused on the unmediated and ‘free’ circulation of information using ICTs – in explaining processes of mediation and circulation.

Access Journal of Cultural Economy:
https://www.tandfonline.com/doi/full/10.1080/17530350.2018.1544918

Access authors' drafts:
Elisa Oreglia: http://ercolino.eu/

Janaki Srinivasan: https://janakisrinivasan.wordpress.com/publications-and-talks/

Read up on original IMTFI-funded research project:
https://www.imtfi.uci.edu/research/2015/srinivasan_oreglia_2015.php

Insights on Demonetisation from Rural Tamil Nadu: Understanding Social Networks and Social Protection

NEW paper by Isabelle Guérin, Youna Lanos, Sébastien Michiels, Christophe Jalil Nordman and Govindan Venkatasubramanian, published in Economic and Political Weekly, Vol. 52, Issue No. 52, 30 Dec, 2017.

Queue in front of ATM in Chennai, January 2017
Photo credit: Santosh Kumar.

Drawing on survey data from rural Tamil Nadu, the effects of demonetisation are documented. Serious concerns arise with regard to the achievement of its stated goals. The rural economy was adversely affected in terms of employment, daily financial practices, and social network use for over three months. People came to rely more strongly on their networks to sustain their economic and social activities. Demonetisation has not fought, but has largely  strengthened the informal economy. Demonetisation has also probably further marginalised those without support networks. In a context such as India, where state social protection is weak and governmental schemes are notoriously subject to patronage and clientelistic networks, dense networks of supportive relatives, friends and patrons remain key for safeguarding daily life. With cashless policies gaining currency in various parts of the world, we believe our findings have major implications, seriously questioning their merit, especially among the most marginalised segments of the population.

Download PDF version of the full paper.

Isabelle Guérin (isabelle.guerin@ird.fr) is at the IRD-Cessma  (French National Research Institute for Sustainable Development, Centre d’études en sciences sociales sur les mondes américains africains et asiatiques), Paris, France and is associated with the French Institute of Pondicherry (IFP), India. Youna Lanos (lanosyouna@gmail.com) is a doctoral student at University Paris Dauphine, DIAL (Développement, Institutions et Mondialisation), and is associated with IFP. Sébastien Michiels (sebastien.michiels@ifpindia.org) is at IFP. Christophe Jalil Nordman (nordman@dial.prd.fr) is at the IRD, Paris and is associated with IFP. Govindan Venkatasubramanian (venkat@ifpindia.org) is at IFP.

A group of women complaining to a clerk office that their labour welfare benefits cannot be withdrawn from the bank, January 2016. Photo credit: Santosh Kumar.

This paper follows and explores arguments made in the Special PERSPECTIVES Series on Demonetization in India last year, take a look at Part 1 and Part 2 below: 

The dangerous liaisons between demonetization and the Indian informal economy (Part 1)

The dangerous liaisons between demonetization and the Indian informal economy (Part 2)

Read more about Isabelle Guérin, Santosh Kumar and G Venkatasubramanian's IMTFI-funded research here.

Can financial inclusion be synonymous with financial justice and equity?

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Stephen C. Rea, IMTFI Assistant Researcher

“In theory, every theory is great, but in practice, not every theory works.”
– Marcel Kitissou, University of Albany

From April 21st to the 22nd, Cornell University’s Institute for African Development and the Cornell International Institute for Food, Agriculture and Development sponsored a symposium titled “Mobile Money, Financial Inclusion, and Development in Africa.” IMTFI researcher Ndunge Kiiti was one of the event’s organizers, and IMTFI was a co-sponsor. The symposium presented an opportunity for academics and development experts to come together and discuss the current state of mobile money in Africa, its effects on the continent’s financial development thus far, and some of the obstacles and tensions that have arisen around financial inclusion. It also afforded a reunion of sorts for a number of IMTFI-affiliated researchers. In this blog post, I will focus on their presentations and the concluding discussion, both of which produced some sobering critiques of financial inclusion as an agenda for international development.

Sibel Kusimba, Rahel Diro, Belete Temesgen
Social and Economic Impact of Mobile Technology panel

Social networks and mobile money in Kenya

I arrived on the 22nd just in time to catch IMTFI researcher Sibel Kusimba’s presentation, titled “Digital Fundraising and Mobile Finance in Kenya,” on the Social and Economic Impact of Mobile Technology panel. Kusimba’s research has time and again reaffirmed an important lesson that often gets lost in the hype about subscription rates and transaction volumes: Mobile money services are most successful when they complement preexisting networks of social obligation. M-Pesa, which has become the “gold standard” for mobile money in its first decade of existence, has succeeded in large part because it operates through a densely intertwined social infrastructure that predates its deployment. However, as Kusimba pointed out,

Kenyan social networks are also variable, with some more persistent over the long term than others. Age, gender, and kinship are all contributing factors to the warp and woof of these networks, as money circulates through matrilineal sibling ties and women often act as arbiters of distribution. But personality and charisma are also crucial elements, especially for becoming a node or “hub” in a social network. Kusimba noted that maintaining one’s status as a hub requires considerable “relational work,” which in turn opens up additional opportunities for more relational work. Moreover, different network ties are useful for different sorts of transactions (e.g. emergency loans vs. money transfer), and so individual nodes in a network are vehicles not only for payments, but also can become small lenders themselves. Kusimba’s research demonstrates how M-Shwari and M-Changa— microcredit and fundraising apps, respectively, that ride on M-Pesa’s rails—afford new means of articulating relational work. M-Changa, which makes it possible for fundraisers to monitor each other’s activities, complements relationships built on trust in these social networks, acting like what IMTFI Director Bill Maurer calls a “distributed ledger” that works in a similar manner to the fact-checking functions in blockchain currencies. (Maurer kicked off IAD's symposium earlier in the week with his talk, “The Problems of Cash and the Perils of Cashlessness: Researching Mobile Money and Payment Infrastructure after M-Pesa" interview can be found here.)

Mobile money uptake in Ghana – one size doesn't fit all

After lunch, an unofficial “IMTFI panel,” titled Mobile Money and Remittances—Lessons in and Beyond Africa, featured IMTFI researchers Vivian Afi Dzokoto and Ishita Ghosh as well as former IMTFI postdoctoral scholar Ivan Small discussing mobile money research in global context. Dzokoto’s presentation, “Mobile Money in Ghana: Past, Present and Future,” raised an important contrast to Kusimba’s research, and in so doing reiterated the reality of “one size doesn’t fit all” that has confounded mobile money service providers. Ghana shares many similarities with Kenya when it comes to GDP PPP, share of the population who are unbanked, and widespread access to mobile phones. However, development experts and mobile network operators alike have lamented mobile money’s relatively slow adoption in Ghana when compared to its East African counterpart. In her talk, Dzokoto highlighted several key differences between Ghana and Kenya that help to explain why mobile money has failed to scale as quickly as some would have hoped. First, differences in immigration patterns: Whereas migration from rural villages to cities and the remittance corridors that followed helped to propel M-Pesa’s adoption in Kenya, these trends did not and do not exist in Ghana to the same degree. Second, the regulatory environment: the Central Bank of Kenya’s early embrace of mobile money and willingness to work with Safaricom and brick-and-mortar banks to create an enabling environment was a fundamental condition of M-Pesa's possibility. Ghana is a good counterexample of what happens when banks see mobile money as competition instead of as an opportunity for collaboration with telcos. The Ghanaian public also has very little trust in mobile network operators, in part because of network outages and infrastructural shortcomings.

Dr. Vivian Dzokoto

Education and outreach have been lacking in Ghana, too, with very few of Dzokoto’s respondents reporting that they knew how to use mobile money or had any sense of why it might be useful for them to do so. Finally, there is the fact that Ghanaians love cash and see little reason to use mobile money when cash is an option. Building on research that she has been involved with for nearly a decade, Dzokoto explained that the cedi’s redenomination in 2007 ended up incentivizing the use of cash and disincentivizing adoption of mobile money; since Ghanaians no longer had to carry around large piles of cash for even basic transactions, one of mobile money’s potential advantages—i.e. a more secure, more convenient mode of value transfer—was essentially obviated. All of these factors have combined to make mobile money an “option of last resort” in Ghana, used primarily for emergencies and remittances rather than day-to-day transactions.


Remittance models in Southeast Asia

Ivan Small’s presentation, “Remittance Technology Models: African Innovations for Southeast Asia?”, considered how the lessons gained from mobile money services in Africa might inform their deployments in Southeast Asia, specifically in Laos and Vietnam. As noted above, remittances and remittance corridors have been instrumental in the adoption of mobile money in places like Kenya. Small argued that the focus on harnessing remittances for development illuminates a few interesting points. First, development discourses have shifted from seeing migration primarily as a negative (e.g. anxieties about “brain drain”) to seeing it as a positive. Moreover, development experts—especially those working in and around financial inclusion—have come to understand internal migration and domestic remittances as potentially more significant than international ones. At the same time, since the early 2000s, anti-money laundering and counter-financing of terrorism initiatives have brought greater regulatory and public attention to remittances, for better and for worse. If remittances are so important to the success or failure of mobile money, then it is imperative to understand the specific contours of remittance practices in a given environment. As Small pointed out, local cultural ecologies and monetary repertoires influence adoption of new services like mobile money and affect financial practices in often unexpected ways. Uptake depends not only on local savings and transfer behaviors, but also on trust in networks, both social and technical; for example, the relative instability and unavailability of electricity in Laos has proven to be a challenge for mobile money. Furthermore, material liquidity continues to be prevalent throughout Southeast Asia because of long histories of conflict and political instability.

Preference for in-person transactions by the urban poor in Uganda and India

In her talk, “Informal Loans and the Mobile Phone: Glimpses into the Coping Strategies of the Urban Poor in Uganda and India,” Ishita Ghosh compared research on lending practices and strategies in East Africa and on the Indian subcontinent. She raised a deceptively simple research question that has profound implications: when the option of using mobile money for securing loans exists, why aren’t people calling upon their distant social networks and instead are maintaining their proximate networks?

The answer, she argued, is because in both Uganda and India there are important symbolic significances entailed by in-person transactions that make them preferable alternatives. Social etiquette matters; asking for a loan through a mediating technology like a mobile phone is difficult for many people because it does not afford the same opportunities to perform self-effacement and gratitude as a face-to-face interaction. Thus, reducing transaction fees for mobile money transfers and making interest-free loans available ultimately do not matter if the underlying social norms that influence financial behavior go unaddressed.

Moving forward – Financial Inclusion or Financial Justice?

The symposium’s final panel, Perspectives, Potentials, and Promises—What Next?, was moderated by IMTFI researcher Ndunge Kiiti, and featured Willene Johnson, former U.S. Executive Director of the African Development Bank; Melita Sawyer from Tufts University’s Fletcher Leadership Program in Financial Inclusion; Lourdes Casanova, Director of the Emerging Markets Institute; and Edward Mabaya, Senior Research Associate in Cornell’s Charles H. Dyson School of Applied Economics and Management. In her opening remarks, Kiiti noted three potential threads to think about moving forward. First, research has made it clear that in order for mobile money to flourish, stakeholders such as telcos, banks, and regulators need to work together, and so figuring out how best to facilitate their alignment will be crucial. Second, when looking at new entrants into the mobile money space like Alibaba’s Alipay, are services like M-Pesa becoming "backwards" before they are even over? In other words, trying to replicate M-Pesa outside of Kenya and simply hoping for the best clearly isn’t working, so what best practices should mobile money providers adopt in order to remain innovative, not to mention effective? Third, we have learned over and over again just how important remittances are not only for mobile money, but more importantly to the financial practices of the unbanked, and so one practical step that must be taken is reducing the price of remitting money, both domestically and transnationally.

A general sense of dissatisfaction with the current direction of financial inclusion pervaded many of the audience’s questions for the panelists. Mabaya offered this pithy reminder for those excited by the promise of so-called “disruptive innovation”: “It’s easy to get carried away by the

technologies, but they’re only as useful as the problems they solve.” The main problems that the panelists and audience members identified were twofold. First, there is clearly a need to develop a framework that can facilitate strategic partnerships among businesses, governments, development agencies, and, of course, the financially excluded. But who is best equipped to take the lead? The consensus was that it depends upon the problem at the time, and that like mobile money, one solution will not work everywhere or for every situation. Everyone agreed, however, that governments need to be more involved in helping to bridge disputes among banks, mobile network operators, and fintech innovators. Government regulators in particular are in the unique position to demand that financial practices be unbundled from the big banks. But at the same time, none of these interest groups can try to dominate the others.

The second problem, which builds upon the first, was well articulated in a comment from the audience: What do banks, insurance companies, and mobile network operators all have in common? They have all been deemed “too big to fail,” and thus enjoy subsidization by governments and aid organizations that allow them access to the poor in the name of “inclusion.” What are the distributional consequences of this? If the point of financial inclusion is making financial services more available, accessible, and affordable for marginalized social groups, can we honestly say that this has been the outcome, or are we simply propping up old vulnerabilities and creating new ones in the process? As Kusimba raised in her talk and the panelists echoed in their remarks, what does finance mean for someone living on less than $2 per day? Can we assume that traditional ways of approaching finance informed by centuries of banking practices are appropriate or even desirable for the financially excluded?

A larger question that grows out of these critiques is whether or not financial inclusion, as presently articulated, can be synonymous with financial justice and equity. And if so, can mobile money contribute to improving financial justice, or will it only perpetuate the same inequalities that many hoped that it would help solve? Over the next few weeks, the IMTFI blog's PERSPECTIVES series will feature reports from a number of conferences where participants have grappled with these same questions.

Photo Credits: Ndunge Kiiti

Intermediaries, Cash Economies, and Technological Change in Myanmar and India (Part Three)

By IMTFI Researchers and Elisa Oreglia | SOAS, University of London, UK and Janaki Srinivasan | IIIT, Bangalore, India

Is mobile money changing the way people carry out their financial transactions in rural markets in Myanmar and India? Our comparative qualitative research of an agricultural market town in northern Myanmar and of a fishing market in southern India showed the multitude of ways people move, borrow, and save money in these places, and the value that humans bring to transactions that could easily be made through ICTs yet continue to be done “the old way.” ICTs and specific applications such as mobile money bring a different type of value, and in this final post we reflect on what we learned about human and machine intermediation in financial areas.

First of all, the combination of various technologies and brokers, such as traders and auctioneers, in rural markets in Myanmar and India translates the global reality of finance, financial tools, international supply chains, and political economy into an actionable reality for local farmers and fishers. A key feature of human brokers is that they are flexible and responsive to the changing political economy of their countries in ways that are not always possible for technology by moving in the grey areas between official regulations and informal economies, and thus leveraging gaps or strictures in the official economy. This flexibility is the constant value that users get from using human brokers rather than ICTs, all other things being equal. Because humans can leverage their social knowledge in their roles as brokers, they are able to adjust to changes in a broader political economy as well as to the specific users who they are working with. Thus, they can offer temporal and spatial fixes as well as their expertise in ways that are attuned to the times and their users. Technologies, on the other hand, face constraints regarding the extent to which they can be flexible based on what is inscribed into them by their creators and by the regulatory regimes in which they operate. For example, the fact that mobile money makes financial transactions visible is a feature that is inscribed into both the hardware and software that power mobile money and into the regulatory framework that allows it to operate under certain conditions. ICTs can be used flexibly, but this flexibility has to be figured out by its users, and there are limits to how much flexibility a given technology affords along a particular dimension.

A second point that we want to highlight is how brokers are usually better equipped, financially and often socially, to appropriate ICTs and leverage them to strengthen their positions in the markets, sometimes undermining farmers and fishers and reducing them to mere recipients of their expertise, or even trapping them in relations from which they cannot escape. As both cause and consequence of their trade, brokers are able to inhabit different social worlds that their clients are often not able to successfully bridge: the sense of “feeling out of place” that makes opening a bank account a much bigger challenge than simply gathering the documents required to accomplish the task. Ethnicity, gender, religion, caste, and educational levels all contribute to making people feel out of place in certain situations and environments. This kind of expertise in navigating and bridging different social worlds is perhaps the hardest to delegate to ICTs. Whereas in principle social barriers to entry are lowered on the class-less and ethnicity-blind world of ICT-based services such as digital money, or Market Information Systems, in reality such experiences are highly mediated by the offline worlds that people belong to.

Thirdly, we suggest that the question of whether or not financial transactions can be mediated more efficiently or effectively by humans or technologies cannot be answered in the abstract without referring to the specific conditions of a specific place. We will note that, for example, the problem that ICT users might have with being tracked in their transactions is less of a concern where digital technologies are introduced together with system reforms that make the system less predatory. The axis of time/space is also amenable to technological rather than human mediation, once structural reforms change people’s material circumstances. The 2016 demonetization in India and the demonetizations that Myanmar experienced in its recent history have uniquely affected certain segments of the population for whom the state was and is an unreliable financial partner. Such actions reverberate through time, and rhetoric alone is insufficient for persuading the same people that the state is now concerned about their financial inclusion. Once again, the issue of time is at the forefront: the consequences of financial encounters, either between individuals or between individuals and institutions, extend through time, and the latest ones take place in the shadow of those that happened before, thus needing the appropriate historical and political background to be fully understood.

Finally, we want to stress how it is easier for existing social practices and networks to adapt to innovation than it is for them to be changed by it. This is not a novel finding, but it is often overlooked when talking about the potential for inclusiveness of digital technologies; they are, in fact, more empowering for those who are already in a position of power, and who can thus acquire them earlier and deploy them alongside their existing tools and networks. For instance, traders acquired mobile phones before fishers and farmers did, and were able to reconfigure their own networks to take advantage of them. Once again, if looked at purely from a transactional and financial perspective, fishers and farmers are perpetually catching up with the better-established traders. Using (or not using) ICTs and tools like digital money in their own way rather than according to the expectations of the government and of financial institutions is their own act of resistance to reclaim their own well-established practices.

Read their illustrated final report, "Intermediaries, Cash Economies, and Technological Change in Myanmar and India", drawings by Krish Raghav (krishcat.com).

The report examines the range of roles that (human and non-human) actors and material practices that are involved in conducting financial transactions have, showing the central role that historical legacies and politics play in explaining why both cash and financial intermediaries persist in the digital age.

Links to past blogposts: "Intermediaries, Cash Economies, and Technological Change in Myanmar and India (Part One) and (Part Two)."

Cash is not a Crime - New IMTFI white paper finds efforts to curtail cash use hurts poor and does little to stop terrorism financing

Keeping Cash: Assessing the Arguments about 

Cash and Crime  - New study by IMTFI postdoctoral scholar Ursula Dalinghaus 

Because it can be used anonymously, and is generally thought to be untraceable, cash has long been linked to crime: think of the image of wads of unmarked bills in a suitcase being passed between disreputable conspirators plotting evil. And while it is also commonly thought that cash is one of the primary tools to finance terrorism, recent news on the use of online platforms to fund US terror shows otherwise. Recently, there have been calls to eliminate cash altogether in favor of electronic payments systems, or at least to eliminate high-denomination banknotes.

Ursula Dalinghaus
Photo by Frank Cancian, UCI

In a new white paper published online this week, however, Ursula Dalinghaus, a postdoctoral scholar at the Institute for Money, Technology & Financial Inclusion (IMTFI) at the University of California, Irvine, demonstrates there is little to no evidence to support the claim that eliminating high-denomination banknotes or restricting cash payments will prevent terrorist attacks. The study finds that targeting cash as a terror financing mechanism misidentifies the problem.

“Curtailing cash will do little when criminals already make use of a diverse portfolio of payment technologies and types,” she says. "Increasingly, electronic forms of transmitting and converting value are just as essential, if not more so, in supporting criminal as well as terrorist activities.”

In addition, she argues that legal tender – in the form of cash – is a public good that guarantees ease of use, accessibility, a certain level of privacy, and many other unique qualities.

“Restricting cash payments entails the criminalization of legitimate payment activities when reliable data on the full scope of cash usage of any kind is scarce,” she says. “More research on payments and cash usage is therefore essential.” 

Key findings include the importance of the interplay between multiple payment tools and jurisdictions. People use diverse payment methods together, and the movement of value across jurisdictions is subject to different regulatory environments and payment cultures. Targeting cash in isolation does not take into account this interplay, and risks displacing criminal activities involving cash to other tools and jurisdictions. Multiple methods of interdiction are therefore needed to address money laundering and terrorist financing.

Drawing upon a range of institutional, legal, scholarly, policy, news media and other sources, in collaboration with experts drawn from criminology and terrorist financing, banking, industry, and the social sciences, the report documents how digital forms of payment are also subject to abuse and do not necessarily guarantee transparency in accounting that many believe could aid in the tracking of financial crime. In addition, the shift to digital away from cash exposes people to new risks. Researchers studying the impact of demonetization in India and capital controls in Greece are observing that cash restrictions entail new social and economic burdens and are shifting the costs of making payments onto small businesses and disadvantaged groups in society.

Findings from this study have been entered into a EU-wide consultation to be used by the European Commission in Brussels to determine the policy implications of cash restrictions.

Dalinghaus concludes that there is little to no evidence that limiting cash will effectively target the financing of crime and terrorism.

“IMTFI research around the world has consistently demonstrated the complex interplay of different forms of money and payment, so we shouldn’t be surprised that the bad guys also take advantage of diverse payment options. Criminalizing cash therefore won’t solve the problem,” says Bill Maurer, UCI anthropology and law professor and IMTFI director. “This new study also reminds us that criminalizing cash may criminalize the fact of being poor and living in a cash economy.”

Funding for this paper was supported by the International Currency Association (ICA) and its Cash Matters movement. 

Download the paper, Keeping Cash: Assessing the Arguments about Cash and Crime

Read Q&A with author here

About the Institute for Money, Technology & Financial Inclusion (IMTFI): Established in 2008 with funding from the Gates Foundation, IMTFI is a research institute based out of the University of California, Irvine. Its core activity has been supporting original research in the developing world on the impact of mobile and digital financial services, focusing on developing grounded, nuanced perspectives on people’s everyday financial practices and the impact of new technologies. To date, IMTFI has supported 147 projects in 47 countries involving 186 different researchers. These researchers have produced 12 books and 100+ articles in scholarly and other venues, and have been mentioned in the media 170+ times, in venues ranging from Bloomberg Businessweek and the Guardian to Forbes, India.

About the University of California, Irvine: Founded in 1965, UCI is the youngest member of the prestigious Association of American Universities. The campus has produced three Nobel laureates and is known for its academic achievement, premier research, innovation and anteater mascot. Led by Chancellor Howard Gillman, UCI has more than 30,000 students and offers 192 degree programs. It’s located in one of the world’s safest and most economically vibrant communities and is Orange County’s second-largest employer, contributing $5 billion annually to the local economy. For more on UCI, visit www.uci.edu. 

About the International Currency Association (ICA): Founded in 2016 as a not-for-profit organisation, the ICA represents the currency industry across the whole spectrum. It currently has 23 members and 5 associate members;  all members are suppliers of currency, or suppliers of products, technologies and equipment used in the design, production, handling and circulation of currency. The ICA is working to ensure that its members drive innovation and offer the best commercial and technical practices to their customers, promote the highest ethical standards, do everything in its members’ power to ensure that cash is secure, efficient and effective  and support and promote currencies worldwide as universal and inclusive means of payment. For more on the ICA visit http://www.currencyassociation.org/.  

Cash Matters, an ICA movement: Cash Matters is a pro-cash movement, funded by the ICA, which supports the existence and relevance of cash as an integral part of the payment landscape now and in future. Cash Matters will support and initiate campaigns on a global level, taking current issues and upcoming legislative changes into account. The Cash Matters website offers authoritative and to accessible facts, figures, and news for consumers, journalists and industry experts alike. For more on the Cash Matters visit www.cashmatters.org. 

Original post by UCI School of Social Sciences can be accessed here.

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.

    

Special PERSPECTIVES Series on Demonetization in India – Insights, Challenges, and Ways Forward

By Ursula Dalinghaus, Nima Lamu Yolmo, and Janaki Srinivasan

Demonetized  ₹500 and ₹1000 notes

Source: Frontera News

On November 8, 2016, India demonetized two major banknotes in circulation. According to the Reserve Bank of India (RBI) figures, the denominated notes accounted for 86% of the value of currency in circulation. Importantly, the 500 and 1000 demonetized notes have been replaced by new denominations of 500 and 2000. All of this took place before ATMs were even configured for the new notes! The most visible effects of demonetization were the long queues and cases of numerous casualties and deaths in front of ATMs and banks. With the issuance of the new notes of 500 and 2000, demonetization (“notebandi”) has largely taken the form of replacement, aimed at targeting counterfeiters.

While some see the demonetization move as part of the quest for transitioning to a more digitized payment system, the timing and procedures for the replacement did not take into account factors related to basic infrastructure, coverage, digital financial literacy, and knowledge about the ways in which payments function within formal and informal sectors, social networks and relationships, and barriers related to caste, gender, and literacy, among others.

What lessons does this exercise hold for research on digital financial inclusion in India going forward? 

In our Special PERSPECTIVES blog series on Demonetization in India, we asked IMTFI fellows to provide some preliminary reflections on these issues. In this post, we wrap up our series, highlighting key themes and questions raised by our contributors.

 

Series Overview

As Vivian Dzokoto (Before Money isn’t Money Anymore…) reminds us, India’s demonetization exercise is neither the first nor the last exercise in changing money’s material form. Monetary authorities guarantee what will count as money and its value, but they can also alter or even revoke it. Money objects are tied up with social relations, cultural repertoires of use, and a larger ecosystem of monetary practices. A change in money must take the user into account. Failure to do so results in loss of trust and social disruption. These outcomes can negatively impact the goal of financial inclusion and undermine the credibility and longevity of payment infrastructures.

Janaki Srinivasan (Demonetization and its Discontents) creates a roadmap for identifying gaps between user experiences on the ground and the categories and visions driving the demonetization experiment in India. Policy efforts to advance the project of greater digital inclusion are not necessarily helped by suggesting one is either for or against cash. Instead, the promise of digital platforms is their flexibility in providing choice among payment options. The user must be at the center of product design. For example, categorizing all unreported cash as “black money” risks putting into one policy basket the multiple (and legally valid) contexts that lead people to keep money hidden and store value in cash form. In particular, a large section of women, including many belonging to the middle class, have had good reasons to hide their small savings in rice bins and cosmetic jars, away from husbands and other family members. This cash is more than money – it is “women’s agency, built through years of under consumption and self-exploiting sacrifices” (Tara Nair, IMTFI financial inclusion workshop, 2016, Bangalore). Demonetization has suddenly compelled women to reveal to men their secret cash stashes, bringing women’s savings practices to the attention of their husbands - with potentially negative consequences for women’s autonomy.  Like Dzokoto, Srinivasan reminds us that one should be careful of “desirable solutions” that bypass the user.

Debashis Acharya (The Recent Indian Demonetisation and Cash Exclusion, Part one and two) gives a first-hand account of the demonetization move as it unfolded. He recognizes that this “policy-induced cash exclusion” has been experienced by particular segments of Indian society as a crisis. But he also suggests it is a positive shock - by being compelled to use digital alternatives, people may encounter positive dimensions of these tools. Success and sustainability will depend on the supporting infrastructure – technological and financial. In a follow-up post, Acharya and his colleagues Subbarao, and Venkatachalapathy test these propositions. They review data-supported trends in uptake and recount a visit to a village participating in a cashless village experiment near Hyderabad. Acharya and his team find that village bank representatives’ ("Mitras") role as intermediaries has become even more important. For grocers, new challenges have erupted with regard to PoS (Point of Sale) devices. How will cost-incentives be structured? Who will/should share the costs? How will the infrastructure be built out? User-centered answers to these questions will be essential to sustaining this digital drive, long-term.

Isabelle Guérin, Santosh Kumar, and G Venkatasubramanian (The Dangerous Liaisons between Demonetization and the Indian Informal Economy (Part one and two) also raise critical questions about the impact of digitization on informal economic practices. In North India and Coastal Tamil Nadu, these have provided a primary safety net for the poor. In part one, they discuss widespread distrust of banking and digital transactions. Demonetization has impacted financial circuits and strained social relationships in these communities. The move – as an instrument of formalization – raises new questions about who will benefit. Far from fighting the informal economy, demonetization is strengthening it. In part two, they outline some crucial questions: What measures can be taken to ensure social protections, fair pricing, and privacy for the poor? Like Srinivasan (and Nair, see above), Guérin and co-authors underscore how cash has been instrumental for women in creating "micro-spaces of freedom" in the household, but also for men, who have their own social networks. How will the move to digital payment forms take these existing strategies into account? Will it facilitate greater financial inclusion?

Disruption. Inclusion. Ways forward…

To conclude, we call attention to some productive dissonances in how contributors approach the implications of this demonetization policy move. Srinivasan is critical of the compulsory nature of this demonetization policy and emphasizes the importance of preserving choice in payment forms. Guérin and co-authors point to the significant technical barriers to implementation of digital finance, which, combined with widespread distrust of formal banking, have the potential for severely disrupting the informal, cash-based networks of social security and exchange upon which the poor greatly rely. In contrast, Acharya folds demonetization into a broader move toward cashlessness and streamlining of payment forms, to the possible exclusion of cash at some point in the future. Pre-paid card projects and other digital experiments are introducing people to the benefits (including security) of e-payment forms, while the need to establish trust in these new technologies remains an ongoing challenge.

These “different takes” on the demonetization move remind us of the politics of payment infrastructures, most visible at times of disruption and change (Rea et al, 2016). Dzokoto’s recent work on currency change in Zambia, where both currency redenomination and the introduction of mobile money were taking place at the same time, shows that a technical change in money always has political implications for policy makers, providers, and for users. For research going forward, it is therefore important - particularly in the wake of this major policy and technological shift - to attend to the interplay of specific payment forms in everyday social practices as a variety of social actors and institutions in India come to terms with these changes.

Insofar as demonetization, as a state policy, has been proclaimed as a move toward greater financial inclusion, there is a need to attend to the crucial question of what do we mean by “inclusion”? By definition, ‘inclusion’ means the involvement of more components and participants. What practices and networks of financial transactions are people being “included into” or “excluded from” by such policy shifts remains a vital question. Have we identified criteria that will help us understand whether a policy or technological intervention is financially ‘inclusive’ or ‘exclusive’? These are questions worth considering every time we encounter a disruptive innovation.


We invite you to send comments to imtfi@uci.edu

Special PERSPECTIVES Series on Demonetization in India: The Recent Indian Demonetization and Cash Exclusion (Part 2)

In IMTFI's PERSPECTIVES blog series, IMTFI fellows take on the recent demonetization move in India. This series aims to foster an open dialogue on issues around money, technology and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events - based on their research and areas of expertise. The topic of demonetization will conclude with a curated commentary by IMTFI on key themes, important questions, and what we can learn from these contributions for digital financial inclusion going forward.

By Debashis Acharya, V V Subbarao, and T K Venkatachalapathy, School of Economics, University of Hyderabad

Mr. A Kalyan Kumar and Mr. A Nagesh “Bank Mitras” of Allahabad Bank,
demonstrating the use of D180 MPOS terminal and Evolute Impress biometric
 reader for cashless transactions in the village.  (Photo by V V Subbarao)

It’s been two weeks since I (Debashis) summarized the recent demonetization move as a crisis-led financial inclusion drive in the first part of this blog. Since then, we (myself with V V Subbarao, and T K Venkatachalapathy) have been following the trends in uptake of digital payments at the national level and the efforts of the local government, i.e. Government of Telangana. The Government of Telangana has been working on furthering this national effort towards a more cashless economy. The experiment has begun in more than twenty villages and these villages have been declared to be cashless villages.1 The report of the committee on digital payments – chaired by a former finance secretary, the Government. of India, and the present principal advisor to NITI Ayog, Government of India – is now in the public domain.2 Before we discuss one of these cashless villages around Hyderabad, let us look at the trends in digital payments before and after demonetization. Though, it’s too short a period to assess the impact per se, the trends in such payments can provide some insights.

The recent data on digital payments published by the Reserve Bank of India (RBI) indicate sharp growth in pre-paid instruments (PPIs) as alternative to cash payments. The PPIs as compiled by the RBI include m-Wallet, PPI cards, and paper vouchers. Payment by m-Wallet is the highest over the financial years 2012-13 to 2016-17, followed by PPI cards and paper vouchers, both in terms of volume of transactions and value of transactions. The figures 1 and 2 plot these trends in PPI based on uptake in digital payments. It’s worth looking at the daily transactions data on PPIs published by the RBI to judge the incidence and possible impact in the future to go cashless. The data on PPIs have been made available, effective from 2010. Data on other digital/electronic payments are available from 2004-05. The apex bank has even been alert to daily transactions through digital modes, effective from Jan 1, 2017.

The objective of generating and compiling such data, as well as keeping it in the public domain, reflects the vision and policy expectations of the current regime and the apex bank. The Government of India has just approved a grand digital literacy program – named Pradhan Mantri Digital Sakshrata Abhiyan(PMDISHA) – for six crore rural households on Feb 9, 2017 (reports Business Standard).3 Figure 3 shows an increasing trend in the daily value of PPI transactions. Here, one sees an increasing trend, even though cash has increasingly been made available on a daily basis over the last two months. In addition to these modes, one could transfer money from one’s account in any bank to another account in any bank through Aadhar Enabled Payment System (AEPS) or PIN PAD using ATM PIN. For instance, AEPS transactions are done using Evolute-Impress biometric machines and the PIN PAD transactions are done using D180 mPOS machines in villages near Hyderabad. We don’t have disaggregated data on such transactions at the moment.

Figure-1 Uptake of Digital Payments by Pre Paid Instruments (Volume of Transactions)

Based on data from the Database on Indian Economy, Reserve Bank of India, 2017.

Figure-2 Uptake of Digital Payments by Pre Paid Instruments (Value of Transactions)

Based on data from the Database on Indian Economy, Reserve Bank of India, 2017.

Figure3: Trend in Daily value of PPI transactions in Dec 2016 and Jan 2017

Let us now turn to some local stories around Hyderabad on cashless village experiments by the local government bodies. As reported by a national daily, the Hindustan Times,4 the first village to go cashless has been Ibrahimpur, 125 kilometers from Hyderabad. Andhra Bank, a public sector bank, has ensured that all villagers have bank accounts and debit cards. The report also notes that some women in the village said they are happier than before with their debit cards since they don’t have the fear of parting with cash for their husband’s buying of alcohol.

The first grocery store in Kasala, as we enter the cashless village.
(Photo by V V Subbarao)

To supplement the macro figures reported above and to learn more on the above said cashless village experiments, we just visited Kasala, a village in the district of Sangareddy, about 60 kilometers from Hyderabad, to study the ongoing cashless experiment. The district administration has declared this village a cashless village. The office of the Collector of this district has had discussions with the Village head and people to promote cashless transactions. As we entered the village the first Grocery store we encountered displayed in the form of a pamphlet an appeal to the villagers to adopt cashless modes of payment,  i.e. through mobile wallet, paytm, and bank account.

This grocer had to manage his payments to the wholesaler by visiting the bank branch, or though the “Bank Mitra” (representative)5 of the village, to procure grocery for his retail outlet in the village. He transferred money to the wholesaler’s account from his account since cash was not available. Before demonetization he preferred cash transactions to the transfers mentioned above. Similarly, the villagers transferred funds to the grocer’s account through Bank Mitras and bought their grocery by producing charge slips given by the Bank Mitras. This was due to lack of cash at hand and for small transactions starting at Rs.200/-. Bank Mitras have been working as business correspondent agents even before demonetization to facilitate financial literacy and awareness on banking, including transactions such as deposits, remittances and withdrawals, etc. They have worked in a variety of ways to bridge the distance between the village and a brick and mortar bank branch. Their importance seems to have only increased after demonetization. However, mobile-based transactions have been very few to date, according to the grocer.

Pamphlet to adopt cashless payments
 (Photo by V V Subbarao)

We had an opportunity to interact with the Bank Mitras of Kasala and two other villages nearby. To quote Mr. A Kalayan Kumar, “Bank Mitra” of Allahabad Bank serving Kasala, “The total transactions, post demonetization until Dec 31, 2016, amounted to Rs. 49 lakhs for about 1047 transactions. The transactions per head has been approximately Rs. 4680/-. Before demonetization the transactions used to be Rs.300-400/- per month, amounting to Rs.2 lakhs.” At present, the cost of two of these machines – i.e. a laptop and the Evolute Impress biometric reader – are borne by the Bank. But the Bank Mitra pays about Rs.5000/- for the PIN PAD i.e. D180mPOS, which is used to swipe ATM-Debit cards. An increase in cashless transactions shall prove to be lucrative for the Bank Mitras, given the fact that cashless transactions have increased after this digital push. In villages, Bank Mitras never made a living on the banking activities alone. They used to engage in other economic activities for their livelihood. This could be due to different reasons. Bank Mitras usually get a fixed monthly remuneration and the rest of their earning is commission-based, i.e. a fraction of the transactions they carry out. The commission differs from bank to bank. Hence, Bank Mitras may see a bigger volume of transactions if this digital push is sustained in the days to come and their earnings from commission may increase.

There was some skepticism on the part of the Public Distribution System (PDS) agents, other businessmen, and farmers we interviewed in Kasala. According to Mr. Kalyan and Mr. Nagesh (Bank Mitras), out of 3000 households in the village about 40% preferred cash to cashless transactions, post demonetization, even in spite of the promotional efforts of the local government to go cashless. The PDS agents and businessmen, including grocers, were concerned about the fixed and variable costs of PoS machines needed for cashless transactions. To quote another grocer:

“It’s difficult to invest Rs.10,000/- for one PoS machine on my part and pay a monthly rent of Rs800/-. Why can’t the government bear this cost for at least two grocers in this village? This will instill confidence among us and the users too. We won’t mind paying for this once we realize the benefits.” 

The PDS agent expressed his concern in a similar tone. But the farmers had a tough time paying wages to the laborers due to the daily withdrawal limits. Even though most of them had bank accounts, laborers did not know how to use the ATM card. Although there is no fear on the part of the grocers, small businessmen, farmers, and PDS agents to go cashless and adopt digital payments, the fixed and variable costs of PoS machines seem to be an impediment for sustaining this digital drive in the long run.

As we returned from Kasala, we saw an announcement by the National Bank for Agriculture and Rural Development (NABARD) in favor of some stakeholders, i.e. the PDS agents. The Indian express on February 6 reported:

“In a major push for cashless transactions, PoS machines for credit/debit cards, as well as Aadhaar-based transactions, will be installed at all PDS shops and fertilizer depots over the next few months. In an interview to PTI, Finance Secretary Ashok Lavasa said over 1.7 lakh PoS machines have already been installed at public distribution system (PDS) shops and more will be done in the next few months. ... NABARD has committed to supporting banks through the Financial Inclusion Fund for deployment of up to two PoS devices per village, to cover one lakh villages of tier 5 and 6 areas.”6

The PDS shops have been transacting in cash to date. This announcement is aimed at digitizing a particular segment - i.e. PDS shops and the fertilizer depots - providing free PoS machines as an incentive to induce uptake of digital payments.

The crisis of cash exclusion seems to be turning into an opportunity for businesses, households, and also for the government. Here, business refers to those engaged in the digital payment business who are taking advantage of this digital push. The households partly benefit since they don’t have to keep all the cash with them at a given point of time, thereby avoiding involuntary lending of the extra cash or the risk of theft. The government benefits from transparency in the transfer of benefits.

With “Bank Mitras,”Farmers, and a PDS agent in Kasla village,
Sangareddy District, Telangana. (Photo by V V Subbarao)

What is the future of cashless payments in India? Is this digital inclusion sustainable? The report of the committee on digital payments submitted to the Finance Minister7 cites the high cost of cash as one of the key factors for going digital. To quote the report, “India's dependency on cash imposes an estimated cost of approximately INR 21,000 Crores on account of various aspects of currency operations, including the cost of printing new currency, costs of currency chest, costs of maintaining supply to ATM networks, and interest accrued. Transitioning to digital payments for government payments alone could save Rs. 100,000 crores annually with the cost of transition estimated at Rs.60, 000 to Rs.70,000 crores." However, it is difficult to predict anything clearly either from our macro figures or our brief study of Kasala. For instance, the modalities of a cashless village and the underlying incentives to go cashless seem to be ambiguous in our study of Kasala. There have been two meetings held by district administration with the households and village head in Kasala. The PoS machines have not reached either the grocers or the PDS agents. There is no clarity on the sharing of costs of the machines and the rentals of the machines. Further, the cost discussed in the report of the committee on digital payments may be limited in its scope. The variety of payment options have suddenly gone up in the post demonetization phase. Therefore, the costs associated with different payment options may be different.

The government seems to be transitioning to payments based on Aadhar issued by the Unique Identification Authority of India and the BHIM app simply to reduce costs. These options interfere with the existing big players like VISA and MASTER Card. A point worth noting is that of investment in security innovation. These two big players invest a lot on security and continuously innovate on security features to avoid frauds. How feasible is it for the Government of India to invest in security innovation? Without security and coming to an understanding with these big players, it may be difficult for the Government to sustain this move. I am also reminded of my pre-paid card project and issue of preference for soiled notes by villagers here. Technology needs to be trusted by people in terms of its immediate and long term benefits. A sudden surge in payment options may confuse potential users too.      

Let us sum up our discussion of the macro figures mentioned above on digital payment uptake and our field observations in Kasala. The sustainability of digital payments, from the supply side, will largely depend on savings in terms of cost to the economy. However, not clear at this stage are the cost calculations associated with a broad spectrum of payment options. The voices from our field clearly indicate the need for clarity on cost savings for different stakeholders. For instance, the grocer wants to understand clearly the model of cost sharing and the benefits to be derived. The Bank Mitras are of the opinion that financial literacy drives led by outsiders such as NGOs work better in improving uptake of digital payments. Finally, sustainability may well depend on customized digital payment modes winning the trust of users. This is especially important when the overall infrastructure is not geared up to provide seamless service of a particular digital payment  (such as mobile wallets that are not functioning due to poor networks) and PoS machines failing due to link failures. We will need to allow some time to see how these challenges are addressed in the near future -  and how diverse stakeholders respond.  

For part one of this post, see here


References
1 http://telanganatoday.news/20-villages-sangareddy-declared-cashless

2 Report of the committee on Digital Payments, Ministry of Finance, Govt. of India, December, 2016 http://www.finmin.nic.in/reports/watal_report271216.pdf

3 http://www.business-standard.com/article/news-ani/cabinet-approves-pradhan-mantri-gramin-digital-saksharta-abhiyan-117020900131_1.html

4 http://www.hindustantimes.com/india-news/telangana-s-ibrahimpur-becomes-first-cashless-village-in-south-india/story-N3sWpxDR1sxdg3uRttqlrJ.html

 5 Bank Mitra is a representative of the bank. He is available in the village with a laptop, D180 mPOS, and Evolute Impress biometric reader to facilitate digital payments. In this village the Bank mitra serves about 3000 villagers.

6 http://indianexpress.com/article/india/card-aadhaar-enabled-payments-at-all-pds-fertiliser-depots-soon-4510416/

7 Report of the committee on Digital Payments, Ministry of Finance, Govt. of India, December, 2016
http://www.finmin.nic.in/reports/watal_report271216.pdf