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 Importantly, the 500 and 1000 demonetized notes have been replaced by new denominations of 500 and 2000.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

Cashlite or Cashless? It Depends on the Financial Ecosystem

By IMTFI Researchers Vivian Dzokoto & Mwiya Imasiku

Cashlessness

Advertisement for a Mobile Money brand

Some say that the end of cash is in sight because we’re all going digital. Conducting financial transactions with cash has some perks like ease of use. However, it is also associated with problems and handling costs (see for example David Wolman's The End of Money). Therefore, going cashless – or cashlite - makes sense. In this blog on our research in Zambia, we focus on the form of cashlite-ness in which there is a transition to a more portable form of cash. Going cash-lite by introducing new cash denominations made sense in Zambia, which experienced inflation rates as high as 188% during the 1900s and early 2000s.

Introducing more portable cash
Going cashlite can alleviate some of the problems associated with cash. This is especially true in countries (especially in developing economies) burdened with large volumes of low-value currency notes because of high rates of inflation. 

Low Value Currency notes

Transitions to a lower volume of cash can occur when people favor other forms of payment over cash. But another way to reduce the volume (and costliness) of cash transactions is when states introduce a new, higher value legal tender (currency), here referred to as “Cash2.0.” When higher value denomination notes are introduced, the volume of cash being handled decreases, while the value remains unchanged. This improves efficiency, and reduces costs and hassles. Switching to Cash2.0 means switching to a lighter (less bulky) form of cash.

Source: https://pencilandpipette.files.wordpress.com/2010/02/africa-map1.png

In Zambia, high rates of inflation led to a number of difficulties with accounting and bookkeeping, keeping statistical records, and data processing software. The need for consumers to carry large amounts of cash created higher risks and inconvenience. It also increased the costs for technology and maintenance of banking and payment systems. 

However, a 5-year period of much lower inflation combined with a more optimistic economic outlook and favorable macroeconomic conditions convinced Zambia’s Central Bank to implement a rebasement of the national currency in 2013. The process of going cash-lite in Zambia involved changes to the national legal tender summarized below:

Simultaneous Cashlite and Cashless Options: New Currency vs Mobile Money

Since going cashless and cashlite (via a currency change) both make sense, what happens when both of these are introduced to citizens of a country around the same time? Would the introduction of a more convenient form of cash make people less interested in cashlessness? Or, could the transition to cash-lite spur an interest in going even lighter, eliminating interest in the use of notes and coins altogether? To explore this idea, we examined people’s preferences for and experiences with the new currency and mobile money in Lusaka, Zambia shortly after the new Kwacha was introduced.

Data
Our main sources of data were: 

• A sample of 687 survey respondents from Lusaka
• A subset of 34 participants who provided additional information via interviews 
• Vendor surveys in malls and markets in Lusaka 
• Representatives of Mobile Network operators and the Bank of Zambia who provided us with additional information

Fieldwork was conducted for five to seven months following the rebasement. We asked individuals about their experiences, knowledge and use of the new currency and mobile money. Vendors were asked whether they accepted Mobile Money as a form of payment.

Three Major Findings

The new currency notes were generally favored over the old currency due to increased portability and ease of use

“One Pin” Old currency

The new notes were perceived as easier to use than their predecessors. Unlike in other countries (e.g. Ghana’s redenomination in 2008, people experienced minimal confusion when encountering the new notes. Some interviewees suggested this had to do with the font and form of the cash value printed on the old Kwacha note. Instead of 10,000, the value was represented as “10000” with the last three zeros in smaller font than the rest of the value of the note. As such, our interviewees argued they were already used to ignoring the three zeros at the end of the currency, which were dropped in the rebasement. Similarly, the three zeros at the end of the currency were ignored in the local nickname for the old currency. In local parlance, 1000 old kwacha was referred to as 1 “pin,” 10,000 as 10 pin, etc. presumably because a bundle of low value notes were kept and “pinned” in sets of a 1,000 to keep track of large volumes of Kwacha notes. In this sense, there had already been a culturally driven rebasement of sorts in local representations of the old currency preceding the actual rebasement. In essence, the three zeros of the old Kwacha were being discounted long before the rebasement made this official. An additional factor leading to the ease of transition which one bank official noted was the fact that it was three zeros that were dropped during the rebasement, which differed from all other previous old to new currency conversion rates. 

The new coins were perceived as burdensome to use and cumbersome to carry around

The rebasement included the re-introduction of coins to Zambia, which previously had limited use due to inflation. The general consensus was that while the notes were convenient to use and keep on one’s person, the coins were less so. A typical strategy people adopted to deal with coins was saving them for a rainy day. An alternative was to gradually learn or remember how to incorporate them into daily use.

It’s not a question of cashless versus cashlite - yet

More than half of our sample did not use mobile money (MM) in the initial period following the currency rebasement. Our sample’s MM users – who used the product mostly to send remittances - did not report a change in MM use post-rebasement. 

saving coins for a rainy day

Our data indicated that the initial slow adoption of mobile money was markedly influenced by: 

1. The limited “payment spaces” in which it could be used 
2. Lack of awareness of mobile money companies and their products, and 
3. Unclear distinctions between online banking and mobile money for banked consumers. 

At the time of data collection, most groceries and other consumer items that the average Lusakan purchased on a daily basis could not be paid for using Mobile Money. Apart from bill pay, only 2 of the 50 retailers sampled in malls, and none of the 100 retailers in markets sampled, accepted mobile money as a form of payment. However, some retailers mentioned that they were considering mobile money as a payment option in the future.

Example of Mobile Money-Retailer partnership:
Customers who paid with Mobile Money got a free movie ticket.

Post Fieldwork Developments

In the years since our fieldwork was conducted, mobile money has been marketed aggressively in Zambia. For instance, the company Zoona (http://www.ilovezoona.com/), interestingly a non Mobile Network Operator (MNO), has become a major player in Zambia’s mobile financial service marketplace. The harder Zoona and other Mobile Money providers work to enlarge the Mobile Money ecosystem beyond remittances and bill pay, the more likely it will be for the average Lusakan consumer to find themselves needing to choose between cashless and cashlite payment options. For now, the answer will be more retailer than consumer driven.

Read their final report here

Hearthholds of Mobile Money in Western Kenya

New Article in Economic Anthropology by Sibel Kusimba, Yang Yang, and Nitesh Chawla

Cleophas Family
This sociogram is centered around Alice, a 73-year-old grandmother, and her cowives, Suzzanah,Diana, Rachel, and Zipporah (all in purple), who live approximately 20 kilometers south of Bungoma. Her deceased husband had several other wives. Alice’s children are in red, and her grandchildren (thin borders) are in green, orange, light blue, and yellow. Zipporah’s children are in light purple and blue. In-laws and friends are in white. (Fig 2, p. 270)

Article Abstract
"Kenyans use mobile money services to transfer money to friends and relatives via mobile phone text messaging. Kenya’s M-Pesa is one of the most successful examples of digital money for financial inclusion. This article uses social network analysis and ethnographic information to examine ties to and through women in 12 mobile money transfer networks of kin, drawn from field data collected in 2012, 2013, and 2014. The social networks are based on reciprocal and dense ties among siblings and parents, especially mothers. Men participate equally in social networks, but as brothers and mother’s brothers more often than as fathers. The matrilineal ties of mobile money circulate value within the hearthhold (Ekejiuba 2005) of women, their children, and others connected to them. Using remittances, families negotiate investments in household farming or work, education, and migration. Money sending supports the diverse economic strategies, flexible kinship ties, and mobility of hearthholds. Gifts of e-money are said to express a natural love and caring among mothers and siblings and are often private and personal. Consequently, the money circulations of the hearthhold avoid disrupting widely shared ideals of patrilineal solidarity and household autonomy."
Economic Anthropology 2016; 3: 266-279

The full article can be accessed here

Read more about Sibel Kusimba's IMTFI research here and here

To learn more about Sibel Kusimba's use of social network analysis as an ethnographic method, see her case study featured in the Consumer Finance Research Methods Toolkit, pp. 35-40, (Verbal Interviews)

Trust and Money: It's Complicated - New IMTFI Synthesis

IN ____ WE TRUST? WHAT IS TRUST?

In economic matters, trust is often invoked with little explanation. Trust is also used to describe a whole range of experiences and expectations, especially in the mobile money and financial inclusion space. In this new synthesis, featuring IMTFI projects in Nigeria, Kenya, Ghana, India, Mexico and the Philippines, we explore the “how” of trust. Through these projects and across four broad categories – Channels, Intermediaries, Accounting, and the Source – we explore how trust is made, accounted for, built over time, won and also lost. Ultimately, one of the key takeaways from IMTFI researchers’ work on the ground is that trust in new money technology grows when it can be one among many reliable channels for storing and transferring value.

Read "Trust and Money: It's Complicated" synthesis here.

Mobile money and savings in Mali: A potential leverage effect for greater bank access

Mariam Sangaré (with Isabelle Guerin)

In this blog post we discuss the relationship between the use of mobile services and access to other financial services, particularly savings services and bank account holding. Our purpose is to show, on one side, how Malian users try to fit available mobile financial services to their saving needs, and on the other, to what extent mobile money can be a vector of greater bank access through the development of mobile savings. Our analysis of mobile money users’ financial profiles sheds some light on these questions.

The market for mobile financial services is witnessing a significant growth in Mali and the UEMOA zone in general.(1)  Between 2013 and 2014, the value of transactions increased by 122%, reaching 3,760 billion CFA francs at the end 2014 for 259.3 million operations. Mali occupies the second rank in the zone in terms of transaction value, with 20% out of 3,760 billion CFA francs. The country is even ranked first in terms of P2P transfers, realizing 47.48% of operations value in this category (BCEAO, 2015). Two mobile network operators (MNOs), Malitel and Orange-Mali, share the Malian market. Both offer mobile transfer and payment services.

Mobile networks presently cover more than 40% of the territory and 40% of the population uses a mobile phone. In this context of low bank access and growing mobile phone utilization, the aim of our IMTFI-funded project has been to assess how mobile services are contributing to financial inclusion in Mali.

Very frequent billboards on access to Mobile (here Mobile wifi) at the side of an avenue in Bamako. 
(Picture from the field, Mariam Sangaré)

Access to the mobile network can contribute to financial inclusion through three possible channels. First, mobile financial services can increase the range of available financial services, thereby providing broader choice and eventually lowering prices. A larger suite of mobile products can benefit the entire population, independently of access to banks or other financial service networks. The second channel impacting financial inclusion are the linkages of banks to mobile users, which can facilitate access to bank accounts by reducing information requirements. Finally, competitive pressure may incentivize banks to win new customers by developing competing or complementary mobile services.

Traditional pottery of Mali. (Picture from the field, Mariam Sangaré)

From our observations in Mali, only the first channel is running, with the development of P2P transfer services proving to be valuable in the Malian context. However, the potential of this channel to lead to greater bank access remains limited. Indeed, the current bank/MNO cooperation model in supplying mobile services has so far not resulted in a lasting connection between banks and unbanked mobile users. The current cooperation between MNOs and banks is limited to the interface with the central bank, which guarantees electronic money. Our field data in Mali show that users of mobile financial services already possess a bank account, rather than the mobile account generating new bank accounts. This suggests that the use of a mobile account has not improved access to banks for new populations in Mali.

Retail trading in Bamako. (Picture from the field, Mariam Sangaré)

More generally, the financial profiles of our sample of 300 respondents (22% of whom are women) noticeably show that users of mobile services are very dynamic in their use of formal and informal financial services. We observed that 40% of respondents hold a bank account. This figure is largely above the level of bank access in the total population (which is less than 11%). Furthermore, the gender dimension in bank access is significant here: 73% of women in the study do not have a bank account compared to 56% of men, despite the higher education level of women in the sample.(2)

A young man making a transaction
with an Orange Money agent in Bamako. (Picture from the field, Mariam Sangaré)

A second important observation based on respondents’ financial profiles is the prevalent use of informal saving groups by men as well as women: 32% of the sample is a member of a ROSCA or other savings association. This figure is quite high given the greater participation of men in the study; women, 67% of whom are members, are culturally more accustomed to take part in these clubs than are men, but are less represented in our sample. In the Malian context, the search for adequate means of saving appears to be one of the reasons that men and women are juggling between different financial services.

Indeed, the high demand for savings options actually calls for improved access to banks, because in Mali MNOs are not allowed to offer savings or investment products, which are available only through banks. Unless the mobile phone succeeds in creating a more sustainable relationship between users and banks, its effect will be minimal in facilitating clients’ access to an adequate suite of savings options.

Reliance on cash in the largely informal economy is one of the important elements impacting the adoption of mobile money in Mali. Our study suggests that mobile services in Mali are attracting people who are accustomed to bank relationships and who are generally used to “hiding” their money. These users are better able to arbitrate between multiple services to choose the one best suited to their needs. For example, 88% of the respondents in our sample declared having access to other informal and formal transfer means like bank transfers, road haulers or "hand-to-hand" sending. But only 32% actually use them in parallel with mobile transfer services. The majority ends up choosing mobile transfer due to its safety, speed and often lesser cost relative to the alternatives.(3)

In the present context then, it seems that “bank educated” users are benefiting more from mobile financial services than the unbanked. For example, users with accounts at the partner bank of Orange Money (BICIM-Mali) can now make transfers free of charge between their mobile wallet and their bank account or vice versa. With the current trend in the development of mobile payment services, the gap between the banked and unbanked may increase if mobile phone use does not encourage new linkages between banks and mobile users. Users already accustomed to bank accounts will easily follow the trend, while those dependent on cash and without formal access to banks will have trouble. The model of commissions sharing between banks and MNOs for the m-payment service may privilege those already included in the formal financial system rather than encouraging unbanked mobile users' full access to banks.

A typical multi-selling point, with the storekeeper serving as agent for different money transfer services

 in addition to his grocery trade. (Picture from the field, Mariam Sangaré) 

Our study underscores the saving potential of mobile users, which can be beneficial to banks. We observed in Mali, as studies have shown in other contexts, that respondents frequently use the mobile wallet for precautionary savings. In this sense, mobile transfers largely feed mobile saving in Mali. Mobile transfers are in fact a form of saving with the mobile phone, one that banks could channel toward greater financial inclusion.

We conclude that given the extent of mobile network access and use in Mali, the development of new operating models between banks and MNOs could help to achieve a higher level of financial inclusion. These models must involve greater synergies between MNOs and banks, and facilitate more information and experience sharing in order to develop a wider range of bank services that can be extended to mobile users. The operational model based on partnerships between banks and MNOs is diversifying the scope of mobile financial services in the most mature markets in Sub-Saharan Africa. Mobile savings and short-term credits are now possible in leading markets like Tanzania (GSMA, 2015)(4). In the partnership model, each partner takes advantage of their strengths in reaching new customers: the mobile networks have the advantage of technology, physical access and operational costs reduction, while banks bring the necessary licenses and experience for savings collection and credit disbursement. Exploiting synergies is thus a key element in speeding up financial inclusion and can impact considerably the level of accessibility and diversity of mobile financial services.


Notes 
(1) BCEAO, (2015), Situation des services financiers via la téléphonie mobile dans l’UEMOA, BCEAO ; 24 pp.
(2) In the sample, 71% of women have at least a secondary school level, compared with 43% for men.
(3) Nevertheless, we point out that the price of mobile financial services is considered too high for users, as a large part of our sample (29%) reported that high cost is the greatest inconvenience in using them.
(4) GSMA (2015), State of the Industry: Mobile Financial services for the Unbanked, 2014 Report. http://www.gsma.com/

Read Mariam Sangaré's final report “Mobile money and financial inclusion in Mali: what has been the impact on saving practices?”

Saving for a rainy day – in alternative ways: part 2

Research by IMTFI Fellows Sibel Kusimba and Nithya Joseph are featured in Part 2 of The Guardian series

"Compelling research shows most adults save money, yet few use a bank or other formal institution to do so, preferring to barter gold or give funds to family members. Here, women and financial experts weigh in on how banks might better capture this market."

Part 1 showed the ways in which many in developing countries save money via creative means. This installment takes look at Kenya’s mobile-based matriarchal brokerage system and where women use gold as a credit source in India and some lessons from the field on how banks can better serve the poor and women.

These women pictured in 2012 in Naitiri, Kenya, are closely connected by mobile money ties of mutual support. Photograph: Sibel Kusimba

Mobile-based money transfer service M-Pesa, launched in 2007, saw a 26% growth in value of transactions in the last financial year to $40.1bn, servicing 13.86 million customers. M-Pesa users send and receive money and pay bills electronically, without needing a bank account.

"Anthropologist Sibel Kusimba found that an interesting savings method has emerged from this trend: women, grandmothers in particular, work as brokers to recirculate mobile money funds in ways that benefit their entire families...'Kenyan women see themselves as responsible for others in their family, church and community – providing this security to others brings them prestige. Through reciprocity, they can rely on these people when needing that assistance. This social relationship is a form of savings...'"


"Gold and other precious metals have also long performed as a credit source. At the Institute for Money, Technology & Financial Inclusion (IMTFI), researcher Nithya Joseph traced gold as a form of savings in a silk-reeling town in Karnataka, India...'That gold continually rises in value makes the metal an ongoing attractive form of savings for this community,' Joseph says. 'Pawnbrokers are often family-run businesses, so interactions between broker and seller become tight. Even nationalized and private banks offer loans against gold as a service, while other companies have formed around gold-based loans.'"

Sibel Kusimba is currently an Anthropologist in Residence at American University. As an IMTFI fellow in 2014 she undertook research titled: "Mobile Money and the Coming of Age in Western Kenya." The research focused on how people in Western Kenya use mobile money technologies to pool resources for kin, friends, and co-workers. Learn more about Kusimba's work and the project here and the networks that were mapped visually and videos that emerged out of the project here.

Nithya Joseph is studying the politics of production and reproduction across the silk industry in Karnataka, India. As an IMTFI fellow in 2013, Nithya Joseph undertook the research "Silk Societies, Gold Stories: Using Gold-Based Life Stories to Study Gender, Financial Inclusion, and Work Vulnerability in South Indian Sericulture." Learn more about her work and the project here. The blogpost of her research findings can be found here.