17
Aug

Digitising Payment in our backyard

By Rachit Khaitan & Nishanth K, IFMR Finance Foundation

There has been a strong national imperative to move towards a “cashless” economy in India[1]. Despite a substantive impetus from public and private sector forces, the adoption and use of digital modes of payment in the country remains paltry[2]. While the many virtues of going cashless have been widely extolled, there seems to be little understanding of what might be “barriers” that are impeding large scale adoption.

In our endeavour to get a hands-on perspective on some of the challenges and better appreciate issues towards enabling a cashless environment, as part of the i-Innovate initiative, we set up and operationalised a market-prevalent digital payment channel (through mobile wallet) for paying for meals and other purchases at our office cafeteria (our proverbial backyard if you may). The goal of the experiment was to better understand the extent to which popularly perceived barriers in adopting a new mode of payment existed, from the perspectives of the vendor as well as consumers.

Despite the limited nature of this experiment, there are some valuable insights to glean towards for increasing adoption, at least in similar settings

The Vendor Perspective

From the vendor perspective, we perceived significant barriers in terms of the cost of adoption, the on-boarding of new technology, and cash management. We discuss each of these alongside our own experience with helping to implement a solution with the vendor:

Costs of adoption: Accepting digital payment involves fixed and variable costs. To mitigate fixed costs, we provided the vendor with a smart-phone and access to the office Wi-Fi network. The vendor was happy to contribute with a new sim card and phone number, required for registration of a new user account in the payment platform.

In our experience with variable costs, we found that rather than incurring the costs, there was a more significant barrier in terms of completely understanding what those costs might be. After surveying the growing landscape of digital payment platforms in India, we suggested one that recently received a payments bank license and featured low costs of transaction, high existing user adoption, and ease of use. We also understood all costs involved from the fine print in the terms and conditions and explained it clearly to the vendor. After this, we found that incurring those costs were barely a barrier to the vendor, especially when viewed against the benefit of providing customers with an alternate mode of payment.

On-boarding of new tech: Another major perceived barrier for adoption was that point-of-sale operators may not be trained or comfortable using such technology to accept payment in return for their goods sold.

When we set out to explain the nuts and bolts of receiving digital payments using a smartphone to our young cafeteria operator, we found to our pleasant surprise, that he was already well versed with using digital payment platforms and claimed to use it regularly. While we have yet to understand the issues around troubleshooting and exception handling (such as providing refunds), this barrier was found to be largely non-existent in our experience.

Working capital management: As a majority of the economy remains cash-based, a typical small business may accept digital payment from its customers but still has to deal with other parties, such as suppliers and distributors, in cash on a day-to-day basis. This was perceived as one of the most significant barrier to adoption. Fortunately, in our case, the vendor had a diversified stream of revenues from running multiple outlets across the city, which may be why he found it acceptable to collect digitally, despite the possible delay in cashing out to pay cash-based suppliers. However, we understand that this may not be the case for other smaller scale vendors.

The Consumer Perspective

There were several perceived barriers to adoption from the consumer’s perspective. Some of these barriers include:

  • Lack of smartphone for transaction
  • No prior experience with digital payments, or at worst, a conscious distrust of the channel
  • No prior experience with the particular service/app, and/or an unwillingness to start using a new service provider
  • Strong preference for cash for familiarity, convenience, or privacy
  • Inertia to adopt a new mode of payment

Results from our analysis and survey

In the below interactive we share some results from the analysis of transaction data and a survey that we conducted.

Anecdotes from the consumer survey as well as conversations in person provided deeper explanations. Many respondents lauded the initiative for the convenience that it affords them. One respondent stated that with this new service, their cash transactions had reduced to just one or two transactions in a month. Many other respondents however pointed to the need for a longer lead time towards adoption such as this user who stated that “Maybe in another week I will adapt to technology.

Other respondents indicated a strong preference for cash. One respondent stated that “I consider it as a secondary option of payment. In case I do not have cash or change then I will use that service.” Another respondent clearly stated that there is “No need. It has no value addition”. One respondent stated their reluctance to adopt this new payment mode explaining that transacting at the cafeteria was actually a useful way to break down large currency notes into smaller values in order to pay auto drivers (who offer no alternative to cash payment) on their way to and from office.

Conclusion

In our experiment, we tried to identify (and mitigate, wherever possible) the barriers that might impede the adoption of a new digital payment platform and understand the experiences of the vendor and its consumers. Our backyard laboratory (i.e. our office) comprised a consumer sample of financially and technologically literate consumers, a vendor willing to accept an additional small transaction cost, and a tech-savvy POS agent.

In the short time period of assessment (ten days), we found that more than half of all transactions turned digital! However, consumer adoption was slow with only 24% of cafeteria users getting on board. Our experience suggests that even savvy and highly likely adopters might be having a preference for cash for its familiarity, its convenience, or its anonymity, that digital payment in its current form is not able to substitute for.

Our experience also suggests that when a vendor offers payment through one particular payment provider, those consumers that are not already users on that platform may be reluctant to maintain balances in multiple payment wallets or even to sign up on multiple platforms using their mobile numbers and email ids fearing a spam explosion. Finally, even with all other barriers notwithstanding, our experience suggests that consumers could simply need more time, more persuasive marketing, and perhaps more active handholding to mitigate the inertia of adopting an unfamiliar new technology.

The advent of payments banks and the Unified Payments Interface (UPI) are set to lower such barriers to adoption with cash-out as a feature, an ability to carry out real-time mobile-based interbank transactions, and a much larger network of digital payment senders and recipients. These developments thus hold great promise for Indian merchants and consumers to leapfrog into the fold of digital financial services.



[1] PM Modi emphasis need for digital payments, Livemint (May 2016): http://www.livemint.com/Politics/jucQ9NUkKOnm4btxAMGk3N/Mann-ki-baat-Modi-urges-for-cashless-economy.html
[2] RBI estimates that 96% of all the retail transactions in the country are conducted using cash, Microsave (June 2016): http://blog.microsave.net/offline-payment-acceptance-a-puzzle-and-an-opportunity/

20
Jul

Reorienting Financial Well-being through FWR 2.0

fwr_img_1

By Dhivya S, IFMR Rural Finance

For an institution focussed on delivering high-quality and customised financial services to low-income households, the Wealth Management approach has been the one of the key underlying layers that is core to the KGFS Model. The sole objective of the approach is to maximise the financial well-being of households by offering tailor-made and suitable recommendations to them. Financial well-being, in this case, is to help customer households achieve financial goals, as per their priorities, in a secured and sustainable manner.

We have always believed that this approach of understanding the inherent composition and risks of rural households to help create their financial road-map requires a deep level of expertise. This approach of wealth management proves to be very different from the traditional approach of providing a full suite of products to customers and ask them to choose based on their financial needs. In this context, IFMR Rural Finance (IRF) first designed a Financial Well-being Report (FWR) five years ago to meaningfully engage with the bottom of the pyramid clientele.

The FWR is an automated customer-centric financial planning tool that uses customer data and back-end algorithms to make specific and actionable financial recommendations to enrolled rural households. The concept of devising wealth management conversations with customers takes us to the basic premise that there is a customer touch point that is primarily driven by the front-end staff called Wealth Managers. Wealth Managers across all KGFS branches rely on the FWR report as a guide to provide suitable financial advice aimed at enabling customers to realize their financial goals. To better understand the household, comprehensive data collection process by way of enrolments is undertaken, capturing data on the household’s members, demographics, cash-flows and financial goals. Post on-boarding the customer, a complete cash-flow analysis and risk assessment of the household is done to determine the customer’s financial position. While the data collection process forms the building block; the crux of wealth management however rests with capturing the financial goals of households. This is a continuous process of engagement with the customers that gets refined with subsequent conversations and financial transactions at the KGFS.

FWR in its current version has evolved over the years through a process of continuous improvement. However, there are several substantial improvements that need to undergo in order to make it even more customer-centric. Through anecdotal experiences and client interactions, we realised that wealth management isn’t simply about making financial plans for one’s future but is a means of realising one’s priorities. It is in this process, we realised that the process of customer engagement needs to be improved across various components as a precursor to having quality wealth management conversations. These conversations with customer focus on helping them achieve their financial goals by identifying and prioritizing what is most important to them. This then becomes imperative for us to make the entire process simple, intuitive and easy for both the Wealth Managers as well as the customers to achieve its full potential.

This post explains the perspective on the approach, methodology and design of FWR 2.0 and seeks feedback on improving the tool.

In the latest version of the FWR 2.0, the report aims to build on the legacy of the earlier system and is intended to be a significant leap towards delving much deeper into the financial lives of households. FWR 2.0 is engineered with concepts of Human Centered Design (HCD) to offer more practical and actionable insights keeping the customer interests at its core. The key areas of development that we plan to include in its redesign are:

1) Strengthening the data collection process to ensure high quality inputs from customers to have an in-depth understanding of their financial lives – Data collection is a fundamental process whose quality in turn determines the quality of financial advice given to the customer. For instance, if the Wealth Managers at KGFS are unaware of the customers’ high social expenses or if they have borrowed through informal channels or they are just a few thousands short of cash to achieve their goal; the Wealth Managers would not be able to provide appropriate recommendations which may have an adverse effect on the household’s financial lifecycle.

The scope of FWR 2.0 seeks to bridge the lacunae created through the development of various prototypes of a smart tool and associated processes. The aim is to identify the best technique of asking questions to customers during enrolment in a way that they are able to relate the most. We also plan to design a data quality score to explicitly measure the quality of data captured. This would be one of the key constituents to make sure that the entire wealth management process is based on sound first-principles.

2) Process redesign for achieving customer goals – Greater emphasis would be laid upon the quality of engagement with customers to enable them to reflect on their financial situation, identify and prioritize their individual & household goals. Assuming the data collected is of good quality, there are other important factors impacting the conversation that are to be rethought of. Some of the immediate alterations thought of are related to articulation of goals and logistics of organising wealth management conversations – for instance, should we have these conversations at home or at the branch; should we use laptops or just record customer stories and so on.

3) Better customer connect and usability through intuitive services – In regards to redesigning inclusive and progressive wealth management process, the aim is also to enhance the interface for mobiles and tablets through responsive web design and effective visualisation. The revamp would entail interface and visual improvements that are intuitive enough for the Wealth Managers to have meaningful conversations with customers.

We plan to finalise the above stated areas by creating various contending prototypes that aim to fulfil the stated objectives of FWR 2.0. These sets of prototypes would be tested in KGFS branches with existing and potential customers.  The revamp would entail conceptual, process and system related modifications that would be intuitive enough for both the staff and customers to equally participate in wealth management conversations. We are also scoping through the feasibility of creating a customer version of Financial Well-being Report that can be offered to the customer at the end of every conversation.

FWR 2.0 would not only aid in augmenting KGFS business performance and minimising business related risks due to improper or erroneous recommendation, but most importantly, would lead to an even more improved and meaningful customer engagement and retention.

8
Jul

Adoption of Mobile Financial Services in Thanjavur – Pudhuaaru KGFS & Qarth Technologies Pilot

Guest post by Jaya Umadikar (RTBI), Prerit Srivastava (Qarth) & Gaurav Raina (IITM)

Since its introduction in 2010, IMPS based mobile banking transactions have been growing month on month reaching 3.5 Million monthly transactions in May 2014. However even with high penetration of mobile phones, mobile financial services haven’t seen a massive adoption among the rural population.

To explore the challenges in adoption of Mobile Financial Services (MFS) among the rural population, a pilot was conducted by Pudhuaaru KGFS & Qarth Technologies (an IMPS based mobile payment startup). The objective of the pilot was to understand the challenges in adoption of MFS, getting Pudhuaaru KGFS customers to make loan repayments via a customized banking application and understanding other use cases for MFS among the rural population.

Neivasal village in Thanjavur district, Tamil Nadu was chosen as the test bed for conducting the pilot. While the majority of Pudhuaaru KGFS customers in Neivasal had bank accounts, most of them were in a deactivated state due to non-usage. The nearest bank branch was 5km away, and the nearest ATM was 7km away from the village. All repayments were done via cash, either by visiting the nearest Pudhuaaru KGFS branch on the due date, or by making the payment to a local Pudhuaaru KGFS collection agent.

To ease the adoption, Pudhuaaru KGFS in partnership with Qarth developed a customized, and user-friendly, application for mobile banking for Java and Android phones. The application enabled the customers to make their loan repayments directly from their bank accounts to Pudhuaaru KGFS, without the need to travel to an Pudhuaaru KGFS branch. The application could be used 24×7, and could transact over the SMS channel. There was no requirement for GPRS/3G for making transactions. A key additional benefit of the application was the ability to provide mobile and DTH recharge functionality. With this facility, customers could earn 2% commission on each recharge provided and thus provided an additional revenue stream. This immediately provided the much-needed incentive for customers to keep a minimum balance in their bank accounts, and to adopt a mobile financial services platform.

The pilot was started off with 5 Pudhuaaru KGFS customers being enrolled for mobile banking with their nearest bank. The customers were small shop owners – two general merchants, a tailor, a fertilizer shop and a brick maker with an average loan installment ranging from INR 700 (weekly payment) to 5,000 (monthly payment). The results were extremely encouraging: within the first 100 days, the customers conducted 2,982 IMPS transactions over a net sum of INR 1.43 Lakhs.

Qarth_post

There success in adoption points to range of potential benefits for Pudhuaaru KGFS, the customers and Banks. By implementing such a solution each Pudhuaaru KGFS branch can serve a larger area, as proximity to customers is not required while saving on collection agent costs. Customers opting for loan repayment via mobile also save on travel costs while avoiding being absent from business. It also allows the customers to switch to faster loan repayment cycle leading to reduction in interest rates. The supporting bank also benefits by having more number of active accounts with higher average account balance.

The pilot also provided lessons for simplifying and scaling the IMPS platform for payments. We collected our recommendations in terms of technology enhancements, enrollment processes, awareness and pricing.

Technology enhancements: Currently IMPS transactions are carried over an un-encrypted SMS channel. This has two drawbacks: first, is security, and second, due to lack of security the transaction limits are capped. Given that India has such a large SMS consumer base, it would be important to have standards for encrypting SMS based transactions. Given the success of the customized application, standards for the development of multi-bank applications by third parties should be expedited and encouraged.

Enrollment process: Most banks require multiple visits by customers to the branch to get registered for mobile banking and to get their MMID & MPIN. Such processes should be simplified, and ideally standardized, across all banks. To this end, the use of alternate channels for registration and enrollment like interoperable ATMs should be facilitated.

Awareness: We found lack of awareness not only among the customers, but also among the bank staff. Advertising on popular media can help customers, but the banks should also initiate training and awareness programs within themselves.

Pricing IMPS payments: There are two ways to help customers in this regard. First is by charging customers, per transaction, only after they cross a monthly transaction limit. After this limit, the charges should be reasonable so that they encourage even low-value transactions. Secondly, the cost of the SMS can be reduced by the introduction of toll free numbers for SMS banking.

The above challenges have also been recognized in the Report of the Technical Committee on Mobile Banking released by the RBI on February 7th 2014. However, the pilot provides some on the ground experience on both the potential and some of the bottlenecks for mobile financial services. Overall the pilot was able to provide a sense of the tremendous demand and untapped potential for MFS among rural customers. With over 900 million mobile phone subscribers in India, mobile-based solutions can bring about a sea change in the way rural population avails various financial services and play an active part in the growth of financial ecosystem of the country.

1
Apr

Digital Currencies and the Larger Questions they Raise

Digital Money

By Ravi Saraogi, IFMR Investments

Digital currencies have generated substantial curiosity over the last year, particularly post the favourable1 hearing that Bitcoin, a prominent digital currency2, received at the US Capitol hill in November 2013. There is growing interest in trying to understand what digital currencies really are but they are much confused because of the difficulty in placing them squarely in the current monetary setup of ‘fiat’ paper currencies. This leads to most dismissing digital currencies as another ‘geeky innovation’ which will fade post the initial curiosity is over, while some confuse it with an online payment system. This can be quite misleading as digital currencies pose important political economy questions on the control of money supply in a society and are deeply connected to a growing3 school of right wing economic thought called ‘libertarianism.’4 Given the increasing usage of digital currencies and the ideological support5 for them in certain section of economic thought, it would be prudent for monetary authorities and regulators to not dismiss such currencies and meaningfully discuss their implication. In this post, we attempt to provide a context for such a discussion by giving a brief overview on the evolution of money and the ideological support for digital currencies.

Are digital currencies ‘money’ as we commonly understand?

Are digital currencies even ‘money’ in the first place? Money is defined as anything that serves as a general medium of exchange. Digital currencies can be used to discharge all the three purpose of money viz., medium of exchange (growing number of establishments accept digital currencies in trade for goods and service), standard of value (the value of other goods and services and can be expressed in digital currencies) and store of value (digital currencies can be stored and used in the future). Digital currencies should not be confused with an online ‘currency’ which is convertible to a fixed pre-determined value of government legal tender. For instance, the digital currency Bitcoin is not an online architecture for transferring government legal tender from one place to another. Bitcoin is an alternative medium of exchange with its own value which fluctuates with other currencies.

BitcoinPrice

As can be seen in the graph above, the exchange rate of Bitcoins to USD has gyrated wildly since the digital currency gained prominence. The recent volatility in the value of Bitcoins can be traded to events surrounding the shutting of Mt. Gox, a popular Tokyo based Bitcoin exchange6. Thus, even though digital currencies like Bitcoin serve all the three purpose of money, they can emerge as a general medium of exchange only if such currencies gain stability.

Evolution of Money

Money was invented to counter the limitations of the double co-incidence of wants in a barter economy. Over the years, different commodities have been used as money, such as seashells, tea, fur, cattle and even tobacco. The use of metal coins as money can be traced back to Lydians in 700 BC from where it was passed on to the Western civilization through Greeks and Romans. Coins served several useful purposes like being durable, portable and having an intrinsic metal value. As trading grew, coins became popular throughout Europe during the 18th century. These coins, which contained metals, were examples of ‘commodity money’ – where a commodity which had precious value was used as a medium of exchange. Commodity money had both intrinsic as well as exchange value.

The use of paper money can be traced back to the Chinese T’ang Dynasty (618-907 A.D.). Initially paper money could be exchanged for certain commodities like gold, silver or even tobacco7. Such paper money convertible to fixed quantity of certain commodities was termed as ‘representative money’. Again, representative money had both intrinsic value (as they could be converted to certain commodities) as well as exchange value.

The final evolution of money is ‘fiat money8. Fiat money is similar to representative money except it can’t be redeemed for a commodity. The Reserve Bank of India (RBI) notes we use today are an example of fiat money9. Fiat money has only exchange value (which is derived from a government ‘fiat’ or order) and no intrinsic value.

Money

From the above discussion, it is clear that digital currencies are similar to fiat paper money in the sense that they only have exchange value and no intrinsic value. However, the exchange value of digital currencies is completely market determined and is not derived from decree of the government. This is the single most important reason why such currencies are lauded by supporters of the free market, particularly libertarians, who are distrustful of the government’s monopoly role in controlling the money supply10.

Exchange Value of Digital Currencies

Digital currencies derive their exchange value from several characteristics. Such currencies represent a completely decentralized anonymous peer-to-peer medium of exchange. They bypass any regulatory restrictions for cross border transfers as digital currencies do not depend on conventional payment platforms (like Visa, MasterCard) or clearing houses and are transferred electronically. For instance, Bitcoins are electronically transferred from one e-wallet to another e-wallet hosted on personal computers scattered throughout the world. These features make the architecture of digital currencies the most cost-efficient and anonymous way to transfer money from one place to another11. The downside is that this anonymity, regulatory bypass and lack of KYC make them extremely vulnerable to use by anti-social agents. Bitcoins have been used extensively in trading for illegal drugs through an online platform called ‘Silk Road’. The anonymous nature of Bitcoins can also lend itself to financing terrorist activities. There have also been concerns on the security architecture of digital currencies with reports of several heists from Bitcoin e-wallets12.

The fact that digital currencies only have exchange value and no intrinsic value has led many people to say that such currencies represent a bubble, much like the ‘tulip mania.’ This argument however overlooks the fact that by this reasoning, all money are always in a bubble as money (by definition) will always have exchange value over and above its intrinsic value, and in this sense, its value is always inflated compared to its intrinsic value. The caveat here is that while fiat paper currencies are backed by government legal tender laws, there is no corresponding backing for digital currencies from any monetary authority.

Ideological support for Digital Currencies

Digital currencies have several similarities with the classical gold standard system of 1815-1914 when national currencies were convertible to a fixed quantity of gold. Libertarians consider the classical gold standard as the “Golden Age” of unadulterated monetary system13. Prominent libertarians like US Senator Ron Paul, who leads the ‘Audit the Fed’14 campaign in the US and supports a return to the gold standard15, look favourably at digital currencies like Bitcoins because of the similarities. In fact the similarity of the Bitcoin economy to the classical gold standard system has led many libertarians to hail Bitcoin as the free market solution to private currency16. The similarity with gold standard can be clubbed under three broad heads:

Market selection of the medium of exchange

Sympathizers of the gold standard support digital currencies as they derive their exchange value endogenously without any backing by a government or central bank monetary authority. This is much like the emergence of gold as a medium of exchange in competition to other commodities like tobacco, sugar, cattle, tea, shells among others. Among various alternatives, gold was established as the preferred medium of exchange for its acceptability, durability, portability, homogeneity and scarcity. In April 1933, the US went off the gold standard where US citizens could no longer redeem dollars in gold but the foreign central banks could still convert their dollar holdings to gold at the Federal Reserve. In August 1971, President Nixon took US completely off the gold standard by revoking the foreign convertibility of the dollar to gold. For a supporter of the gold standard, the next best bet would be to support a digital currency which mirrors certain gold standard characteristics.

Market determined supply

The supply of money in a gold standard was market determined. The supply of gold would increase as long as the marginal cost of mining gold is less than the value of goods and services which an incremental unit of gold can buy. Thus, a gold mining company would produce gold till arbitrage opportunities have been exhausted through the forces of perfect competition.

The money supply process is similar for digital currencies. For instance, participants in the Bitcoin economy mine the digital currency by solving complex computational algorithms till the time the marginal cost of undertaking this activity exceeds the incremental value of the goods and services which a Bitcoin can buy. The maximum supply of Bitcoin is by design fixed at 21 million coins17, which is similar to a gold standard economy where the stock of gold is fixed.

It should also be noted that the monetary operation of a Bitcoin economy would be exactly the same as under the gold standard where a fixed stock of the money supply finances growing global exchange through divisibility of the unit of currency18. Also, the stock of money supply is immaterial as divisibility ensures adjustment in nominal denominations without changes in real values19.

Competition to Government Legal Tender

As an alternative currency without backing of any legal tender laws, digital currencies circulate in competition to fiat currencies as a medium of exchange. This is along the lines of the libertarian demand for open competition in currencies20.

Regulatory Oversight

The regulatory oversight for digital currencies has not fully developed with monetary authorities around the world adopting a strategy of wait-and-watch. The limited regulatory actions that have been promulgated till now has been sporadic and based on two primary concerns – financing of anti-social activities and evasion of capital controls. In the case of Bitcoins, given its anonymous character, it has been used extensively in trading for illegal drugs through the online platform Silk Road. In October 2013, the FBI seized 144,000 Bitcoins from Ross Ulbricht, the alleged owner of the online platform. At today’s exchange rate, the value of the seized Bitcoins is in excess of USD 70 mn21. By August 2013, the U.S. Department of Homeland Security had seized bank accounts worth USD 5 mn of Mt. Gox as it had failed to register itself as a money transmitting business and was in violation of U.S. anti-money laundering regulations22. More recently, China’s central bank prohibited financial institutions from handling Bitcoin transactions on concerns such digital currency pose on bypassing capital controls23. This was after China had become the world’s largest trader in Bitcoins.

India’s central bank, the Reserve Bank of India (RBI), issued an advisory warning against the risks of dealing in digital currencies like Bitcoins24 on December 24, 2013. Days later, Enforcement Directorate (ED) officials at Ahmedabad raided two companies engaged in Bitcoin transactions25. The concerns highlighted by RBI were susceptibility to hacking26, no dispute settlement mechanism as Bitcoins bypass any authorized central agency, speculative value, unknown legal status of Bitcoin exchange platforms, use in illegal/illicit activities, breach of anti-money laundering (AML) and combating the financing of terrorism (CFT) laws.

Thus, the regulatory oversight for digital currencies has primarily been inspired by concerns on their end-usage and capital controls. None of the regulatory actions taken so far can be explicitly linked to concerns that digital currencies pose on the control over an economy’s money supply by a central bank. This can be justified as the volume of digital currencies is small compared to central bank issued money. However, if the usage of digital currencies grows to materially alter the dynamics of money supply in an economy, central banks around the world will have to think hard on the regulatory landscape for such currencies.

Conclusion

Digital currencies have introduced, albeit small, a competition to government backed legal tender. Though the architecture of digital currencies is still unstable and receives ideological support from only non-mainstream sources, it would not be prudent to underestimate them. Given the important questions that the evolution of digital currencies raise (and Bitcoin is just one among the several27), there is a need to understand this new medium in the context of our regulatory framework in a much more holistic manner.


  1. Mythili Raman, the acting assistant attorney general for the US Department of Justice’s criminal division, said in testimony before the Senate Homeland Security and Government Affairs Committee that, “The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce.”
  2. There are now in excess of 12 million Bitcoins in circulation with a total market value of close to USD 8 billion
  3. An example would be the rise in prominence of the Tea Party movement in the US. In their study titled ‘Libertarian Roots of the Tea Party’, David Kirby and Emily Ekins argue that “The tea party has strong libertarian roots and is a functionally libertarian influence on the Republican Party”.
  4. David Friedman, in his book ‘The Machinery of Freedom’, says, “The central idea of libertarianism is that people should be permitted to run their own lives as they wish.”
  5. This Washington Post article argues that Bitcoin received “overwhelmingly positive” hearing at the US Congressional meeting due to “months of careful diplomacy by Bitcoin advocates.”
  6. http://www.forbes.com/sites/cameronkeng/2014/02/25/bitcoins-mt-gox-shuts-down-loses-409200000-dollars-recovery-steps-and-taking-your-tax-losses/
  7. For e.g., in 1715 Maryland, North Carolina and Virginia issued tobacco notes which could be converted to fixed quantity of tobacco
  8. Fiat is defined as “an official order given by someone who has power.” Paper money is used as a medium of exchange on the ‘fiat’ (order) of the government
  9. For e.g., a Rs 20 note (or for that matter any other rupee denomination note) is signed by the RBI Governor as “I promise to pay the bearer the sum of twenty rupees”
  10. Thomas Woods, a prominent contemporary libertarian writes in detail about this in his paper titled ‘Why The Greenbackers are Wrong’ at http://tomwoods.com/blog/why-the-greenbackers-are-wrong/
  11. The recent Department of Justice hearing on Bitcoin in the US emphasized that virtual currencies like Bitcoins “have the potential to promote more efficient global commerce.” http://www.theguardian.com/technology/2013/nov/18/bitcoin-risks-rewards-senate-hearing-virtual-currency
  12. http://www.technologyreview.com/news/522411/bitcoins-rise-constrained-by-heists-and-lost-fortunes/
  13. See Rothbard, Murray (1963), ‘What has Government Done to our Money’, Section IV, Ch. 1, p86
  14. The Federal Reserve Transparency Act, a bill to audit the Federal Reserve, was introduced by Ron Paul in February 2009
  15. Ron Paul has been a strong advocate of the gold standard. See Paul, Ron (1981), “Gold, Peace and Prosperity: The Birth of a New Currency”, Mises Institute
  16. For e.g., the Libertarian Party in the US accepts contribution in Bitcoins on its website http://www.lp.org/make-a-bitcoin-contribution
  17. For an exhaustive FAQ on Bitcoins, see http://bitcoin.org/en/faq
  18. While Bitcoins are divisible to 0.00000001 units, paper receipts backed by gold (which were the predominant operational system for the gold standard) were also divisible to small denominations.
  19. The easiest way to think about this under a fiat money economy would be to assume that one morning you are told that an extra ‘zero’ has been added to all monetary denominations. So Rs 10 is now Rs 100. What used to cost Rs 10 before will now cost Rs 100. Similarly, if you were earning Rs 10 before, you will now earn Rs 100. In real terms, nothing changes. By adding an extra zero, we have increased the monetary base in an economy ten times without any change in real values. Thus, neither does the initial stock of money nor the total money stock has any bearing on a Bitcoin or gold standard economy.
  20. US Senator Ron Paul, a prominent libertarian, is the sponsor of the Free Competition in Currency Act of 2011, which seeks to repeal legal tender laws backing government issued currencies
  21. http://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-says-its-seized-20-million-in-bitcoins-from-ross-ulbricht-alleged-owner-of-silk-road/
  22. http://techcrunch.com/2013/08/23/feds-seize-another-2-1-million-from-mt-gox-adding-up-to-5-million/
  23. http://www.bloomberg.com/news/2013-12-05/china-s-pboc-bans-financial-companies-from-bitcoin-transactions.html
  24. http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30247
  25. http://articles.economictimes.indiatimes.com/2013-12-27/news/45626789_1_one-bitcoin-bitcoin-transactions-peer-to-peer-payment-network
  26. There have been several media reports of hackers breaking into electronic wallets and wiping out balances of digital currencies like Bitcoins and Dodgecoin
  27. Some others are Litecoin, Namecoin, Peercoin, etc. For a full list, see http://www.theguardian.com/technology/2013/nov/28/bitcoin-alternatives-future-currency-investments

6
Dec

Leveraging Mapping for the Rural Economy – Part 2

By Balajee GE, with inputs from Shilpa Bhaskar & Gayathri V, IFMR Rural Finance

This post is a follow-up to our earlier post which briefed about the mapping exercise that IFMR Rural Finance had undertaken to study the service area of a KGFS Branch.

Once a location to set up a KGFS entity was identified, (Krishnagiri district in this case), team members Shilpa Bhaskar, Gayathri Vijayaraghavan and Noble Joseph of IFMR Rural Finance put in place a field team to survey the entire district first hand.

The surveyors mapped the infrastructure details (as mentioned in the earlier post) using an open source application that was customised on the mobile platform for this specific purpose. By switching from traditional paper-based survey to electronic format, the team straight away was able to act upon its findings. For example, every detail geo-tagged on the mobile was updated live and it was easy to track the surveyor real-time throughout the day. This close monitoring in-turn reduced data errors drastically.

This data was then coded on to the mapping application.

In addition to the general infrastructure details of the village, the team also mapped every household in the village for enrolment. Once again, each household was coded to show up on maps.

At any point of time, it became possible to see the list of households that had enrolled with the KGFS entity and the ones that had not, giving valuable spatial perspective to the decision makers in the KGFS entity.

Mappin - Part 2
A mapped district. (Graphics by Rohini Rajavel)

The potential use of this visual interpretation of data is immensely varied and powerful. Some of them could be:

  1. By mapping the infrastructure details, it is possible to sense what locations are at the brink of urbanisation and thus adjust the KGFS branch location to suit its Remote Rural criteria.
  2. The geographical spread of a particular product take-up gives valuable information about the economic activities in that area. For example, a cluster of households in a specific area availing livestock loan could mean a thriving dairy economy in that area and so further suitable products can be recommended to the customers from there.
  3. The data captured is a rich source of inputs to help design the right products for a geographical location. For example, an area with a large number of retail shops would be a valuable input to the product design team who can then design a very specific set of products for these retailers.
  4. Households can be followed up for enrolment on a regular basis; areas with least enrolments can have a more intense awareness campaign.
  5. The wealth manager (field staff) can plan his/her day efficiently.

The entire exercise took about 3 months to complete, but by the end of it, the data on hand proves to be very valuable that could help organisations like KGFS entities to create lasting positive impact on the economy of the villages.