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New data from InterMedia breaks down the impact of demonetization on financial inclusion across gender, locality, income levels, account types, and more. 

> Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, InterMedia

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Demonetization had a strongly positive effect on financial inclusion, leading to increases in account registration and active and advanced use of registered accounts, according to our data. Perhaps surprisingly, given some of the discussion in the financial inclusion community over the last year predicting demonetization increasing electronic payments, these account registration increases were mostly among bank accounts rather than mobile wallets.

InterMedia’s fourth annual Financial Inclusion Insights (FII) survey was underway on November 9, 2016 when approximately 85 percent of the banknotes in circulation in India were invalidated by the policy known as demonetization. The invalid notes had to be deposited in a bank or exchanged for new ones at banks and other financial institutions. The timing of demonetization in relation to InterMedia’s activities presented an opportunity for us to measure the impact on financial inclusion using a panel survey of 1,600 randomly selected individuals in the states of Gujarat, Madhya Pradesh, and Rajasthan. These respondents were first interviewed for the FII survey roughly one month prior to Nov. 9, and then re-interviewed seven months later.

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> Posted by Chris Wolff

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At long last, Game of Thrones (GoT) has returned to our world!

Showing us ways the realm can collide with our realities, the cast’s appearance on Conan at last year’s Comic-Con drew attention to care for refugees fleeing Syria with the IRC. So here’s an allegory global citizens can follow: “Game of Thrones: Financial Inclusion edition!”

To play this game, start by identifying which character best embodies your own industry or strategy. Here’s a rundown of all the actors that can alleviate poverty in various manners.

Banks = Lannisters. As the major incumbents with the most money and power, in both worlds they’re a strong ally, but better make sure your interests stay aligned. I’m not referring to the villainy or goodness of individual characters, but as a family house you have to admit the kingdom hasn’t run without them. And as with the rivals who take Tyrion in and listen to his counsel, wouldn’t you want such a seconded expert able to understand multiple perspectives and models?

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> Posted by Sabine Spohn, Senior Investment Specialist, Private Sector Operations Department, Asian Development Bank

The following post was originally published on the Asian Development Bank blog.

In late 2016, many presumed Indian microfinance institutions would be adversely affected by India’s sudden demonetization law. Surprisingly, events unfolded quite differently to expectations.

On November 8, Prime Minister Narendra Modi announced the withdrawal from circulation of all Rs500 and Rs1,000 bank notes in a bid to combat black money and curtail the use of counterfeit cash. The objective was also to slowly introduce the country’s population to a digital economy. The action was driven by good intentions, although it initially caused many disruptions in the economy.

In India, where ADB’s Private Sector Operations Department has been carrying out the Microfinance Risk Participation and Guarantee Program since 2012, many of our partner microfinance institutions temporarily stopped lending to low-income people as they were not clear how those loans would get repaid – in particular in rural areas. In the first few days and weeks, collection rates dropped to as little as 10-20 percent.

Five months after demonetization, the uncertainty has started to fade.

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> Posted by Center Staff

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We’ve written about the unfolding demonetization situation in India a few times now (here and here). Demonetization, the government declaration on November 8, 2016 that Rs. 500 and Rs. 1000 notes would become void on midnight of the same day, aims to curb black money and corruption, and support the uptake of digital financial services. However, demonetization has caused a range of harms. These consequences should have been foreseeable because: the declaration was massive in scope, affecting 86 percent of the country’s currency in circulation; the country’s banking industry was given no time to prepare, as the plan was kept secret until November 8; and the vast majority of the country’s labor force works in the informal sector, dealing almost exclusively in cash.

Our previous posts focused on the financial inclusion implications of demonetization and how the government’s move affects Indians’ ability to conduct their finances. But our posts haven’t discussed the non-economic ways that demonetization is affecting citizens. Let us be clear, with the massive population in India living at or below the poverty line, the financial shock caused by demonetization has meant life or death for many. Here is a list of some of the ways demonetization is causing more than economic harm:
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> Posted by Jayshree Venkatesan, Financial Inclusion Consultant

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On November 8, 2016, the Prime Minister of India made an announcement that notes of denominations Rs. 500 and Rs. 1000 would become illegal tender overnight in a move that was termed demonetization. In turn, the government would issue a note valued at Rs. 2000, which would replace the notes taken out of circulation. According to the RBI’s most recent annual report, the total currency in circulation in India was INR 16634.63 billion (~USD 256 billion). The withdrawn notes constituted nearly 85 percent of this currency.

Phasing out old notes and replacing them with new ones is a standard practice followed by central banks globally. In the Indian context, however, there were two factors that contributed to this standard practice resulting in chaos and an economic shock on the poor.

The first was the short span of time given to react. The announcement was made on television after business hours on November 8, and the affected tender was rendered illegal by midnight of the same day. As a result there is enormous pressure on the banking system, and a frenzy of citizens trying to make the necessary adjustments. The second factor was the disproportionately small share of Rs. 2000 notes ready to replace the phased out currency. While the short span of time resulted in an instant shock to several segments of the population that predominantly operate in the cash economy, the limited Rs. 2000 notes translated into a cash crunch that has brought large parts of the economy to a grinding halt.

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> Posted by Misha Sharma, Project Manager, IFMR LEAD

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Last week was a rather challenging one for the Indian economy. On November 8, India’s Prime Minister Narendra Modi announced a dramatic demonetization exercise that rendered all Rs. 500 and Rs. 1000 notes void starting November 9, with the objective of curbing black money, corruption, counterfeit notes, and the financing of terrorism – all of which has leveraged these larger currency notes (with values equivalent to about US$7.50 and $15.00).

The next morning saw newspapers flooded with advertisements by e-wallet companies thanking the Indian Government for its visionary move and congratulating the Prime Minister on “taking the boldest decision in the financial history of Independent India.” They even claimed Indians to be the biggest beneficiaries in this exercise, indicating this was a positive step towards solving the problem of financial inclusion and encouraging more and more people to transition to the digital world. Several banks printed front page advertisements praising this move as progress towards a cashless India. A full-fledged commercial bank endorsed the move with the tag line –Who says you need cash to get by in life?

All I could think while reading these advertisements and endorsements is that we couldn’t be any more oblivious, as we are forgetting the plight of those who remain excluded from the formal economy.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.