Sunday 29 October 2017

Cave Art to Emojis and Financial Inclusion

A few years back I was speaking with an elderly lady in Kisumu with the aid of a translator. Kisumu is a port town on Lake Victoria in Kenya. I was there as a part of a delegation to study mpesa in action on the ground. When I asked her how did she manage to operate the mobile application which is in English she said nonchalantly that the 5/6 menu options of mpesa are same since it was launched and that she did not need to know English to press the first option to view her balance, second option to send money and so on.

On the face of it her observation looks so obvious and apparent.  But then don’t we always hear the lament - especially in India - that most of the mobile banking solutions are in English while barely a small fraction of the population understands English. This is often cited as one of the most important challenges in percolating benefits of digital banking to the financially excluded masses. Well meaning  - and sometimes naïve – regulators also tend to compel banks and other financial institutions to offer their digital products in multiple languages.

Now I find this argument silly and superfluous.  Take ATMs for example. Banks are mandated to offer a dozen odd languages for ATM menu. As per my estimate,  not more than a fraction (less than 5%) of over 8 billion transactions of ATMs are carried out in languages other than English. Another example is an anecdote. I once found my then kindergarten going son merrily playing cartoon games on several websites on the net. He could barely recognize English alphabet then. Intrigued I asked him how did he manage to access these sites. He just pointed to a paper on which his elder sister had written names of some such websites. This fellow simply found the corresponding alphabet on the keyboard, typed in the URL and voila, he reached the sites that played his favourite cartoon games.

The Ethnologue catalogue of world languages says there are some 6909 living languages in the world. A few hundred of these are spoken in India. Now one obviously can’t have so many language options on an ATM. But probably even before mankind started communicating in spoken languages, Home Sapience had discovered communicating through Cave Art during the Paleolithic Age.  We have come a long way since and now Shigetaka Kurita’s emojis have become a common language of the world with their own standardized Unicode.

So I want to make two points here about this whole hullaballoo about lack of local languages in digital banking being the barrier against financial inclusion. One if you have a strong hook like my toddler son wanting to play cartoon games then the users figure out how to use your solution. And two if your user interfaces are simple, standardized and consistent your customers will get accustomed to using your product / services like the lady in Kisumu or the debit card holders in India.

How difficult is it for banks and regulators to come together and develop emojis for banking which are universally accepted not only in India but also around the world.

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Sunday 25 June 2017

It's about time RBI converted all Payment Banks into Small Finance Banks

The Reserve Bank of India came out with an interesting proposition in 2014 to accelerate financial inclusion in the country by announcing guidelines to set up new banks under two distinct formats. Payment Banks and Small Finance Banks.

The stated objective of RBI to set up the Payment Banks#1 was to "further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users."

While the stated objective to set up the Small Finance Banks#2 was to "further financial inclusion by (a) provision of savings vehicles, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations."

You must have noticed that Small Finance Banks can do everything what Payment Banks were allowed or expected to do (including providing payment / remittance services) however the Payment Banks were not allowed to lend to these marginal strata of the society. If the objective was to further financial inclusion then why could it not be fulfilled by only creating Small Finance Banks.

A classic definition of a Bank is "A financial institution that accepts deposits and makes loans". In fact the primary objective of a commercial bank is to act as an intermediary to provide safe avenues for saving and borrowing to the general populace. 

Non-interest income of banks varies between 20% to 40% of their total income#3. In other words 60% to 80% of banks’ income is the Net Interest Income (NII). This is the income due to the differential interest rates between their loans and deposits. So what is the point of introducing a handicap while setting up new banks and depriving them of an opportunity to earn the NII? It will only worsen the odds for viability of such banks.  This is a supply side argument.

Now let’s look at the demand side. The total bank credit in India is INR 76 lakh crore (or roughly US$ 1.17 trillion) #4. This works out to per capita credit of INR 58,500/- (or about US$ 900). This compares very poorly as compared to say per capita bank credit in US of US$ 39,000.#5  This means India as a nation is starved for credit. One of the most important means to pull the marginal population out of their misery is give them access to affordable credit.

What is then baffling is why is RBI still continuing with its experiment of running Payment Banks. It's about time RBI converted all Payment Banks into Small Finance Banks.






Saturday 3 June 2017

Some Molecules Get It Right

In the beginning there was nothing. We all know that, don’t we? Then allegedly there was a Big Bang. The impact of that Bang apparently released unimaginable amount of energy and somewhere down in the Space Time matrix that energy gave birth to the Matter. Secondary school science tells us that this Matter in turn is comprised on 118 elements. So for those who bunked the science class or who have simply forgotten, each element is a unique atom with a certain atomic number which in turn represents the number of protons in its nucleus. So, for instance the first element Hydrogen, has atomic number of 1 and the last element Ununoctium, has atomic number of 118.

When two or more such atoms – of the same or different elements – come together through a chemical bond, they form a molecule. In fact some elements like Hydrogen exist only as molecules. There are practically infinite permutations and combinations in which these elements come together and form molecules. I am particularly intrigued with a handful of these elements and the molecules they form. The heroes (or heroines) of our interest are Carbon, Hydrogen, Nitrogen, Sulfur and Phosphorous. This quintet teams up to form very special categories of molecules. Proteins, Lipids, Carbohydrates and Nucleic Acids.

Proteins are the basic building blocks and are made of Amino acids which in turn contain Nitrogen.  Carbohydrate provide energy for growth and sustenance and are made up of atoms of Carbon, Hydrogen and Oxygen. Lipids are the main constituent of a cell membrane. Their primary role is storage of energy and intercellular communication. Chains of Carbon and Hydrogen together make Lipids. There are two nucleic acids namely, the flamboyant DNA (deoxyribonucleic acid) and the publicity shy RNA (ribonucleic acid). DNA is responsible for carrying all the information an organism needs to survive, grow and reproduce. While RNA molecules do the grunt work of actually translating the information stored in DNA molecules and using the information to help build proteins. 

These Proteins, Lipids, Carbohydrates and Nucleic Acids who are as inanimate individually as a rock come together and become a living organism. Because living beings at their core are made up of the same elements which form inanimate matter, both have to obey the same laws of physics. 

Then what’s the difference between inanimate matter and a living organism? I know we studied this in the elementary school. But I will go ahead and say it anyway. At least a couple of key differences. First, living organisms procreate. And second the living beings exchange both matter & energy with their surroundings and are not at equilibrium with these.  How do I put it? Only the dead livings beings can do that by the way. Death restores the equilibrium and squares up. To avoid being dead the living organisms must derive, process and consume energy from their environment all the time. There are several other differences but listing all will be a digression.

The story gets more and more quirky from here on. Consider the grandest and the most complex of all living organisms the Homo Sapiens. That’s you and me. What distinguishes sapiens from every other living organism is possession of consciousness.  The very mention of CONSCIOUSNESS evokes a great deal of excitement amongst scientists, mathematicians, physicians, philosophers, religious gurus and practically everybody else who is conscious. Hence I won’t venture farther into this territory. The only reason I even mentioned this is to quickly glance at the seat of the consciousness, the Brain. It may be a matter of debate even amongst the neuroscientists but consciousness is said to be somewhere in a small area of the brainstem - known as the rostral dorsolateral. The entire brain is composed of neurons and glial cells.

Did you ever wonder when a human embryo forms, how does it get decided that this cell becomes skin, some other forms a liver and some privileged cell gets to be the mighty brain?
I am sure we didn’t learn this bit in the school though. At least not me. But a quick search on Wikipedia enlightened me to the possibility of a mysterious process whereby some signaling molecules turn on certain genes and turn off others and thus settle who grows up to be a liver and who gets to be brain. 

If you recall, we started by saying that all the matter is made up of atomic elements which form molecules.  All the elements and all the molecules on their own are inanimate. The Famous Five of Carbon, Hydrogen, Nitrogen, Sulfur and Phosphorous form the Molecules of Life, the Proteins, the Lipids, the Carbohydrates and the Nucleic Acids. These four together somehow become animate. Furthermore, some luckier amongst them get to be rostral dorsolateral and suddenly become conscious of their own existence. And finally, whether a molecule is a Lipid or a Protein or a tungsten carbide, they all obey the same laws of physics. No, we are not now going to study any laws of physics in this post.

The real question of this article is how come these inanimate molecules first form life and then somehow make a living being conscious of itself? How come they get properties which are bigger than themselves? In fact they get properties which they never possessed individually.

Is it also true for sapiens species as a whole what is true for organisms? Can individuals come together and form larger groups and organizations which are bigger than sum of the parts? Can we acquire properties and characteristics which individually no one possessed?

Take a look around us. Environment is degrading fast. Fossil fuels will disappear in a century or two. Race played havoc in the 20th century and religious fervor is debasing humanity in the 21st century. It is assumed that the nature wiped out the Dinosaurs.  But with exploding populations, depleting resources and access to deadly weapons we won’t need nature to that job for us. Humans always waged wars over wealth and territory but the weapons of mass destruction in the hands of Sapiens today can make the whole species extinct.

To the best of our knowledge the Earth is the only celestial body which supports life. Can we – seven billion humans - wake up collectively and come together to form a common race of Homo Sapiens which has qualities far superior than individually any of us possesses? Will this race figure out a way to preserve itself and allow the nature to continue to support Life as long as the Earth rotates?

The choice is ours. Like those Molecules of Life, some of us might just get it right.

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