Abstract

On November 6, 2016, Prime Minister Narendra Modi demonetized the 500 rupee and 1000 rupee notes, making over 80% of the value of all bills in circulation invalid. While this obviously led to considerable confusion and unrest in India, it also threw investors and actors in the financial inclusion field into disarray. As an impact investing firm with a mission of ensuring social returns, Quona Capital’s investments became especially vulnerable to the changes permeating the Indian economy. Tasked with developing a framework to determine market level indirect impact assessment using the case study of NeoGrowth, a portfolio client of Quona, the SAIS Quona team embarked on a two-week trip to Bandra West, Mumbai. In Mumbai, we spoke with over 20 merchants, met with industry leaders, and researched the implications of demonetization on the Indian economy as a whole. With the merchant interviews, we discovered a wide variety of opinions on the government’s actions. Given demonetization’s main purpose of turning the Indian economy into a cashless society, electronic payment systems (EPS) have emerged as dominant forces at the forefront of the transformation. As a result, financial literacy has become a critical element of facilitating the adoption of the EPS and other forms of financial technology. From our surveys, we found that although many merchants had Point of Sale (POS) machines, they did not have the education necessary to use these machines. Additionally, many did not know how to best leverage their existing financial resources: opening numerous bank accounts and keeping some dormant. Another key finding was that while the move prompted the economy to contract in the short-term and many vendors complained of business losses nearing 70%, Prime Minister (PM) Modi has remained extremely popular. In elections, after demonetization, in the most populous state of India, Uttar Pradesh, and Modi’s BJP party kept its significant majority. In order to analyze the impact of demonetization, we focused our research on a company called NeoGrowth, which is one of Quona’s two portfolio companies in India. By providing loans to micro, small, and medium sized business owners, NeoGrowth’s mission fits within Quona’s overall goal of expanding financial inclusion in India. Examining NeoGrowth business practices allowed us to analyze how financial inclusions efforts would be impacted and how they could be improved upon. Furthermore, we looked at how Neogrowth measured impact before demonization, which focused mainly on the social indicators, providing recommendations to look at market impact. By implementing a market-impact analysis framework, referred to as the “Growth Trifecta,” we identified three categories of activities which can measure market impact: knowledge sharing, industry leadership, and innovation. Implementing activities that fall within these three categories can help ensure NeoGrowth’s market impact moving forward in post-demonetization India.