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Financial Sector

Blockchain for Development: A Handy Bluffers’ Guide

Duncan Green's picture

Top tip: if you’re in a meeting discussing anything to do with finance, at some point look wise and say ‘you do realize, blockchain is likely to change everything.’ Of course, there is always a terrifying chance that someone will ask what you actually mean. Worry not, because IDS has produced a handy bluffer’s guide to help you respond. Blockchain for Development – Hope or Hype?, by Kevin Hernandez, is the latest in IDS’ ‘Rapid Response Briefings’ series, (which itself is a nice example of how research institutions can work better around critical junctures/windows of opportunity). It’s only four pages, but in case even that is too onerous, here are some excerpts (aka a bluffer’s guide to the bluffer’s guide).

‘What is blockchain technology?

At its heart, the blockchain is a ledger. It is a digital ledger of transactions that is distributed, verified and monitored by multiple sources simultaneously. It may be difficult to think of something as basic as the way we keep and maintain records as a technology, but this is because record-keeping is so ingrained in daily life, albeit often invisibly. The ubiquity of ledgers is in part the reason why blockchains are held as having so much disruptive potential. Traditionally, ledgers have enabled and facilitated vital functions, with the help of trusted third parties such as financial institutions and governments. These include: ensuring us of who owns what; validating transactions; or verifying that a given piece of information is true.

Want to empower women? Digital Financial Services are the way to go!

Duncan Green's picture

Sophie Romana (left) and Shelley Spencer (right) report back from the June 8 high level roundtable organized by NetHope and USAID, which brought together mobile banking and gender champions to reflect on how Digital Financial Services (DFS) can galvanize women’s empowerment.

Women’s empowerment is often measured by their access to resources and ability to make decisions over how they are used.  Recent evidence shows that DFS delivered through mobile phones deserves solid A's against each metric. This is not just hopeful musing by us as two empowered women with banking apps on our mobile phones, it is the consensus of a cross section of thought leaders with a seat at the table in Washington including USAID, the Bill & Melinda Gates Foundation, the Better than Cash Alliance and UNCDF, CGAP, and Women for Women International, as well as our own organizations, Oxfam and NetHope.  We recently spent a morning reflecting on rigorous academic and implementation research on DFS use by women — all to be published soon — and pathways to close the gender gap in DFS product use.

Oxfam has long known that women play a central role in financing family and community needs. What we are now finding is that DFS tools can enhance their role.  To study the impact of DFS on Saving for Change (SfC) savings groups in Senegal, Oxfam divided up 210 SfC groups (over 5,000 women) into 2 cohorts: one who participated in the project and the other as a comparison set.  Women who participated in the pilot saved and borrowed more than the comparison groups. The differences are not marginal.  There is a significant difference in savings.

 
Graphs: Saving for Change Mobile Banking, First Assessment & Learning Review, March 2016, Oxfam America

How Buddhist tax accountants and whistle blowers can change the world

Duncan Green's picture

Max Lawson is back again (he seems to have more time to write now he’s Oxfam International’s policy guy on inequality) to discuss tax morality and a bizarre encounter with a Buddhist accountant.

A few years ago I went on a hiking holiday with a number of people I didn’t know, and ended up befriending a tax accountant. He was a very nice man, who had been going through a bit of a mid-life crisis, his children had grown up and left home, his wife was not very interested in him, and he had developed an interest in Buddhist philosophy. Anyhow, after a few days, he revealed to me that over the last five years he had started defrauding a firm he had been working for, to the tune of several million pounds a year. He was not taking the money for himself, but was abusing their trust in him, by not telling them about the latest tax avoidance schemes, meaning that they were systematically overpaying tax to the government.

I was reminded of this surprising suburban Robin Hood figure by the rash of stunning leaks on tax prompted by the whistle-blowers of the last couple of years, starting with the Luxleaks, then Swissleaks, and then the mother of all leaks, the Panama Papers. All have involved incredibly brave accountants or bankers risking a huge amount to get this information into the public domain. The two former employees of PricewaterhouseCoopers who leaked information on tax breaks for major corporates such as Apple, Ikea and Pepsi in the Luxleaks case are facing years in prison. The Swiss Leaks whistleblower has been sentenced to six years in prison in Switzerland in absentia. Finally, the Panama Papers whistle blower has wisely remained anonymous but I imagine is being hunted by a range of private security firms.

I can only guess at the panic in the boardrooms of the investment banks and particularly at the big four accounting firms – Deloittes, PwC, KPMG and Ernst & Young, who between them have almost complete oversight over the business of aggressive tax planning by the major corporations. But no amount of security software can fully protect any firm from increasing numbers of employees no longer feeling morally comfortable with what they are doing, as ultimately the secrecy of the system is dependent on those that run it being able to look in the bathroom mirror in the morning and feel OK about their lives.

Quote of the Week: Tidjane Thiam

Sina Odugbemi's picture

Tidjane Thiam"You can commit to what you control; if you commit to what you don’t control, you are just a fool.”

Tidjane Thiam, in response to criticism of his new plan for Credit Suisse. Rather than dramatic restructuring seen at other banks, Credit Suisse will reduce the amount of risk-weighted assets by about a fifth and raise equity through a combination of increasing capital by $6.3 billion from sales of shares, scaling back investment banking, slashing costs and a modest shake-up among senior management.

Thiam is a French Ivorian businessman and former politician who became the Chief Executive of Credit Suisse in June 2015. Born in Côte d'Ivoire, he holds dual Ivorian and French citizenship.  

No Money, No Worry

Maya Brahmam's picture

Rafu, the chief of the fishing villageThe World Bank recently completed two surveys that confirm that large global banks are restricting or terminating relationships with other financial institutions and that banking services for money-transfer operators have become increasingly limited.

The risk is that a decline in correspondent banking services can lead to financial exclusion, particularly for remittance providers – poor people working in richer countries who send money home to their families in poorer countries. To a large extent, these restrictions have come about because of worries about money laundering or financing for terrorism and less appetite for risk.

However, there are alternatives. Mobile money is a fast-growing alternative to traditional banks. CBS’s Lesley Stahl recently reported on how MPesa has transformed financial inclusion in Kenya, where people- many of them poor- do most of their financial transactions via cellphone and outside of traditional banking systems.  She also pointed out that tech giants like Google, Facebook, PayPal and Apple are all exploring this new consumer market, where sending money can be as simple as sending a text message. Also, according to the Financial Times, mobile money is making serious inroads in Latin America, where 37 mobile money services are now operational across 19 countries. Unlike the experience of Africa, Latin Americans are using mobile money to support urban middle-class lifestyles.

The things we do: How your mobile phone records can predict your creditworthiness

Roxanne Bauer's picture

Jinotega, NicaraguaRisk is a financial term that can mean life or death for a budding entrepreneur.  Many entrepreneurs need to take out loans from banks in order to have enough money to start their businesses.  Banks, though, need to be able to reliably determine which of these potential entrepreneurs will repay the loans and which will default. In developed countries this is usually accomplished through credit reports, which contain an individual’s credit history as reported to a credit bureau by lenders. This system, however, can be problematic in developing countries where many people do not have bank accounts, don’t interact frequently with formal institutions, or are paid informally in cash.  As a result, banks often lack verifiable information on the probability that a loan applicant will be successful. 

Interestingly, one set of data that is available in most countries is mobile phone records.  By the end of 2015, there will be more than 7 billion mobile cellular subscriptions, with a penetration rate of 97%, up from 738 million in 2000.  Due to the incredible market saturation of mobile phones and the ability of mobile phone operators to keep records of call activity (even with prepaid plans), operator records can provide rich information about individual behavior and social networks.  For example, phone records indicate whether or not an individual keeps their balance top-upped so that they can make calls in case of an emergency, how many people they call during the day, how long their calls last, and so on.

Daniel Björkegren, an economist at Brown University and Darrell Grissen of the Entrepreneurial Finance Lab (EFL) wondered whether these phone records could reveal insights into an individual’s behaviors that could be applied elsewhere- specifically whether this information could determine an individual’s creditworthiness.

Quote of the week: Ben Bernanke

Sina Odugbemi's picture

Ben Bernanke“Individually rational behaviour can be collectively irrational. And that’s why the regulators have to do what they can to constrain individual behaviour, so that it doesn’t lead to collectively irrational outcomes.”
 

- Ben Bernanke, an American economist currently working at the Brookings Institution. He served two terms as chairman of the Federal Reserve, the central bank of the United States, from 2006 to 2014. During his time as chairman, Bernanke oversaw the Federal Reserve's response to the late-2000s financial crisis. Bernanke wrote in his 2015 book, The Courage to Act, that the world's economy came close to collapse in 2007 and 2008 and that it was only the innovative efforts of the Federal Reserve, in cooperation with other agencies and agencies of foreign governments, that prevented an economic disaster greater than the Great Depression.  Prior to serving as chairman of the Federal Reserve, Bernanke was a member of the Board of Governors of the Federal Reserve System from 2002-2005 and proposed the Bernanke Doctrine concerning the source of deflation.  

Is a ‘populist’ a shameless demagogue?

Sina Odugbemi's picture

If you maintain even a nodding acquaintance with the contents of the global financial/business press one of the things you notice is as follows. They all promote, consciously or unconsciously, a set of policies that ‘responsible’ governments should follow if they want to stay within The Grid. And The Grid is the set of rules and norms that allow access to pools of global capital.  Stay within, and money flows into your country; get kicked out, and money dries up. Now, for countries facing financial crisis, or those simply concerned about growing inequality, the worries about the devastating impact of austerity are real. Yet, the masters of the universe who control The Grid don’t give two hoots about equity, jobless youths or hungry pensioners. They simply say to these countries: “Do what you need to do to stay within The Grid or you are going to find your economy, your country languishing in the wastelands. Your call.”
 

​The Things We Do: Is the Culture of Banking Dishonest?

Roxanne Bauer's picture

Despite its relevance to the broader economy of states, there exists little empirical information on the culture of the banking industry. Identifying the effects of business culture poses several challenges because comparing employees in one sector to those in another can be misleading. Some professions may naturally attract different kinds of people, making it tricky to separate cultural factors from individual ones. Moreover, the financial industry is broad and comprised of many different kinds of businesses and institutions, with some more focused on the consumer and others more focused on fiscal details.

Attempting to shed light on the subject, academics from the University of Zurich designed an experiment inspired by the economic theory of identity.  Identity economics states that economic choices are not only based on personal taste but also on what an individual considers to be appropriate.  Whether a choice is appropriate or not depends on a person’s social identity– their sexual orientation, race, religion, occupation, or where they live.

In the experiment, 128 employees from an international bank, with an average of 11.6 years of experience in the financial sector, were split into two groups. About half of the participants worked in a core business unit, like private banking, asset management, trading, or investment management.  The other half worked in support units like human resources or administration. They were randomly assigned to a treatment or control group.

Media (R)evolutions: The Cloud and the Connectivity Revolution

Roxanne Bauer's picture
New developments and curiosities from a changing global media landscape: People, Spaces, Deliberation brings trends and events to your attention that illustrate that tomorrow's media environment will look very different from today's and will have little resemblance to yesterday's.

For many people, "the cloud" is a nebulous term, but it simply refers to software and services that operate on the Internet instead of directly on a computer. Dropbox, Netflix, Flickr, Google Drive, and Microsoft Office 365 (a/k/a Outlook) are all cloud services-- they do not need to be installed on a computer.

According to a report by Gartner, one third of digital data will be in the cloud by 2016. Cloud computing is an attractive option for many entrepreneurs, businesses, and governments in developing countries that seek to service large populations but which require an alternative to heavy ICT infrastructure. Moreover, as mobile apps and PC software are increasingly tied to the cloud, its adoption is likely to increase.  

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