In 2016, the Indian government made headlines across the world when, in a controversial and surprising attempt to cut back on the amount of physical cash being used, it banned two of the country’s highest-value notes.
The Rs500 and Rs1,000 notes accounted for nearly 86% of the currency in circulation. The policy, which required the old notes to be deposited back into banks before the new notes were available, was a logistical nightmare.
Demonetization was intended to encourage more digital transactions and cut down on unaccounted wealth. But in a cash-dependent country like India, the dearth of currency notes proved deleterious, resulting in long lines at bank branches and ATMs, and even some deaths. Critics from within and outside India bemoaned prime minister Narendra Modi’s misconceived policy.
“For us, life went on as usual.” Far away from this chaos, in a sleepy, nondescript village in Gujarat, Modi’s home state, life went on as usual. There were no queues at the lone ATM or the bank branch in Akodara, a town of just 1,200 nearly 100 km from the state’s capital city of Ahmedabad.
“We saw the situation in the rest of India, long lines, fights—everyone’s life had come to a stand still. We were amazed,” says Urmila Ben, a resident of Akodara. “People had made such a big deal out of this whole demonetization, but we could not be bothered any less,” says Chintan Patel, the sarpanch, or head of the village. “For us, life went on as usual.”
In 2015, a year before the controversial note ban, Akodara embarked on an attempt to become India’s first “digital village.” It participated in a public-private initiative between the government and ICICI Bank, one of the country’s largest lenders, to test how successfully 100 rural towns could be taught digital literacy in order to process more aspects of their life, including their finances, online.
It has not been easy for the residents of the village to ditch their old habit of using cash, but the experiment in Akodara was successful. So in 2016, the bank announced that it will take 100 more villages on a digital journey. That fits into the country’s larger agenda; India is pushing its citizens to adopt formal banking channels and use digital money to make lives easier for its citizens and to boost the country’s economic growth.
What are digital villages?
Bringing more Indians into the banking fold has been a goal of the Modi government for several years. In 2015, the same year the experiment in Akodara started, PriceWaterhouseCoopers India estimated that there were 233 million unbanked people in India. Unbanked Indians often find themselves at the mercy of loan sharks and moneylenders, ultimately leading them to be trapped into debt.
In line with the government’s vision to make India less cash-dependent, ICICI Bank launched its digital villages project in January 2015, selecting Akodara as its first test site.
The relatively prosperous village was well-positioned to dive into the world of fintech. It is situated just 10km from Himatnagar, the administrative capital of Gujarat, which meant it had good mobile connectivity. It was also well-connected geographically, which allowed people in the village to occasionally order goods online. Its high literacy rate and concentration of teachers also helped. The idea of going digital was not completely alien to everyone and was embraced with much enthusiasm.
ICICI Bank aimed to transform the lives of village residents by first introducing cashless banking, so it set up every adult in the village with a bank account and taught them how to conduct financial transactions online.
But it also wanted to digitize other aspects of their lives, a bank spokesperson explained. The bank set the village up with its WiFi system. It provided a digital tracking and payment solution for the village’s milk cooperative society, a major source of income for the village. And it trained some of the women in the village in agriculture, dairy, composting, equipment repair, hand embroidery, dress design, and sandstone cutting. Some were then given loans from the bank to start small businesses.
“Now they can see things and can then grasp things quickly.” At Akodara’s primary school, children learn about complex scientific experiments using visual aids like YouTube videos, instead of rote learning from textbooks, as is common in many Indian schools. The classrooms feature ICICI-provided projectors and computers to help students navigate the difficult lessons. “Earlier what we taught them was all just talk,” said Bhavesh Patel, a teacher at the school in Akodara. “Now they can see things and can then grasp things quickly.”
Children in the village’s anganwadi (preschool) also have access to a TV with pre-recorded programs to give them a sneak peak into other worlds. “It has helped immensely and we use it very regularly,” said caregiver Kapila Ben, while trying to calm a few wailing children on the first day of school after summer vacation.
How has life changed?
Life in Akodara today is different than it was before the village went digital. Before 2015, cash was dominant. A few villagers had bank accounts, but since the advantages of using a formal channel weren’t well understood, they continued to rely on informal banking methods.
Today, throughout most of the country, online transactions are still extremely uncommon, even in urban areas. But at Akodara’s small shops, residents can buy basic goods like snacks and toiletries with mobile money. Everyone in this small village knows the importance of using formal banking channels and is excited to do it. Villagers also say that having digital bank accounts has also encouraged them to save more. To implement this change in such a small town, where literacy levels are lower and people are not tech savvy, has been a rare feat.
However, as much as this project has benefitted Akodara, it’s been challenging to maintain momentum, and the village remains heavily reliant on ICICI for support. For instance, three out of the six projectors given to school lie unused because the school is waiting on funds from the bank to update their operating systems.
Getting rid of cash altogether has also been a hard habit to break. A cursory check at small shops revealed that many people still pay in cash, especially for small purchases. One shopkeeper said customers find it more convenient to pay cash than to have to go through the process of using their phones. Some villagers also said that mobile connectivity issues and force of habit mean people haven’t abandoned cash entirely.
Dedicated to the goal of going completely digital, bank and shopkeepers are now envisioning more rewards to try to get people to go cash-free.
Vipul Patel is the owner of Keshav mall, a relatively new, small supermarket where consumers can pick up the goods that they want to buy and place it in a basket. This is nearly unheard of in small villages like Akodara, where people typically have their orders processed by shopkeepers. Patel plans to install a credit or debit card reader to encourage residents to swipe their cards and to offer cashback rewards for digital transactions.
Patel estimates that about four or five in every 10 transactions at his store are cashless—extraordinarily high for a village.
A less cash-dependent society might be good for India’s treasury and banks, as it reduces the burden of printing, storing, and transporting hard cash. For individuals, it could mean convenience and assurance that their money is safe.
However, digital money can also be a double-edged sword.
Globally, cash deserts have sprung up in areas where physical money has been completely sucked out of the system, which risks leaving behind the economically weaker parts of society. In some places, digital transactions have become so successful that governments are looking at ways to re-introduce paper bills to ensure that residents with fewer means are still able to participate in the economy.
This is a pain point that India can identify with. It’s estimated that the more financially vulnerable were the worst affected during the note ban of 2016 (the policy also didn’t work: the amount of cash being used is back to pre-demonetization levels). Even though it is decades away from becoming a truly cashless economy, the country needs to tread with caution.
Smartphone availability, the increased availability of cheap data, and rising e-commerce are expected to boost digital growth in the coming years. The Indian government now hopes to create 100,000 digital villages across the country over the next five years.
People in Akodara are acutely aware that being India’s first digital village has put them in the spotlight. As a result, they are in the fight to let go of cash. Their success will speak volumes about the benefits and risks associated with a move towards cashlessness in India, and in cash-dependent societies the world over.