EVALUATINGMARKETIMPACTONFINANCIALTECHNOLOGYINADEMONETIZEDINDIAETHANGREEN,ORNELLAKAZE,ANIKETMAITRA,ANDGREGWEISSMAN

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TableofContentsPrefaceandAcknowledgements........................................................................................3 SAISTeamBios....................................................................................................................4 ExecutiveSummary.............................................................................................................5 Section1:Introduction.......................................................................................................6 1.1 OverviewoftheIndianEconomy....................................................................................7 1.2 FinancialInclusioninIndia.............................................................................................7 1.3 DemonetizationandFinTech...........................................................................................8

Section2:ResearchSummaryandResults.....................................................................11 2.1 ResearchObjectiveandHypothesis..............................................................................12 2.2 Methodology....................................................................................................................12 2.3 Results:StakeholderInterviews...................................................................................14 2.5 Conclusion.......................................................................................................................19

Section 3: NeoGrowth and Social Impact...........................................................................21 3.1 NeoGrowthBackground.................................................................................................22

Section4:TheGrowthTrifectaandCaseStudy..............................................................24 4.1 ImpactAssessment.........................................................................................................25 4.3 GeneralApplicabilityandFunctionality.......................................................................28 4.4 ApplyingtheModel:NeoGrowth...................................................................................30

Section5:Recommendations...........................................................................................35 5.1 RecommendationsforQuonaCapital...........................................................................36 5.2 RecommendationsforNeoGrowth................................................................................36

Bibliography......................................................................................................................37

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PrefaceThis report is the culminationof a one-year longPracticumProgramcoordinatedby theInternational Development program at Johns Hopkins School of Advanced InternationalStudies (SAIS). For this course, Master’s candidates in International Development andEconomicsareassignedtoteamsandlinkedwithpublic,private,andnon-profitentitiesinorder to develop and execute a research program comprised of both desk and fieldresearch, providing the opportunity for students to gain practical on-the-groundexperience.Ethan Green, Ornella Kaze, Aniket Maitra, and GregWeissman were paired with QuonaCapital, a leading impact investing firm based in Washington D.C. Quona invests incompaniesinthefinancialservicessectorinemergingmarketsinordertoexpandaccesstoand enhance technology, distribution, and financial services in order to deepen financialinclusionincountriesmostinneed.Inearly2017,Quonaraisedover$140millionfortheAccionFrontierInclusionFund,whichitmanages,inordertocontinueitseffortstoexpandfinancialinclusionthroughinvestingincompanieswhichdriveaccesstoandadvancementsinfinancialtechnology(FinTech).

AcknowledgementsTheSAISTeamwishestoacknowledgeandthankDr.TanviNagpal,AlisonHarwood,theQuonaCapitalteam,TusharThakkar,NishBhutani,andIDEVProgramCoordinatorsAdaHoandNicoleKaziwithoutwhomnoneofthiswouldhavebeenpossible.

PrefaceandAcknowledgements

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EthanGreenisoriginallyfromRochester,NYandhasoverfiveyears’experienceworkingin development in a wide range of contexts: Sub-Saharan Africa, the MENA, anddomestically. He served as a Community Development volunteer with the Peace CorpsSouthAfricaCommunityHIV/AIDSOutreachProjectaftergraduating fromtheUniversityof Rochester in 2010. Prior to attending SAIS, Ethan worked for Education ForEmploymentas theProgramAssociate forPalestineandYemen. He currentlyworks forEveryoneOn,anationalnonprofitseekingtoclosethedigitaldivideastheInnovationandPartnerships Fellow where he leads efforts to engage with the private sector. Email:egreen48@jhu.eduOrnellaKazeisoriginallyfromBurundi,shehaslivedinNorthernVirginiasincemovingtotheUS.PriortoattendingSAIS,shemajoredinMarketingandFinanceatVirginiaTech.IntheSummerof2016,sheinternedintheManufacturing,Agribusiness,andServicessectorat the IFC and assessed the viability of private-sector investment projects—with anemphasis placed on promoting sustainability and financial inclusion for women’s cocoacooperativesinCoted’Ivoire.Aftergraduation,shewouldliketopursueacareerinprivate-sectordevelopmentinSub-SaharanAfrica.Email:okaze1@jhu.eduAniketMaitra isoriginally fromTucson,Arizonaandattended theUniversityofArizonamajoring in International Studies minoring in Latin American Studies and Pre-MedSciences.Aftergraduatingfromcollege,hespenttimeworkinginlocalgovernmentattheArizonaStateSenateasaDemocraticPartypolicy internandworkingasamath tutoratForemanHigh school through a University of Chicago pilot program. This past summer,Aniket internedatTeleGeography,a telecommunicationsmarket researchandconsultingfirm, performing market research observing the nexus between operators, sites, andbandwidth providers of data centers around the world. After graduation, he will beworking for EY as a Transfer Pricing Consultant in their New York City Office. Email:amaitra4@jhu.eduGregWeissman iscurrentlyaMasterscandidateattheJohns’HopkinsUniversitySchoolof Advanced International Studies. From Bethesda, Maryland, Greg attended TulaneUniversity in NewOrleans, Louisiana and then served as a TEFL volunteer in the PeaceCorps (Cameroon, 2013-15). After SAIS, Greg would like to pursue internationaldevelopment,specifically,impactinvestingintheprivatesector.Email:gweissm2@jhu.edu

SAISTeamBios

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On November 6, 2016, Prime Minister Narendra Modi demonetized the 500 rupee and1000rupeenotes,makingover80%ofthevalueofallbillsincirculationinvalid.Whilethisobviously led to considerable confusion and unrest in India, it also threw investors andactors in the financial inclusion field into disarray. As an impact investing firm with amission of ensuring social returns, Quona Capital’s investments became especiallyvulnerable to the changes permeating the Indian economy. Tasked with developing aframeworktodeterminemarket level indirect impactassessmentusing thecasestudyofNeoGrowth,aportfolioclientofQuona,theSAISQuonateamembarkedonatwo-weektriptoBandraWest,Mumbai.

InMumbai,wespokewithover20merchants,metwithindustryleaders,andresearchedtheimplicationsofdemonetizationontheIndianeconomyasawhole.Withthemerchantinterviews,wediscoveredawidevarietyofopinionsonthegovernment’sactions.Givendemonetization’s main purpose of turning the Indian economy into a cashless society,electronicpaymentsystems(EPS)haveemergedasdominantforcesattheforefrontofthetransformation.Asa result, financial literacyhasbecomea critical elementof facilitatingtheadoptionoftheEPSandotherformsoffinancialtechnology.From our surveys, we found that although many merchants had Point of Sale (POS)machines, theydidnothavetheeducationnecessarytousethesemachines.Additionally,many did not know how to best leverage their existing financial resources: openingnumerousbankaccountsandkeepingsomedormant.Anotherkeyfindingwasthatwhilethe move prompted the economy to contract in the short-term and many vendorscomplained of business losses nearing 70%, Prime Minister (PM) Modi has remainedextremelypopular.Inelections,afterdemonetization,inthemostpopulousstateofIndia,UttarPradesh,andModi’sBJPpartykeptitssignificantmajority. Inordertoanalyzetheimpactofdemonetization,wefocusedourresearchonacompanycalledNeoGrowth,whichisoneofQuona’stwoportfoliocompaniesinIndia.Byprovidingloanstomicro,small,andmediumsizedbusinessowners,NeoGrowth’smissionfitswithinQuona’s overall goal of expanding financial inclusion in India. Examining NeoGrowthbusiness practices allowed us to analyze how financial inclusions efforts would beimpacted and how they could be improved upon. Furthermore, we looked at howNeogrowth measured impact before demonization, which focused mainly on the socialindicators,providingrecommendationstolookatmarketimpact.

By implementing a market-impact analysis framework, referred to as the “GrowthTrifecta,” we identified three categories of activities which canmeasuremarket impact:knowledgesharing, industry leadership,and innovation. Implementingactivities that fallwithinthesethreecategoriescanhelpensureNeoGrowth’smarketimpactmovingforwardinpost-demonetizationIndia.

ExecutiveSummary

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Section1:Introduction

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1.1 OverviewoftheIndianEconomyIndia began the process of economic liberalization over 25 years ago. In the summer of1991, Dr. Manmohan Singh (who would later become the Prime Minister) quoted thefamouslinefromVictorHugo,“Nopoweronearthcanstopanideawhosetimehascome,”alluding to the economic changes that would take place as India moved forward.1Liberalization became a central platform of Indian policy andwas designed to decreasegovernmentinterventioninbusiness,pusheconomicreforms,openthecountryuptotheglobaleconomy,discouragemonopolies in thepublicsector,andpromotecompetition inthemarket.2Sincethattime,IndiamaintainspositiveGDPgrowthratesandwithaGDPofalmost $9 trillion, India is one of the world's largest economies (behind China and theUnitedStatesintermsofPurchasingPowerParity).3

1.2 FinancialInclusioninIndiaIndia continually prioritizes financial inclusion through partnerships with organizationssuch as the Alliance for Financial Inclusion—a global organization which providespolicymakers with financial inclusion enhancing strategies that specifically targetimpoverished citizens. As of 2014, India held nearly 21% of the global unbankedpopulation.Giventhatnearly65%of the Indianpopulationhasaccess toanaccountataformalfinancial institution,therankingreferringtothecountry’sunbankedpopulationisrelativeinnatureandmaybepartiallyattributabletoIndiabeingtheworld’ssecondmostpopulatedcountrywithapopulationof1.3billionpeople.4Withamobilepenetrationrateof47%in2015,Indiaishometotheworld’ssecondlargestmobileconsumerbase.Bytheyear2020, thisvalue ispredictedtoriseby21percentagepoints.5On the digital inclusion front, this level of growth presents an opportunity forIndian Financial Technology (FinTech) firms by providing themwith a broader channelthroughwhich theymayreach theirmarketbase. Inaneconomywherecash isking, thepushtowardsdigitalfinancialinclusionwillneedtoemphasizethevalueofdigitalservicesinordertoalterthedeep-rootedpracticeofusingcashasaprimaryformofpayment.The fundamental challenge of inclusivity in India lies in rural areas where 70% of thepopulation currently reside. 6 Investments in infrastructure to enhance access andconnectivity tomobilenetworkswill facilitate theprocessofproviding financial servicesforIndia’sgeographicallydisadvantagedcitizens. 1“Profile Manmohan Singh,” BBC, accessed May 8, 2017, http://www.bbc.com/news/world-asia-india-197001412 “25 years of liberalization: A glimpse of India’s growth in 14 charts,” Firstpost., accessed April 17, 2017, http://www.firstpost.com/business/25-years-of-liberalisation-a-glimpse-of-indias-growth-in-14-charts-2877654.html3“Country Comparison,” CIA World Factbook, accessed April 17, 2017, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html4GSMATheMobileEconomy:Indiapg235GSMATheMobileEconomy:Indiapg46GSMARuralCoverageIndiaCaseStudy

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Inaneffort to improve therateof financial inclusion, India’sgovernmenthas introducedthefollowingreforms:

• Pradhan Mantri Jan-Dhan Yojna (Prime Minister's People’s Money Program): apublicinitiativethatbeganin2014toincreasefinancialservicesbyprovidingeveryhouseholdwith a bank account. The program has created over 200million newbankaccountsnationwide,howeverusageoftheseaccountshavebeenstymiedbythe population’s lack of financial literacy, a dearth of ATMs, and a preference forusingcash.7

• Aadhaar: launched in 2009, Aadhaar provides each resident of India a 12-digitidentificationnumberlinkedtobiometricdata.Sinceitsinception,nearly97%oftheIndian population has been issued an Aadhaar number, which has profoundimplicationsforfinancial inclusioneffortsduetoitsabilitytostreamlinecustomeridentification.

• Unified Payment Interface (UPI): a mobile application that generates a VirtualPaymentAddress(VPA)whichisthenlinkedtoabankaccount,facilitatingpeer-to-peerpaymentsortransfersacrossbanks

• IndiaStack: a setof apps that enablegovernmententitiesor theprivate sector toaccess India’s Aadhaar records in order to facilitate the creation of new digitalfinancialservices.

Additionally, in2015, the Indian government approved the creationof twonewbankingmodels,PaymentandSmallFinancebankswhichwouldallownon-bankingentities,undersupervision of the Reserve Bank of India (RBI), to provide basic financial services andsmall-balanceloans,respectively.

1.3 DemonetizationandFinTechDemonetizationisdefinedasstrippingacurrencyunitofitsstatusaslegaltender.Moneyispulled from circulation and replaced with new notes/coins, or the central bank simplyimplementsanewcurrencybill. It isgenerallymeanttocombat inflation,corruptionandcrime,discourageacash-dependenteconomy,andfacilitatetrade.OnNovember8,2016,inaspecialaddresstothenation,PrimeMinisterModiannouncedthedemonetizationofthe500rupeeand1,000rupeenoteswhichwouldbereplacedbynew500rupeeandanew2,000rupeenotes.Thisprocessrendered86%of thevalueofcurrencyand24%of totalexistingnotesincirculationinvalid.8ThePrimeMinistergavepeopleatwo-monthwindowuntil theendofthe2016toconverttheirexistingcurrencytonewcurrencyordeposit itintoabankaccount,preferablyonecreatedunderPMJDY.DemonetizationwasashocktoIndia’seconomythathadmanyfinancialanalystsspeculatingaboutthereactionofcapitalmarkets,bankinginterestrates,andpoliticalimplicationsintheshort-term.

7WorldBankDatabase8“Are banks equipped to replace 2,300 crore pieces of Rs 500 and Rs 1,000 notes,” Indian Express, accessed April 17, 2017, http://indianexpress.com/article/opinion/web-edits/rs-500-rs-1000-notes-are-banks-equipped-to-replace-1874-crore-pieces-of-notes-4364746/

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Despitemanyoftheworriescausedbydemonetizationintermsofeconomicforecastsandhowfinancialmarketswouldreacttothenewsofthedemonetization,Indiahasweatheredtheinducedshocktotheeconomywell.WhiletherewerereductionsinthemajorindicesoftheBombayStockExchangeandtheNationalStockExchangeofIndia,thelatestreportsputIndia’sgrowthrateat7%inthe lastquarterandcreditratingsagenciessuchasMoody’sdidnotlowerIndia’screditratings.9101112Fallsinthestockmarketthatwereassumedtobecaused by demonetization may, in reality, have been due to other factors including theelectionofDonaldTrumpandthestrengtheningoftheUSdollar.13Many institutions such as Moody’s and the International Monetary Fund predicted thattherewouldbeadeclineincorporateactivity,lowersalesvolumes,andreducedcashflows,withbusinessesexposedtoretailsalesimpactedthemost.However,itwasalsopointedoutbyanalystsatMoody’sthattherewouldbepositivechangessuchasgrowthingovernmentrevenues, improvement in operations in India by improving speeds at whichmanufacturersreceivepayments,andreductionsincorruption.14Evenwithlargechangesin themoneysupply, the centralbankof India, theRBIkept repurchase interest ratesat6.25%throughouttheperiodandafterward,citingissuessuchasinflationwhichappearedto bemore pressing than demonetization.15The government’s rationale for carrying outdemonetization was to eradicate counterfeit currency, fight tax evasion (1% of thepopulationpaysincometax),eliminateblackmoneyfrommoney-launderingandterroristfinancing activities, and to promote a cashless economy and spur financial inclusionthroughtheuseoffinancialtechnology.16

9“NIFTY: IND,” Bloomberg, accessed May 7, 2017, https://www.bloomberg.com/quote/NIFTY:IND10 “Sensex crashes 1,689 points on black money crackdown, U.S. election,” accessed May 7, 2017, http://www.thehindu.com/business/markets/Sensex-crashes-1689-points-on-black-money-crackdown-U.S.-election/article16440924.ece11 “Moody’s Affirms India’s Baa3 Rating: Maintains Positive Outlook”, Moody’s, accessed May 7, 2017, https://www.moodys.com/research/Moodys-Affirms-Indias-Baa3-Rating-Maintains-Positive-Outlook--PR_35643712 “India GDP Growth Beats Expectations in Q4,” Trading Economics, accessed May 8, 201713“How much has demonetization affected the stock market?”, LiveMint, accessed May 7, 2017, http://www.livemint.com/Money/hRb1noUQV17fmP0o1GNQEJ/How-much-has-demonetisation-affected-the-stock-market.html14“Moody’s: India’s demonetization has mixed impacts on sovereign, banks, and corporates,” Moody’s, accessed May 7, 2017, https://www.moodys.com/research/Moodys-Indias-demonetization-has-mixed-impacts-on-sovereign-banks-and--PR_35858415“Analysing RBI’s policies: Understanding the rationale behind unchanged repo rates,” The Indian Economist, May 7, 2017, https://theindianeconomist.com/rbi-unchanged-repo-rates/16“Demonetization,” Investopedia, accessed May 7, 2017, http://www.investopedia.com/terms/d/demonetization.asp

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WithregardtoFinTech,demonetizationcausedasurgeinusageofdigitalfinancialservicesnearly overnight as consumers struggled to adapt to an economy that was suddenlyunfriendly to the use of cash.1718 Although trends have since stabilized somewhat,developmentofnewdigitalbankingmodelssuchastheBharatInterfaceforMoney(BHIM)appwhichleveragethepowerofAadhaarandtheIndiaStackhavethepotentialtochangetheshapeoftheFinTechmarketinthefuture.Figure1presentshighlightsoftheimpactofdemonetizationonthreekeyFintechcompanies.

17Gupta, Komal. “Digital payment platforms record surge in transactions after demonetization.” LiveMint. November 2016.18Jain,Mayank.FinTechTracker:InAWorldOfBHIMAndUPI,MSwipeIsBettingOnTinyCardSwipeMachines.BloombergQuint.March4,2017.<https://www.bloombergquint.com/business/2017/03/04/fintech-tracker-in-a-world-of-bhim-and-upi-mswipe-is-betting-on-tiny-card-swipe-machines>

SINCEDEMONETIZATION

• 5xtrafficincrease• 3xsubscriptions• Onlinetransaction

valueup250%• Savedcardsup30%• 11xincreasein

eWalletbalances

eWalletDigitalPaymentPlatform

SINCEDEMONETIZATION

• 2.5xincreaseinmonthlysubscribers

• Projectsachievementof2019benchmarkby2017

ProviderofPOSMachines

SINCEDEMONETIZATION

• LaunchedDecember31,2016

• Over18milliondownloadssincelaunch

UPI-BasedPaymentPlatform

Figure1:KeyFinTechCompaniesinIndia

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Section2:ResearchSummaryandResults

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2.1 ResearchObjectiveandHypothesisOur project consisted of two interconnected goals. We were to assess demonetization’simpactonthefinancialinclusionlandscapeinIndiawithaparticularfocusonMicro,Small,andMediumEnterprises(MSMEs).Afterdoingso,wedeterminednewwaystosupportthedevelopmentandmeasurementofmarket-levelindirectimpactperformanceindicatorsforQuonaCapital’sportfoliocompanies.ResearchplansandsurveyswerebasedonQuonaCapital’stheoryofchangewhichstatesthatanincreasedsalienceofFinTechindevelopingmarketswilldeepenfinancialinclusionbyintroducingcost-effectivechannelsthroughwhichmarginalizedcitizenscangainaccesstofinancialservices.Givendemonetization’soverarchinggoaloftransitioningIndiaintoacash-less,digitaleconomy,ourresearchwasaptforidentifyingthelinksbetweenFinTechandfinancialinclusioninIndia.

2.2 MethodologyOurresearchwasconductedintheBandraWestregionofMumbai,IndiafromJanuary8thtoJanuary19th,2017.TheresearchsoughttoobtainprimaryqualitativedatawhichcouldinformQuonaofin-countryexperiencesthatcouldnotbegraspedthroughthequantitativedatareportedtothembytheirportfolioclients.Data was collected through a focus group with four impact investors and eleven semi-structured interviews with senior-level individuals at various organizations. Two of theinterviewswereconducteduponourreturntoWashington,DCtoretrieveupdatesonthechanges thathadoccurredsinceourdeparture fromIndia. Interviewsconsistedofopen-ended questions from an interview guide compiled by our team. Stakeholder interviewsoccurred lasted 60 to 90minutes. Initial connections to the stakeholderswere providedthrough our client and advisors. Though a snowball samplingmethod, we subsequentlysolicited interviews via email through contact recommendations provided by our initialinterviewees. At theendofeach interview,weaffirmedtheconfidentialityofstatementsand requested tomaintain connections for any follow-up questions thatwewould haveafterourtrip.We additionally conducted a 16-question face-to-face survey with over 25 randomlyselectedmerchantsfromwhichweobtainedatotalsampleof17respondentsintheBandraWestarea.Eachmerchantwasinformedoftheiranonymityandthepurposeofourstudy,andifbusinessownersgaveconsent, theywereincludedinthesurvey. Therespondentsincluded owners of clothing stores, a juice stand, tourist shops, a toy store, a used carbusiness, a flower stall,miscellaneous stalls (phone cases, cigarettes, etc.), a shoe stall, apharmacy,apaintingshop,andajewelrystore.Interviewswereconductedforadurationof30minutes.Initialbackgroundquestionswerefollowed by questions relating to transaction methods used by businesses, howdemonetizationimpactedpaymentmethods,andquestionsrelatedtodebt.

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Surveyquestionswerediscussedamongthefourgroupmembersandthemostimportantquestions were compiled for the final survey with additional input and questions fromAdam Hartmann and other individuals from the Quona Capital team. All stakeholderinterviews and a majority of the merchant surveys were conducted in English. Formerchants who were not able to communicate in English, team member Aniket MaitraconductedtheinterviewsinHindiwithatranscribedcopyofthesurvey.Stakeholder interview research results will draw from our interviews with individualsfromthefollowingorganizations:

We spoke to a former Director of the Foreign Investment board at theMinistry of Finance. His work included dealing with debt and cashmanagementthroughtheReserveBankofIndia

Aavishkaar is an early-stage impact investment firmwhich focuses onproviding financial products and services to Indian entrepreneurs inIndia.We additionally spoke to spoke to individuals at IntelleCap andIntelleGrow

TataCapitalistheflagshipfinancialservicescompanyoftheTataGroup.It is primarily a holding company that holds investments in itssubsidiariesandothergroupcompanieswespoketo.

Vuclip is a firm that offers video-on-demand services for emergingmarkets offering subscribers with a selection movie titles, TV Shows,sports,news,andmusicvideosinseverallanguages

PayTM is India’s largestmobilepaymentsandcommerceplatform.ThePayTMwalletapplicationenablesuserstobookairticketsandtaxis,refillmobileaccounts,andsendmoneytransfers.

The Finance & Markets Global Practice is a joint World-Bank IFCinitiativethataimstohelpcountriesbuildefficientandstablefinancialsystems which are essential to promoting economic growth andreducingpovertyandincreasingsharedprosperity

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2.3 Results:StakeholderInterviewsShortly after our research trip came to an end, we compiled and analyzed the data wegatheredduringourtrip.Throughouttheanalysisperiod,weidentifiedkeythemeswhicharediscussedbelow:Theme1:ReasonsforDemonetization19WhenaskedwhytheIndiangovernmentdecidedtoimplementthedemonetizationpolicy,theprimaryreasonthatemergedwastheprospectofcurbingcirculationofblackmoney.According tooneof the interviewees,blackmoney isdefinedasanygoodorservice thatdoesnotgettaxedandhencecanbelinkedtocorruption.However,itwasalsostatedthatblack money is not necessarily illegal money. Three of the interviewees affirmed thatdemonetization alone would do very little to obstruct the flow of black money. It wasdescribedasan inherentpartofdevelopmentgiven India’shighrateof inequality.WhentheIndianeconomytransitionedfromindependenceit taxedcitizensatexorbitantlyhighrates (ranging from 70-80%), resulting in the creation of a parallel economy whereindividuals circumvented the formal system by failing to fully disclose the income theygenerated. Thus, unless the shock of demonetization induces behavioral change, theprimarygoalofinhibitingtheprevalenceofblackmoneywillnotberealized.Demonetization was additionally identified as strategy through which India couldformalize the informal cash dependent economy. Businesses would be forced to adopt

19FindingsderivedfromStakeholderInterviews(nameredacted).8-19January2017.

Accion is a nonprofit with an aim of making high-quality, affordablefinancial services available worldwide. They provide seed funding andassistance for promising start-ups and adjacent technologies throughimpactinvestinginitiatives.

MSwipe isamobilePointofSalesolutionsprovideranda leadingcardpayment processor in India. The service functions with any bank andmerchants canaccessaccountsviamobileapplicationoronlinevia thewebsite.

Omidyar Network is a Philanthropic Investment firm which makesinvestments in for-profit companies as well as provides frats to non-profitorganizationsregardlessofthesector.Theyinvestinorganizationsthathavethepotentialtoembodyinnovation,scale,andsustainability.

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moretransparentdigitalpaymentsystemsthatwouldinturnwidenthecountry’staxbase.Forinstance, itwasstatedbyoneofourrespondentsthat intheminingindustry—whichaccounts for approximately 40% of GDP—approximately 70-75% of the wages aredistributedincashdailyratherthanonaperiodicbasisasisdoneintheformaleconomy.This form of payment dominates the unregulated informal economy and providesparticipants in the sector with little incentive to adhere to regulated accounting anddisclosurestandards.A final reason for demonetization was identified as the effort to boost bank activityamongst under-and unrepresented individuals. One respondent indicated that therewasno direct correlation between demonetization and financial inclusion. The policy changeinsteadservedasparalleltofinancialinclusionbyacceleratingthedigitizationoftheIndianeconomy.Lesscashintheeconomyleadstomorecashbeingstoredinthebanks.Theme2:TheImpactofDemonetization20Inregards to themain impactsofdemonetization, thegeneralconsensuswas that itwastoosoontotell.Itwasestimatedthatconcretedatawouldnotcirculateuntiltheendoftheupcoming summer (about ten months after demonetization). According to some of therespondents, the chaos portrayed by the media was not the reality on the ground.Evidencedbythe lackofprotestsandpublicoutcry, it isgenerallyperceivedthatIndiansfollowtheprincipleofJugaadawordencapsulatingtheideathatIndiaiscapableoffindingawayaroundanyproblem.Orasonerespondentputit,“Thenotionofenterprise[inIndia]isthereacrosstheboard.”Priortoourarrival, individualsandfirmsalikedidexperiencesomeshort-termeffectsoftheabruptpolicychange.Asintended,themostimmediateeffectwasareductionintheuseofcashasaformofpayment.Ourintervieweesidentifiedseveralspillovereffectsfromtheremovalofthe500and1000rupeenotesincirculation,includingareductionoflandprices(cashisusedtocover50%oflandpurchases),areductionincommercialactivityforcash-basedMSMEs,anincreaseinrailwaybookingswhichcouldbeboughtwithcashby700%,and increased liquidity in thebankingsystemwhichcaused interestrates todecreaseby50-150basispoints.In reference to the formalization of the economy leading tolarger portion of the population now being visible to taxauthorities,onerespondent indicated“Inthiscountry, forthefirst time, everyonehasabitterpill inhismouth.Thosewhoenjoy a bitter pill everyday begin to enjoy it.”21Thus, as aresult of demonetization, more individuals were subject totaxationandwouldtherebyfacetheadditionalburdens facedbythosewhopreviouslyfellintotheformaleconomy. 20FindingsderivedfromStakeholderInterviews(namesredacted).8-19January2017.21StakeholderInterview(nameredacted).10January2017.

“In this country, for the first time, everyone has a bitter

pill in his mouth. Those who take a bitter pill everyday

begin to enjoy it.”

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ThenegativeimpactsofdemonetizationwereespeciallyfeltbyMicro-FinanceInstitutions(MFI’s)wholosttheirabilitytocollectrepaymentsonloansfromMSMEswhohadlostsuchasignificantportionofthebusinessthattheycouldnolongergenerateenoughrevenuetocovertheirdebtobligations.On a more positive note, payment providers reaped significant benefits fromdemonetization.Bothpaymentproviderswespoketomentionedasignificantriseinsalesof Point of Sale (POS)machines, allowing them to earnmuchhigher revenues than theywouldhaveotherwise.Tohighlightthesignificanceoftheirgrowth,onefirm’soperationsgrewby50%inthemonthssincedemonetization,wheninatypicalyeartheywouldgrowby10%overninemonths.Thesecondfirmproclaimedthatitreceived500newleadsadaythereby greatly reducing acquisition costs and allowing those funds to be utilized foralternative endeavors.Due to increaseddemand for their services, both companies haveincreased their staff and expanded their reach to new cities to fulfill the needs of anenlargedconsumerbase.Theinvestorswespoketoremainedoptimisticthatdemonetizationwasindeedbeneficialfor the economy and their businesses. Few of their portfolio clients were negativelyimpactedbydemonetizationandthosethathadbeenwereMFIswhichhadalreadybegunto stabilize after having adopted more flexible lending policies during demonetization.Moving forward,morestringent investmentselectionstrategiesandportfoliomonitoringpolicieswillbeimplemented.Theme3:ImprovingtheImplementationofDemonetization22Despite the approval of the goals of demonetization, all respondents agreed thatdemonetization was poorly executed. They provided general fundamental modificationswhichthegovernmentshouldhaveconsideredpriortoimplementingthepolicy.Toreducethe long queues at banks in the immediate panic that ensued following PM Modi’sannouncement,banksandATMshouldhavebeenbetterpreparedwithasufficientsupplyof2,000rupeenotes.Itwasalsoindicatedthatthe2,000rupeenotesweretoolargetofitinATMs.Indesigningthenewnotes,standardizationofsizesshouldhavebeenapplied.There was one unique solution that could have eased the transition. It involvedadministering demonetization in two separate phases. Hence, rather than debilitating alargeportionoftheeconomyallatonce,onenotecouldhavebeenmovedoutofcirculationatatime.Thesecondphasewouldhaveexhibitedlessshockbutcouldhavemitigatedthelossesfacedbybusinessownerswhodidnothavechangetoprovidepotentialcustomers.Theme4:FutureTrendsinFinTechandFinancialInclusion23Realizing that demonetization had set the stage for advancements in FinTech,we askedrespondentswhat they perceived to be the next biggest trends in FinTech and financialinclusion.Thedistributionofpaymentbankandsmallfinancebanklicensestoppedthelist 22FindingsderivedfromStakeholderInterviews(namesredacted).8-19January2017.23FindingsderivedfromStakeholderInterviews(namesredacted).8-19January2017.

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for garnering influence in the new digital landscape. Eleven payment bank licenses hadbeenissued(oneofwhichhadbeengrantedtoPayTM)comparedtotensmallfinancebanklicenses. Small finance banks would be particularly practical for encouraging financialinclusion as they were mostly comprised of rural banks. Most large banks have beenunwillingtoincurtheadditionalcostsofoperatinginruralareas.Although the payment systems were already in place prior to demonetization, UnifiedPayments Interface (UPI) and Aadhaar were mentioned as prevalent trends. Increasedusage and enhanced interoperability were identified as the key trends for the twoprograms.E-walletsappeartobelosingtheircompetitiveedge.TwoinvestorshintedthatUPI could overtake the E-wallet market while another claimed that e-wallets werestructurallyunprofitable.Oneofthepaymentproviderswespoketocontinuestooffere-walletservicesthroughitsappanddoesnotintendtosuspendthoseoperationsinthenearfuture.Cybersecuritywasidentifiedasanewopportunityforbothentrepreneursandinvestors.Enhanced cyber security together with a robust regulatory framework will prevent thebreachofconfidenceinthefinancialsystem,whichcanleadtodestabilizingrippleeffectsinthesector.Theme5:ChallengesinFinancialInclusion24Oneoftheprescribedreasonsfordemonetizationwastodis-incentivizetheuseofcash.Toreach thisoutcome, the IndiaGovernment soughtoutways to raise the costof itsuse inaddition to introducing digital means as the primary form of payment. Low levels offinancial literacy and connectivity served as bottlenecks that proved very difficult toovercome.Notonlydolargebanksshyawayfromruralareasbutthelackofconnectivity—intheformof infrastructure development and accessible mobile networks and Automatic TellerMachines (ATMs)—is recognized as one of themajor barriers to achieving full financialinclusion in India. Low connectivity in rural areas has also prevented individuals fromreceivingtimelyconfirmationofreal-timepayments—akeycomponentofdigitalpaymentsystems.FinancialliteracyprogramshavebeendeemedasofferingaverylowReturnonInvestment(ROI). For this reason very few firms, including some of the oneswe interviewed, havespent little effort on implementing such programs.When questioned about who shouldfocus their efforts on fostering a financially literate population, one of the intervieweessuggestedthatallentities(regulators,thegovernment,investors,andFinTechcompanies)had to take on the task. Itwas also recommended that rather than spewing out piles ofoverwhelming information, financial education should be funneled incrementally on aneed-to-knowbasis.

24FindingsderivedfromStakeholderInterviews(namesredacted).8-19January2017.

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As discussed in our interviews, the problem within India’s economy is that citizensassociatelittletonocoststoconductingcashtransactionsversusdigitalones,whichmayincur transaction fees. Lower-income individuals also have a much higher velocity ofmoneythanwealthiercitizens,thustheperceivedcostsofprocessingsimpletransactionsregularlyincreaserapidly.Attheindividuallevel,thegovernment’sintroductionofno-frillsaccounts(zerobalanceaccounts)quellssomeanxietiesaboutincurringtransactionscosts.MSMEscanbemoreeasilyconvincedbyillustratinghowtheirprofitscouldbeamplifiedbytransitioningtodigitalmeans.Capacity constraints faced by current market players may obstruct the ability for themarket to meet the increased demand for digital services. Although payment providershave made great strides in extending their services to reach a broader network ofconsumers, oneof thepaymentproviders revealed that their serverswitnessedmultiplecrashes due to the high volumes of requests. This resulted in some transactions beingdebited twice since customers could not tellwhether their initial transactions had beenproperly processed. To prevent consumer confidence from deteriorating, the companyactedswiftlytoensurethatthetransactionswerecorrectedandthefundsreturnedwithinthreebusinessdays.4. Results:MerchantSurveys25This section describes the key points that emerged from the merchant surveys. Themaximumnumberofemployeesinanygivenbusinesswassevenandoursurveysgenerallytried to avoid speaking to franchises. About 45% of the businesses surveyed had POSmachines,36%ofrespondents thatdidn’thaveaPOSmachinewere interested inhavingone in the future, 40%ofbusinesseshad smartphones, and20%ofbusinesses surveyedusedsmartphonetransactionslikePayTM.Respondentsreportedthevarioussourcesfromwhomtheyheardaboutdemonetization,includingnewspaper,television,radio,WhatsApp,YouTube,andwordofmouth.Comparedtothepositiveoutlookpresentedbytheinvestorswespoketo,therealitiesonthegroundprovideddifferingperspectivesoftheeffectsofdemonetizationontheaveragebrick-and-mortar businesses. Many respondents were unhappy with the way thatdemonetization was carried out as it resulted in cash shortages faced by individualconsumersandanoverallmoneysupplyshortageinIndia.Qualitativedataindicatedthatrespondents were especially unhappy with the timing of the demonetization since itoccurred during the religious festival season of Diwali and Christmas—a time period inwhich many businesses depend on for sales. In addition, the policy was poorlyimplementedandanecdotalevidencestatedthatmostATMsdidnothaveenoughnew500rupeeand2,000rupeenotesandthenew2,000rupeenoteswerenotstandardizedtofittheATMs.A fury of panicked individuals trying to exchangeoldnotes fornewones anddepositing current cash amounts that served as India’s primary means of conducting

25FindingsderivedfromMerchantSurveys(namesredacted).8-19January2017.

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transactions resulted inmassivequeues at bankbranches.Asone respondentput it “wehave become beggars for our ownmoney” expressing the deep frustration of long lines,ATMmaximumwithdrawal amounts, and ineffectivemeasures of dealingwith problemssuchasincorrectbalanceamounts(inoneinstance,arespondentsaidtheATMdidn’tgivetheamountherequestedbutdebitedhisaccountanyway).Manybusinessesmentioned issues likenotbeingable touseanyother formofpaymentbesides cash to maintain operations as their own suppliers would only accept cashpurchases.Whileno largecivilunrest followedtheannouncementofdemonetizationandPM Modi’s attempts to transform India to a more modern and formal economy werecommended,many cited that demonetization’s faulty implementationwas the key issue.Oneoftherespondentsstatedthat“Thebigfishhaveswamtothedeependoftheseaandallthesmallfisharedead”highlightingthatwhileoneofdemonetization’sintentionswastogetridofcorruptandillegalactivities, individuals, families,andsmallbusinesseswerehurtasaresult.The majority of business owners reported having an individual bank account but nobusinessaccount. In theaftermathofdemonetization,most respondents reportedhavingno support from the government and cited concerns such as suppliers wishing to bereimbursedonlyincash.Respondentsalsomentionedthattheyhadnooutstandingloansandquestionsthatwerepersonalinnaturesuchaswhetherparticipantshadbeendeniedloanswasnotasked.In general, certain themes emerged from the interviews. Respondents experienced abusiness downturn in the immediate aftermath of demonetization with widespreadshortages of cash revenues. This effect was pronounced for luxury businesses such asjewelryshops,giventheloweramountsofdiscretionaryspendingasaresultofmaximumfixedwithdrawalamountsfromATMs.ManyMSME’shadlittlechangeindemandascardexpenditureswere not capped.WhilemanyMSME’s hadno point of sale (such as creditcardmachines)instrumentsbeforedemonetization,theyhadaninterestinlearningmoreaboutthemorpurchasingthemafterdemonetization.ThereweresomemerchantswhodidnotknowhowtousePOSmachinesorhowtoobtainaccesstothem.Oneofthemerchantsmentionedthat theydidnothaveaPOSmachinesimplybecauseanagentneverreachedouttohimindicatingthathewasunawareofthevariousmethodsofgainingaccesstothemachinessuchasthroughbanksoronlineplatforms.

2.5 ConclusionTheshockbroughtaboutbydemonetizationforcedseveralmerchantstoincursignificantlossesduetoadiminishedcapacitytogeneraterevenues.AsmostoftheMSME’swespoketoconductedasignificantportionoftheirbusinessincash,theinabilitytoproducechangeforthelarge2,000notespreventedcustomersfrompurchasingtheirproducts.Itisforthisreason that many merchants were dismayed with the new policy and demonstratedsentiments that were in stark contrast to the outlook presented in our stakeholderinterviews. It was agreed upon by all stakeholders that demonetization was in fact

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necessary; India and itsmillions of small business ownerswould soon recover from theshort-termlossesincurredattheonsetofthepolicychange.Stakeholders identified the removal of black money, fighting corruption, digitizing theIndian economy, and promoting financial inclusion as reasons for which they believeddemonetization was implemented. While curbing the circulation of black money andprevalence of corruption were the initial catalyst for demonetization, the path towardsturningIndiaintoacashlesssocietyhasemergedasthepredominantobjective.ThisgoalhasproventobechallenginggiventhelargerolethatcashplaysinIndia’seconomy.Ratherthan allowing cash to sit in accounts and earn interest, citizens held on to their fundsbecausetheywereaccustomedtohavingphysicalformsoflegaltenderandtheywerenotsure when they would get it again. Low levels of financial literacy and connectivity inremote areas also inhibited the rapid acceptance of digital payment platforms. In thefuture,thediffusionoffinancialliteracyprogramsthatinformandadviseindividualsaboutthe benefits and uses of financial services in addition to infrastructure development ofcommunicationstechnology,willallowIndiatobetterenforcebehavioralchange.After completing our research, our general conclusion was that demonetization did notinitiatetheprocessoftransitioningIndiaintoadigitaleconomy.ThistrendwasalreadyinplacethroughtheinitiativespreviouslymentionedinSection1.Rather,demonetizationhasaccelerated theadoptionofFinTechbywidening India’sdigital consumerbase. It is thuscritical for impact investors such asQuonaCapital tomonitormarket trends in order toensure that its current and future portfolio clients remain competitive within the newdigital landscape.The following sectionwill introduceoneofQuona’sportfolio clients inIndiawhichwasimpactedbythechangesthatoccurredasaresultofdemonetization.

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Section 3: NeoGrowth and Social Impact

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3.1 NeoGrowthBackgroundStartingoperationsinAugust2012inMumbai,NeoGrowthprovidesauniquemodeltoforsmall andmedium-sizedbusinesses in India. It operates at the forefrontof the financialinclusionmarket seeking to expand access to capital. Through a uniquemodel designedspecificallyforsmallandmediumIndianmerchants,NeoGrowthcontinuestoexpandand,after growing its loan book five times from2014-2015, currently operates inBangalore,Mumbai, Chennai, Delhi and Pune, with plans to expand to Hyderabad, Ahmedabad,Lucknow,andChandigarh. Ithasan internetpresence throughNeoCashOnline,designedfor online customers. Additionally, four impact investors currently back NeoGrowth:OmidyarNetwork,Aspada,KhoslaImpact,andtheAccionFrontierInclusionFund(AFIF).26NeoGrowth’sstatementofpurposeshapeshowitapproachesoperations:tobethemarketleader in short tenure, small-ticket business loans for merchants accepting electronicpayments. Thefirmbuilt itsbusinesscaseonthefact thattheunderwritingmethodsfordetermining loan worthiness excludes more than 50% of Indian businesses. The loansNeoGrowth gives are centered on creating a positive social impact27. Through flexiblerepayment plans that are more suited to the borrower’s need than traditional lendingservices,NeoGrowth services are geared towards addressing specific barriers thatmanyborrowers face within India’s economy. These barriers include (1) difficulties in creditassessmentswithadearthofadequatefinancialhistory/creditfootprint,(2)limitedtonooptionsforunsecuredloans,givenalackofcapital,(3)extremelylimitedfunds,thatwhenprovided, come with a strict repayment schedule, and (4) lengthy and cumbersomeapplicationprocesses,whichreduce thenumberofprospectiveborrowers. NeoGrowth’scentralproductisaloanthatismarkedagainstfuturecreditanddebitcardsales.Withallof these issues, NeoGrowth gears its products to alleviate the fact that access tocapitalremainsacentralproblemforbusinessownersinIndia.Asmorethan30%ofNeoGrowthlenders were found to be ineligible for credit by other lenders, NeoGrowth’s impact onprovidingaccess tocapital isclear. Traditional, larger,bankshavestruggled tomeet thedemandsofbusinessesrequestingloansoflessthan$150,000(9664005rupees)28. To address these issues, while ensuring a steady flow of profits, NeoGrowth combineselectronicpaymentssystemswiththeloansthemselves. WhenamerchantobtainsaloanthroughNeoGrowth, his/her electronic payment system funnels a certain amount of thesales to repaying the loans. It is the first lendingplatform in India tooffer loansagainstfuturecardsales.Thisallowsforbusinessesheavilyimpactedbyseasonalchangestopayback loans in conjunctionwith their sales rather than falling behind and losing valuablecredit due to theweather or holidays.Aftermaking a loanbasedon alternativedata forcreditassessment,NeoGrowthobtainsthefundsthroughtheautomatedcollections,whichremainsbasedonbusinessperformancethroughthelifespanoftheloan.Withtheminimal

26NeoGrowthSocialImpactReport201627NeoGrowthSocialImpactReport201628NeoGrowthSocialImpactReport2016

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documentationrequired,fundsareprovidedonaquickerbasistobusinessesthatcanbuildup a positive credit score and obtain approval for further loans. These merchants canconstruct a strong credit score with NeoGrowth and then get access to larger pools ofcapitalthroughmoretraditionallenders. Thismodelfitswithinthecentralgovernment’sefforts to push micro and small businesses towards electronic payment systems.Additionally, with the expansion of services offered by growing firms such as MSwipe,PayTM,andBHIM,theneedforNeoGrowth’sbusinessmodelshouldonlygrow.Along with the central government’s efforts, market trends also indicate futureopportunities for NeoGrowth: the retail market is expected to be $950 billion by2017/2018(from$520billioninFY2013)29.Withthegrowthinretailbusinessexpectedtohave a large cashless element, NeoGrowth’s product should play a large role in thisexpansion. Moving forward, NeoGrowth sees its addressable market as 20-25% ofmerchantswithPOSmachines30.

29NeoGrowthSocialImpactReport201630NeoGrowthSocialImpactReport2016

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Section4:TheGrowthTrifectaandCaseStudy

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4.1 ImpactAssessmentWhilemanymodels exist for assessing impact of new companies in the FinTech sector,therearefewthatareabletoadequatelyassessmarketimpact.CurrentModelQuona’scurrent impact framework,referredtoasthe ‘AQMModel’ isamanagementtoolfor making performance-based decisions about their portfolio companies, and wasdevelopedinconcertwiththeAccionFrontierInclusionFund(AFIF).Themodelhighlightsthreeperformanceareasandcategorizesresultsintoeitherdirectorindirectimpact:

Area TypeofImpact Definition

Access Direct IncreasingsalienceofFinTech

Quality Direct Productsmeetcustomer’sneeds

Market Indirect Company’sactivitieshavespillovereffectsinthemarket

WhileQuonahashadgreatsuccessinmeasuringdirectimpactintheformsofAccessandQuality,Indirectimpactatthemarketlevelisnotoriouslydifficulttomeasureandyetmayrepresentthemostcriticalelementofimpactassessment.Unliketraditionaldirectoutputs,indirectimpactcannotbemeasuredbyobservationalonenorisitdistinctlyquantitativeinnature; therearepowerful elementsofqualitative research thatmustbe consideredandtaken into consideration aswell in order to assess attribution of success. The ability todeterminetheexactadditivevalueofafirmisdifficulttoquantifyduetothelong-reachingimpact and time required for a firm’s efforts to take effect. For example, a firm thatconducts financial literacy trainingscanmonitorhowmanypeoplewere trained,but thefull impactofthetrainingmynotbefelt immediatelyandso isdifficult todeterminejustfrom quantitative analysis alone. Surveys, discussed more below, are useful tools fordeterminingthisimpactbutstilldonottellthecompletestory.There are several methods that can be leveraged for assessing indirect impact at themarketlevel,mostnotablyRCTsandformalorinformalongoingcustomersurveys. RCTsareusefulintheirabilitytoextracttheeffectofindividualinterventions,howevertheyareoftencostlyandtimeconsuming,andwouldbeunabletofullyassesstheimpactofasinglecompany’soperationsonanentirebusinesssector.Customersurveyswouldbeusefulforassessingsocialimpactofacompany’sactions,howeverwouldfallshortofdeterminingthefulllevelofimpactonthemarket.Furthermore,theamountoftimeitwouldtaketogatherandanalyze thedata from the surveyswouldbeunsustainable fora small company that

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shouldbefocusingonmaintainingoperations.Inordertofullyassessindirectimpact,newstrategiesareneeded.31Whilemanycompanieshavedevelopedstrategiesandframeworksforaddressingtheissueofimpactassessment,theyfocusprimarilyontheoverallprocess32datagathering,suchastheLeanDatamodel,orontryingtoevaluatetheeffectivenessofacompanyafterthefact,such as with the RCT model.33It is with this context in mind that we developed ourmarket-levelimpactassessmentframework.4.2 TheGrowthTrifectaInorder tosupportQuona’sefforts todetermine itsportfoliocompanies’ impacton theirrespectivemarkets,wehavedevelopedaframeworkthatcodifiesandorganizescommonstrategies directly linked to the development of financial sector regulations, innovation,local talent, and business model scalability. In an effort to make this framework moreflexible,wehaveorganizedthesevariousactivitiesintothreeinterconnectedareasoffocus.The purpose of this framework is to provide Quona Capital and its portfolio companieswith a market-impact analysis tool that enables constant monitoring of market-growthdrivingactivities.ThismodelisreferredtoastheGrowthTrifecta.

TheGrowthTrifecta(Fig.1) iscomprisedof three separate categories of activitieswhich affect market growth: knowledgesharing, industry leadership, andinnovation:(1)IndustryLeadership,(2)Innovation, and (3) KnowledgeSharing. Success and performance inthese areas will ensure not only properdissemination of knowledge andencouragement of favorable regulatoryand business environments, but will alsoguarantee a company’s presence andleadershipinthesector.Itisimportanttonote here that the success of the GrowthTrifecta assumes a priori the financialsuccessofacompany.

31https://ssir.org/articles/entry/measuring_the_indirect_impacts_of_market_innovators32https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjL9Zy18PnTAhUB5yYKHTU_C04QFggzMAE&url=http%3A%2F%2Fwww.ifc.org%2Fwps%2Fwcm%2Fconnect%2F7ddc9a80488552c3ac8cfe6a6515bb18%2FMeasuring%2BImpact%2BFramework%2BMethodology.pdf%3FMOD%3DAJPERES%26CACHEID%3D7ddc9a80488552c3ac8cfe6a6515bb18&usg=AFQjCNFxR02EIhFsNovsbiDG3l2dEMBoAQ&sig2=6qmScBIHJR1OeXs_j2woXA33https://ssir.org/articles/entry/the_power_of_lean_data

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IndustryLeadership

Industry leadership refers to the extent to which a company participates in industryassociations,partnerswithotherorganizationsandcompanies inthesector,andengageswith the government to encourage passing of supportive regulation. Broadly speaking,industry leadershipwill varywidely across Quona Capital’s portfolio companies as KPIswill change depending on the presence and power of industry associations in each ofQuona’scountriesofoperations.GeneralKPIsshouldreflect (i) thecompany’sefforts toobtainandmaintaina leadershiprole within industry associations, and (ii) the company’s efforts to build and maintainrelationshipswith local governmentofficials in order to take aproactive role in shapingpolicy.Innovation

Acompany’seffortstoinnovate,eitherattheproductoroperationallevel,willchangetheway the sector operates, ensuringproducts regularly adapt to changing customerneeds,and enhancing the customer acquisition process. A company can only be successful increating ripple-effects in the market if they are continuously driving innovation andoperatingattheforefrontoftheirindustry.Inthissense,successinthisareacanbeseenasaproxy for larger-scale impacton the field. Key indicators thatshouldbemeasuredwillreflect (i)developmentofnewproduct lines, (ii)developmentofnewbusinesspractices,and(iii)thepresenceandroleofacompanyinindustryassociationsandcontactwiththegovernmentinordertoaffectchangeinfavorofthesector.Additionally,itisimportanttofocusonthenumberofcompaniesoperatingwithsimilarbusinessmodelsasthismaybecorrelatedwith influencing largertrendsaswell. Success inthisareawillbeparticularlyrelevant to sourcing new investments, which will provide capital for growth, furtherincreasingthecapacityformarket-levelchange.

It is importanttonoteherethat innovationshouldnotnecessarilyalwaysbepursuedforthe sake of innovating, and that efforts to innovate should be targeted around marketdemands.

KnowledgeSharing

Knowledge sharing, the third and final pillar, indicates the degree to which a companydispersesinformationtoothersinthesectorandthepublicthroughformalresearch,blogpostsandmediapresence,andactiveeducationofthecustomerbase.Knowledgesharingcontributestoanactivelygrowingindustrythroughthedisseminationofbestpracticesandlessons learned from successes and failures. This is a key differentiator in marketleadershipasitallowsanentitytoestablishitselfasaknowledgehubfromwhichvariousstakeholdersmaysourceinformationthatmaybeconducivetogrowth.Thistacticfurtherpromotes innovation and reduces the efforts needed in gatheringmarket data thatmayalready be available. Indicators that can be used tomonitor knowledge sharing includesthosesuchasthenumberofmediapublications(blogs,reports,etc.)inayear,thenumberof industry meetings and conferences attended or organized, as well as the number ofpublicinterviewsconducted.

Figure4:GrowthTrifectadevelopedbySAISTeam

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4.3 GeneralApplicabilityandFunctionalityThestrengthofthismodelliesinitsapplicabilitywithoutrequiringlongtermandhighcosttesting. Instead, the Growth Trifecta provides both Quona Capital and its portfoliocompanies with a framework that will allow it to assess its direct and ongoingcontributions to the market without expending valuable resources to assess indirectimpact on themarket. In effect, ourmodel replaces indirectmarket-level impactwith aproxy-levelanalysis,assessingmarketimpactthroughmeasuringactivitiesthatmaymoredirectlyaffectthemarket.Thismodelcanbeappliedatboth the investorandportfoliocompany levels. ForQuonaCapital,theGrowthTrifectacanfunctionasbothanongoingevaluationtoolforitsexistingportfolio companies as well as a component of Quona’s screening process for newinvestments. As an evaluative tool, the Trifecta will allow Quona to ensure that (a) itsexistingcompaniesareontheirwaytobecomingleadersintheindustryand(b)itsfuturepotentialportfolio companieswillbeQuonashouldworkwith itsportfolio companies todevelop strategies for each of the three areas in order to help guide their portfoliocompaniestowardsbecomingleadersintheindustry.For each portfolio company, theTrifecta can serve as a platformand guide for creating an internalbaseline of activity in order toensuresomemeasureofimpactatthe market level. Portfoliocompanies should analyze theFinTechmarketintheirrespectivecountries and develop strategyboth internally and with supportfromQuonaCapital.Finally,unlikeRCTs, which only assess impactafter an intervention has alreadyoccurred, the Growth Trifectaallows for constant monitoring ofprogress towards objectives toallow for real-time strategychanges as needed withoutsapping valuable time away frommaintainingpresentoperations.The Growth Trifecta buildsdirectly into both Quona’s theoryof change. A large group ofcompanies in the same sector alloperatinguniformlytoaccomplish

Figure5:EnginesofGrowthinFinancialInclusion

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the same goals will have a spillover effect, attracting new investors and spurring thecreation of a more favorable regulatory environment. As Quona’s portfolio companiesengageinallthreeareasoftheTrifecta,theywillbetakinganactiveroleinexpandingandenhancing the market for FinTech which, as it grows, will facilitate deeper financialinclusion.

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4.4 ApplyingtheModel:NeoGrowthAs we apply this framework to NeoGrowth, given the context of a demonetized India,several key indicators and focus areas arise for each component that Quona andNeoGrowthshouldmonitor.IndustryLeadershipForindustryleadership,inordertoadapttothechangingmarketplaceforFinTechinIndia,NeoGrowth must ensure that it is actively pursuing leadership roles within industryassociationswhilesimultaneouslymaintainingdirectcontactwiththegovernmentateverypossible level inorder topress thepassingof favorableregulations. Success in this fieldwill come from leveraging the power of industry associations, which is why leadershiprolesarecritical.

IndustryLeadership

Indicators in this field demonstrate a company's impact vis-a-vis its role in organizing andcoordinatingmarket forces to catalyze sector-level innovation and spur the creation of a positiveregulatoryenvironmentforthefield

Indicator Interpretation Operationalize/Actionize

What How do positive or negative trendsforthisindicatordemonstratesuccess

How NG can leverage indicator to demonstratecorrelationbetweenbusinessoperationsandoverallbeneficialmarketconditionsforfinancialtechnologyandinclusion

#timescompanyinvitedtoconferences,

speakingevents

Increases or decreases in thenumber of invitations speakingevents or conferences will indicatethe extent to which NeoGrowth isseenbythepublicortheindustryasa leader whose opinions andexperiencesareadditiveandvalued

As the number of invitations to speaking eventsheld by the government, private, or non-profitsectors increase,NeoGrowthwill be able to assertthat its efforts and operations are widely seen assuccessful. Should they lag, NeoGrowth shouldstrive to increase itspresenceandvisibilitywithinthe industry in order to gain attention andinfluence

#timesNGfeaturedbymediain

articles,etc.

Interpreted similar to the previousindicator, however instead offocusingonNeoGrowth'sperceptionwithin the industry, increases ordecreases here will indicateNeoGrowth'spublicperceptionasanindustryleader

Increases in NeoGrowth's media presence willallowittoviablyclaimthatnotonlyisitbecomingmore publically visible, but that others in theindustrywillbemore likelytoviewNeoGrowthassuccessfulandasectorleader

#ofmeetingsorganizedwithindustrytoidentifyand

addressmarketneeds

Trends in thisareawill indicate thestrength ofNeoGrowth's perceptionwithin its industry by acting as aproxy for other companies andindustryassociations'willingnesstomeet with them, acting as evidenceof positive perceptions ofNeoGrowth

ThemoreeffortthatNeoGrowthplaces intotakingan active role in mobilizing the industry to takeaction around issues of importance, the strongeranyclaimsaboutitsroleasaleaderintheindustrywillbe.Additionally,organizingthesemeetingswillgiveNeoGrowth an opportunity to influence othercompaniesintheindustryinordertofurtheractiontowardscommongoals

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#meetingsheldwith

governmentofficials

Similartoabove,growthinthisareawill indicate NeoGrowth'sperceptionasaleaderinthefieldasperceivedbygovernmentofficials

Efforts to engage with the government (and thegovernment's corresponding willingness to doreciprocate) will further validate claims thatNeoGrowthisaleaderintheindustry,whethertheyact alone or as part of a syndicate. ConnectionswithinindustryassociationsandthroughtheBoardof Directors should be leveraged to increase thefrequency of these meetings which, if absolutelynecessary,mayrequirechangestotheBoardiftheyareunwillingtosupportNeoGrowthintheseefforts

#ofgovernment

actionschangedbyallies

While difficult to interpret the fullextent to which NeoGrowthinfluenced the passing of sector-favorable regulation, trends in thissector may act as a proxy for theeffectivenessofNeoGrowth'seffortsto affect change at the regulatorylevel and its influence ongovernmentofficials

NeoGrowth should constantly strive to have itsallies act as representatives for the cause ofadvancing FinTech as a vehicle for financialinclusion, and constantly leverage the bargainingpower gained through cooperation with othercompaniesinthesectorinordertoencouragelocalactors to advocate for the passing of positiveregulation

MarketShare(includingtotalnumberofcompanies)

Growth/reduction inoverallmarketshareindicatesthereach,relevance,and price competitiveness ofNeoGrowth's services in the Indianmarket

All efforts should be made to become a leader inmarket share in order to maximize both visibilityandprofit

InnovationInordertoensureastrongmarketbase,NeoGrowthmustbeginmonitoring itsefforts toexperimentwithnewcustomerservicemodelsthatmeettheneedsoftheeagerbutpoorly-informedmarketbase.SuccessinthisareawilldependheavilyonNeoGrowth’sabilitytoanalyze customer’s needs through regular conversations with them or, alternatively,through cooperation and partnershipswith fellow companies in the sector. NeoGrowthshouldalsolooktoitsalliesinthegovernmentassourcesofinformation,usingthecontactsformedaspartoftheirIndustryLeadershipstrategystressingthatinformationprovidedtoNeoGrowthwillonlyfurthersupporteffortstoimprovethelivesofIndiansthroughoutthecountry.Basedonthecurrentadministration’sstatedgoalofencouragingtheuseofdigitalfinancial services discussed in Section 1, it seems reasonable to expect that governmentofficials would be able to provide extensive support in this area in order to encouragefurtherinnovation.

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Innovation

Indicators in this category reflect the importance of a FinTech Company's continuing innovation.Positive trends in this field should be viewed as examples of effective innovation that reflects theneedsofthemarketandactivelycontributestofinancialinclusion.

Indicator Interpretation Operationalize/Actionize

What Howdopositiveornegative trends forthisindicatordemonstratesuccess

HowNG can leverage indicator to demonstratecorrelation between business operations andoverallbeneficialmarketconditionsforfinancialtechnologyandinclusion

#newproductlines/iterationsofexistingproductslaunchedandused

The launch and success of newproduct lines or adaptations ofexisting product lines willdemonstrate NeoGrowth'sunderstanding(orlackthereof)ofthecurrentmarketneeds

By innovating whenever pertinent andpossible, NeoGrowth will demonstrate itscontribution to the FinTech marketplace bydemonstrating new methods for providingvaluableservicestocustomers,thusincreasingfinancialinclusion

#newcustomerservicemodels

launchedandused

Based on the results of our researchand the potential link betweenfinancialliteracyandcustomerservicemodels,NeoGrowthshouldconstantlybe adapting its customer servicemodels in order to not only providequality customer service but alsoprovide avenues for increasingcustomer's financial literacy morebroadly

Ifsuccessful,newcustomerservicemodelswillenableNeoGrowthtopotentiallyhavedramaticimpact on the FinTech market bydemonstratingthepowerofprovidingfinancialliteracytrainingdirectlytoitscustomersviaitscustomerservicemodels

#competitorswithsimilar

businessand/orcustomerservice

models

Attempts to duplicate or replicateNeoGrowth's business model willindicate the perception ofNeoGrowth'sbusinessmodelasviableandprofit-generating

Any attempts made to replicate NeoGrowth'sbusiness model will provide support to theclaim that the model has gained traction andvisibilityinthemarkettoattractattentionfromentrepreneursandotherindustries

#newcustomerssincelaunchofnewproducts

Provides an indicator as to therelevancy of new productlines/iterations of existing productlines

Whether by designing a new product orimproving on an existing product, successfulinnovation that attracts customers andbecomes profitable will enable NeoGrowth'ssuccess, thus increasing its bargaining powerandthepotentialforittohavebroaderimpactsonthemarket

#repeatcustomersusingnewproducts

In concert with attracting new users,thedevelopmentofnewproductlinesthat are attractive to customersalready using existing product linesdemonstrates NeoGrowth's capacityto understand andmeet the needs ofanincreasingclientbase

Attracting new customers demonstratesNeoGrowth’scapacitytocontinuallycreateandprovidenewandvaluableservices

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CustomerFeedbackAnalysis

Success in obtaining strong customerfeedbackon itsproductsandserviceswill give NeoGrowth criticalinformationnecessarytodevelopnewproducts

Customerswill bewilling and able to providefeedbackiftheyfeelasiftheirneedsarebeingmet and they appreciate the service; digitalmethods for data collection will ease thequantitativeburdenofgatheringmassdataor,alternatively, occasional focus groups withcustomersmaybeimplemented

KnowledgeSharingFinally, with regard to sharing knowledge, NeoGrowth must actively be sharing itssuccesses and failures to adjust to the new market, particularly with regard to areassurrounding financial literacy, primarily: customer acquisition, service, education, andretention. NeoGrowth has already demonstrated its capacity and willingness to shareknowledge via the publication of its social impact reports, which should be continued,howevershouldbeginactivelysharingupdatestoproductlinesaswellasthoughtresearch.

KnowledgeSharing

The sharingof best practices, successes and failures, etc. to empower the sector, improveproductdevelopment,spurinnovation,andencourageothercompaniestobehavesimilarly

Indicator Interpretation Operationalize/Actionize

What How do positive or negativetrends for this indicatordemonstratesuccess

How NG can leverage indicator to demonstratecorrelation between business operations and overallbeneficial market conditions for financial technologyandinclusion

#ofblogs/mediapublicationsproducedandviewed(webanalytics)

Positiveornegativetrendsinthis area will demonstratethe popularity and visibilityof NeoGrowth's activities tothegeneralpublic

Asmediapublicationsandtheirviewership increase,NeoGrowth can strongly claim that its perspectivesand opinions are gaining traction in the overallmarket which suggests that its publications areactively contributing to the cause of advancingfinancial inclusion. Negative trends should beadjusted by reviewing social media presence andoverallmediastrategy

#ofmeetingsattendedw/industry

toidentifyandaddressmarket

needs

Trends in this area willdemonstrate NeoGrowth'sefforts to disseminateknowledge directly throughindustryassociationssuchasthe NPCI or projectssponsored by the Center forFinancialInclusion

IfNeoGrowthhasnot attendedmanymeetings, theyshould strive to increase collaboration andparticipationinindustryassociations

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#offormalresearch/blogposts(sharingofnew

products)producedandsharedpubliclyandviewed(web

analytics)

Formal thought research,while time consuming,provides a more legitimateplatform beyond simplemedia updates forNeoGrowth to share its bestpracticesandsuccesses

Withoutbeingoverlycumbersomeor time intensive,NeoGrowth should strive to produce thought pieceswhenever possible, even if they are in the form ofinformalblogpostsontheirwebsite.Topicareasmayinclude their successes, thoughts on FinTech in theIndian economy, results fromprograms they run, orgeneralupdatesonoperations.Moreformalresearchshould only be begun once NeoGrowth has securedadditional funding and moved out of the start-upphase

Overallwebanalytics Acts as evidence ofsuccessful marketingstrategies and word-of-mouth

If web analytics are low, it is evidence thatNeoGrowthisnotgainingvisibilityortraction,whichthen will hinder further knowledge sharing efforts.Strategic changes should be made to marketingcampaignsandpresenceonsocialmediaplatforms

FinancialLiteracyEducation

Efforts to increase financialliteracy nationwide willdirectly contribute toNeoGrowth's usability as aFinTech company, aswell asexpansion of the sector as awhole

NeoGrowth should begin efforts to analyze thefinancial literacy levels of its customers anddevelopmechanisms to increase it, either through trainingmodelstobedispersedvialoanofficers,chat-botsonits mobile app, or through other customer servicemodels as deemed appropriate by seniormanagement

GeneralparticipationinIndustryAssociations

Participation in industryassociations will spread theword about NeoGrowth'sactivities and successes andtherefore draw furtherattention to it, increasing itspotentialreachandimpact

EvenifNeoGrowthisnotspeakingatevents,itshouldstrive at a bareminimum to be on the email list fornewsletters and speaking events/meetings in orderto set up a baseline of participation that can beexpandedoninthefuture

ThemonitoringofeffortsinthesethreekeyareaswillcreateabenchmarkwhichQuonacanusetoevaluateNeoGrowth’ssuccessandsimultaneouslyprovideNeoGrowthwithabaselineofactivitywhichitcanusetoadjuststrategygoingforward.

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Section5:Recommendations

36

5.1 RecommendationsforQuonaCapital1. DetermineDataGatheringProcess

In order to most effectively gather primary data which will ensure that any and allstrategies reflect on-the-ground realities, it is recommended that Quona work withNeoGrowthinordertoetermineanadequatereportingmodel.ItisrecommendedthatQuona fold the Growth Trifecta indicators into its existing reporting platform forNeoGrowth,andrequiresemi--annualdatacollection.

2. TestModelandIndicatorswithNeoGrowthonaShort-termScale

Quona should evaluate the feasibility of the model with NeoGrowth and developstrategiesforthecompanytoaddressasmanyindicatorsaspossible.Overthecourseof one year, Quona should monitor NeoGrowth’s efforts to achieve pre-determinedgoals,andthenre-visitthemodel,activities,anddevelopedindicatorsinordertogaugeitsprogress.

3. ApplyModeltoOtherPortfolioCompaniesShouldQuonaandNeoGrowthfindthatthemodelis(a)appropriatefortheirneedsand(b)notdependentonanoverlyburdensomereportingprocess,QuonashouldselectasecondportfoliocompanyandworkwiththemtodevelopindividualizedstrategiesandindicatorsasdictatedbytheTrifecta.

4. EvaluatetheGrowthTrifectaforUtilityinScreeningProcessInadditiontoservingasastrategy-guidingandevaluativetoolforexistingcompanies,theGrowthTrifectacanfunctionasapartofthescreeningprocess.Insteadoflookingatspecificindicatorswithinthethreeareas,however,Quonashouldevaluatepotentialinvestee’seffortstoimpactthemarketmorebroadly.Itisimportanttonoteherethatdue to Quona’s focus on funding young companies, itmay be the case that potentialinvestees have focused efforts primarily on maintaining business operations ratherthanmarketimpact.Inthiscase,QuonashouldusetheGrowthTrifectamodeltoassessthe potential for market impact by observing the company’s (i) scale and reach, (ii)socialmediapresence,and(iii)CEOandBoardMembernetworkstrength.

5.2 RecommendationsforNeoGrowthInadditiontotheindicatorslistedinSection4,whichareconsideredrecommendationsforimplementingtheGrowthTrifecta,itisfurtherrecommendedthatNeoGrowthleveragetheresultsof thisreport inorder toadapt itsbusinessmodel toreflect thenewrealities. Inordertofullyassessitscustomer’sneeds,itisrecommendedthatNeoGrowthdevelopanddistributeacustomersurveythataimstoassess:• Overallcustomercomfortwithbroaderfinancialservices(askhowmanytheyuseand

howoften)• Satisfactionwiththecurrentproduct• Additionalneeds(whatserviceswouldyouliketousebutdonotknowhowtoaccess)ThissurveycanbedistributedviamobiletechnologyandwillprovidegreaterinsightandabilitytotakefulladvantageoftheGrowthTrifecta.

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