Rajeev Mantri

Rajeev Mantri is executive director of Navam Capital

Why technology matters for sustainable development

My new article for World Economic Forum’s Agenda blog:

Entrepreneurs in emerging markets will need to take the initiative and attempt to do what nobody has done, because the problems in these markets will be problems that nobody has really solved before…these will be problems that advanced economies don’t really have a stake in solving.

In other words, emerging-market entrepreneurs will need to think of how to go “from zero to one” in myriad industries if they are to deliver sustainable and equitable growth for their large domestic populations.

More here.

Bitcoin and emerging markets

In my op-ed for Mint, I write about the potential applications bitcoin could have specifically for emerging markets like India:

India’s banking and financial services industry has incumbents that are inert, sloth-like and highly risk-averse. The banking industry in particular is heavily dominated by public sector undertakings (PSUs). PSU banks still control approximately 80% of all deposits. The industry is rife with corruption and mismanagement, for government banks know that their owner will always bail them out. But this was not always the case—before Indira Gandhi nationalized banks with the stroke of a pen, over 85% of deposits in India were held by private banks. Since the nationalization of banking, all innovation in the industry has come to a standstill.

For 2013-14, 63% of the total number and 35% of the total value of retail transactions was electronic. Average electronic transaction value has nearly tripled in four years, according to data from the Reserve Bank of India (RBI), India’s banking regulator. But Indian banks cartelize and lobby their regulator to punish consumers with outdated usage practices totally out of tune with the needs of mobile transactions and electronic commerce. Instead of prodding the banks to improve their fraud detection and redressal systems, RBI simply makes it harder for consumers to transact and introduces artificial friction by way of two-factor authentication requirements so that banks get away without having to improve themselves.

Besides enabling transactions with reduced friction and at lower cost, there are certain applications of the protocol that can enable altogether new use cases. Cryptocurrencies can be used to write “smart contracts”, or contracts that are digitally written and require no third party for enforcement. The value of this application is difficult to overstate in an environment like India, which the World Bank ranks 186 out of 189 countries globally on the enforceability of contracts. Given the slow, dysfunctional judicial system and the paucity of social capital, individuals have historically preferred to do business with people already known to them, or people who are from their own community.

An alternate approach, outside the present broken system, that offers “self-executing”, tamper-proof contracts and does away with the need for third-party intervention for mediation or dispute resolution, could be truly transformational for countries like India by collapsing business risks and transaction costs. Cryptocurrencies like bitcoin could help dramatically improve contract enforcement.

Consider a bank that gives a secured loan to a person wanting to buy a car, on the assumption that the person will pay for the asset in a fixed number of monthly instalments over a period of time. If the person fails to pay the monthly instalment in any month, the bank reserves the right to take back the car. When a person has reneged on such payments, Indian banks have been known to send strongmen and professional bullies as recovery agents to intimidate and threaten customers and even the relatives of such customers. With an integrated software solution built into the car that verifies whether the monthly instalment has been deposited, a self-executing contract could remotely brick the car, making it inoperable by the consumer should he fail to make the payment. The software “key” to activate the car again would lie with the bank, which can then take possession of the asset easily.

Another game-changing application for cryptocurrencies specific to the Indian context is in the area of remittances. In 2013-14, India received nearly $70 billion in remittances from abroad. The volume of intra-country remittances is estimated to be some Rs.75,000 crore annually. In this digital age, anachronistic and expensive modes of money transfer such as the money order persist. Not only would the cryptocurrency protocol applied to a large market such as remittances be lucrative, it would also be a tremendous service to millions of bottom-of-the-pyramid migrant workers, who have been able to get the latest smartphones for a low price, but are still deprived of cheap, efficient and user-friendly banking and money transfer services.

Besides enabling transactions with reduced friction and at lower cost, there are certain applications of the protocol that can enable altogether new use cases. Cryptocurrencies can be used to write “smart contracts”, or contracts that are digitally written and require no third party for enforcement. The value of this application is difficult to overstate in an environment like India, which the World Bank ranks 186 out of 189 countries globally on the enforceability of contracts. Given the slow, dysfunctional judicial system and the paucity of social capital, individuals have historically preferred to do business with people already known to them, or people who are from their own community. An alternate approach, outside the present broken system, that offers “self-executing”, tamper-proof contracts and does away with the need for third-party intervention for mediation or dispute resolution, could be truly transformational for countries like India by collapsing business risks and transaction costs. Cryptocurrencies like bitcoin could help dramatically improve contract enforcement. Consider a bank that gives a secured loan to a person wanting to buy a car, on the assumption that the person will pay for the asset in a fixed number of monthly instalments over a period of time. If the person fails to pay the monthly instalment in any month, the bank reserves the right to take back the car. When a person has reneged on such payments, Indian banks have been known to send strongmen and professional bullies as recovery agents to intimidate and threaten customers and even the relatives of such customers. With an integrated software solution built into the car that verifies whether the monthly instalment has been deposited, a self-executing contract could remotely brick the car, making it inoperable by the consumer should he fail to make the payment. The software “key” to activate the car again would lie with the bank, which can then take possession of the asset easily. Another game-changing application for cryptocurrencies specific to the Indian context is in the area of remittances. In 2013-14, India received nearly $70 billion in remittances from abroad. The volume of intra-country remittances is estimated to be some Rs.75,000 crore annually. In this digital age, anachronistic and expensive modes of money transfer such as the money order persist. Not only would the cryptocurrency protocol applied to a large market such as remittances be lucrative, it would also be a tremendous service to millions of bottom-of-the-pyramid migrant workers, who have been able to get the latest smartphones for a low price, but are still deprived of cheap, efficient and user-friendly banking and money transfer services.

Read more at: http://www.livemint.com/Opinion/lv9RU1qcTVEA3MKSCXQsUJ/Cryptocurrencies-can-transform-financial-services.html?utm_source=copy

Besides enabling transactions with reduced friction and at lower cost, there are certain applications of the protocol that can enable altogether new use cases. Cryptocurrencies can be used to write “smart contracts”, or contracts that are digitally written and require no third party for enforcement. The value of this application is difficult to overstate in an environment like India, which the World Bank ranks 186 out of 189 countries globally on the enforceability of contracts. Given the slow, dysfunctional judicial system and the paucity of social capital, individuals have historically preferred to do business with people already known to them, or people who are from their own community. An alternate approach, outside the present broken system, that offers “self-executing”, tamper-proof contracts and does away with the need for third-party intervention for mediation or dispute resolution, could be truly transformational for countries like India by collapsing business risks and transaction costs. Cryptocurrencies like bitcoin could help dramatically improve contract enforcement. Consider a bank that gives a secured loan to a person wanting to buy a car, on the assumption that the person will pay for the asset in a fixed number of monthly instalments over a period of time. If the person fails to pay the monthly instalment in any month, the bank reserves the right to take back the car. When a person has reneged on such payments, Indian banks have been known to send strongmen and professional bullies as recovery agents to intimidate and threaten customers and even the relatives of such customers. With an integrated software solution built into the car that verifies whether the monthly instalment has been deposited, a self-executing contract could remotely brick the car, making it inoperable by the consumer should he fail to make the payment. The software “key” to activate the car again would lie with the bank, which can then take possession of the asset easily. Another game-changing application for cryptocurrencies specific to the Indian context is in the area of remittances. In 2013-14, India received nearly $70 billion in remittances from abroad. The volume of intra-country remittances is estimated to be some Rs.75,000 crore annually. In this digital age, anachronistic and expensive modes of money transfer such as the money order persist. Not only would the cryptocurrency protocol applied to a large market such as remittances be lucrative, it would also be a tremendous service to millions of bottom-of-the-pyramid migrant workers, who have been able to get the latest smartphones for a low price, but are still deprived of cheap, efficient and user-friendly banking and money transfer services.

Read more at: http://www.livemint.com/Opinion/lv9RU1qcTVEA3MKSCXQsUJ/Cryptocurrencies-can-transform-financial-services.html?utm_source=copy

Besides enabling transactions with reduced friction and at lower cost, there are certain applications of the protocol that can enable altogether new use cases. Cryptocurrencies can be used to write “smart contracts”, or contracts that are digitally written and require no third party for enforcement. The value of this application is difficult to overstate in an environment like India, which the World Bank ranks 186 out of 189 countries globally on the enforceability of contracts. Given the slow, dysfunctional judicial system and the paucity of social capital, individuals have historically preferred to do business with people already known to them, or people who are from their own community. An alternate approach, outside the present broken system, that offers “self-executing”, tamper-proof contracts and does away with the need for third-party intervention for mediation or dispute resolution, could be truly transformational for countries like India by collapsing business risks and transaction costs. Cryptocurrencies like bitcoin could help dramatically improve contract enforcement. Consider a bank that gives a secured loan to a person wanting to buy a car, on the assumption that the person will pay for the asset in a fixed number of monthly instalments over a period of time. If the person fails to pay the monthly instalment in any month, the bank reserves the right to take back the car. When a person has reneged on such payments, Indian banks have been known to send strongmen and professional bullies as recovery agents to intimidate and threaten customers and even the relatives of such customers. With an integrated software solution built into the car that verifies whether the monthly instalment has been deposited, a self-executing contract could remotely brick the car, making it inoperable by the consumer should he fail to make the payment. The software “key” to activate the car again would lie with the bank, which can then take possession of the asset easily. Another game-changing application for cryptocurrencies specific to the Indian context is in the area of remittances. In 2013-14, India received nearly $70 billion in remittances from abroad. The volume of intra-country remittances is estimated to be some Rs.75,000 crore annually. In this digital age, anachronistic and expensive modes of money transfer such as the money order persist. Not only would the cryptocurrency protocol applied to a large market such as remittances be lucrative, it would also be a tremendous service to millions of bottom-of-the-pyramid migrant workers, who have been able to get the latest smartphones for a low price, but are still deprived of cheap, efficient and user-friendly banking and money transfer services.

Read more at: http://www.livemint.com/Opinion/lv9RU1qcTVEA3MKSCXQsUJ/Cryptocurrencies-can-transform-financial-services.html?utm_source=copy

Horizontal Progress vs Vertical Progress

In his new book Zero To One, entrepreneur and venture capitalist Peter Thiel writes:

At the macro level, the single word for horizontal progress is globalization – taking things that work somewhere and making them work everywhere. China is the paradigmatic example of globalization; its 20-year plan is to become like the United States is today.

The single word for vertical, 0 to 1 progress is technology . The rapid progress of information technology in recent decades has made Silicon Valley the capital of “technology” in general. But there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.

Elaborating on the theme of Globalization as “horizontal progress” versus Technology as “vertical progress”, Thiel writes:

This age of globalization has made it easy to imagine that the decades ahead will bring more convergence and more sameness. Even our everyday language suggests we believe in a kind of technological end of history: the division of the world into the so-called developed and developing nations implies that the “developed” world has already achieved the achievable, and that poorer nations just need to catch up.

But I don’t think that’s true…most people think the future of the world will be defined by globalization, but the truth is that technology matters more. Without technological change, if China doubles its energy production over the next two decades, it will also double its air pollution. If every one of India’s hundreds of millions of households were to live the way Americans already do— using only today’s tools— the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.

As I’ve written earlier, this is a fundamental dichotomy: while advanced economies have the knowledge base and networks to deliver such innovation, the market for such innovation lies in emerging markets.

Achieving higher resource efficiency and developing lower-pollution energy sources presents a considerable innovation challenge – and commensurately, an entrepreneurship opportunity. So far, major startup successes that have emerged from India and China have been adept at “globalization” – they’ve taken proven business models from abroad, and executed those models well in their own markets.

The “technology” successes, especially in non-software or Internet areas, have been few and far between – and there are some very good reasons for why this is so. The question is whether emerging markets can become economically developed by globalization alone. As Thiel writes, this won’t be possible – “globalization without new technology is unsustainable”.

Something’s got to give – either we have technological breakthroughs that enable sustained economic growth, or growth itself will become constrained. China is already facing enormous pollution and environmental issues – sample these news reports:

Air Pollution, Birth Defects and the Risk in China (and Beyond)

The pollution constraint on China’s future growth

Environmentalism with Chinese characteristics

China Needs Industry to Enlist in “War on Pollution”

India is a fair distance away from China – and it’s already “choking on air pollution”. So the question is, where will the innovation come from, and which startups will deliver “vertical progress” to help sustain growth in emerging markets?