February 26, 2020

India Takes Aim at Poverty With Cash Transfer Program

On Jan. 1, India eliminated a raft of bureaucratic middlemen by depositing government pension and scholarship payments directly into the bank accounts of about 245,000 people in 20 of the nation’s hundreds of districts, in a bid to prevent corrupt state and local officials from diverting much of the money to their own pockets. Hundreds of thousands more people will be added to the program in the coming months.

In a country of 1.2 billion, the numbers so far are modest, but some officials and economists see the start of direct payments as revolutionary — a program intended not only to curb corruption but also to serve as a vehicle for lifting countless millions out of poverty altogether.

The nation’s finance minister, Palaniappan Chidambaram, described the cash transfer program to Indian news media as a “pioneering and pathbreaking reform” that is a “game changer for governance.” He acknowledged that the initial rollout had been modest because of “practical difficulties, some quite unforeseen.” He promised that those problems would be resolved before the end of 2013, when the program is to be extended in phases to other parts of the country.

Some critics, however, said the program was intended more to buy votes among the poor than to overcome poverty. And some said that in a country where hundreds of millions have no access to banks, never mind personal bank accounts, direct electronic money transfers are only one aspect of a much broader effort necessary to build a real safety net for India’s vast population.

“An impression has been created that the government is about to launch an ambitious scheme of direct cash transfers to poor families,” Jean Drèze, an honorary professor at the Delhi School of Economics, wrote in an e-mail. “This is quite misleading. What the government is actually planning is an experiment to change the modalities of existing transfers — nothing more, nothing less.”

The program is based on models in Mexico and Brazil in which poor families receive stipends in exchange for meeting certain social goals, like keeping their children in school or getting regular medical checkups. International aid organizations have praised these efforts in several places; in Brazil alone, nearly 50 million people participate.

But one of India’s biggest hurdles is simply figuring out how to distinguish its 1.2 billion citizens. The country is now in the midst of another ambitious project to undertake retinal and fingerprint scans in every village and city in the hope of giving hundreds of millions who have no official identification a card with a 12-digit number that would, among other things, give them access to the modern financial world. After three years of operation, the program has issued unique numbers to 220 million people.

Bindu Ananth, the president of IFMR Trust, a financial charity, said that getting people bank accounts can be surprisingly beneficial because the poor often pay stiff fees to cash checks or get small loans, fees that are substantially reduced for account holders.

“I think this is one of the biggest things to happen to India’s financial system in a decade,” Ms. Ananth said.

Only about a third of Indian households have bank accounts. Getting a significant portion of the remaining households included in the nation’s financial system will take an enormous amount of additional effort and expense, at least part of which will fall on the government to bear, economists said.

“There are two things this cash transfer program is supposed to do: prevent leakage from corruption, and bring everybody into the system,” said Surendra L. Rao, a former director general of the National Council of Applied Economic Research. “And I don’t see either happening anytime soon.”

The great promise of the cash transfer program — as well as its greatest point of contention — would come if it tackled India’s expensive and inefficient system for handing out food and subsidized fuel through nearly 50,000 government shops.

India spends almost $14 billion annually on this system, or nearly 1 percent of its gross domestic product, but the system is poorly managed and woefully inefficient.

Malavika Vyawahare contributed reporting.

Article source: http://www.nytimes.com/2013/01/06/world/asia/india-takes-aim-at-poverty-with-cash-transfer-program.html?partner=rss&emc=rss

You’re the Boss: A Win for Small Businesses in a Bank Fraud Case

“Yeah, I feel good about winning,” said Mark Patterson, whose construction company was hit by hackers.Craig Dilger for The New York Times “Yeah, I feel good about winning,” said Mark Patterson, whose construction company was hit by hackers.

In June, we published an article advising small-business owners to guard against hackers who use malicious software, or malware, to raid business bank accounts. Computer security specialists say these crimes, called “corporate account takeovers,” have become increasingly common, and small businesses are especially easy prey because many lack firewalls and monitoring systems.

Worse, business owners often assume incorrectly that the protection they have on personal bank accounts applies to their business accounts as well. But historically that has not been the case. Provided banks can show adequate security procedures, they have no legal obligation to reimburse businesses for attacks, as federal regulations do not cover commercial accounts.

A recent court decision, however, creates a precedent to change that. In July, the United States Court of Appeals for the First Circuit in Boston ruled in favor of a construction company that had been hacked, declaring its bank responsible for the losses. Last month the two parties reached a settlement.

In May 2009, Mark Patterson’s company, Patco Construction in Sanford, Me., was robbed of $588,000 by cybercriminals using ZeuS Trojan, a form of malware. Over seven consecutive days, thieves executed automated clearinghouse batch transactions with Patco’s user name and password.

Mr. Patterson assumed incorrectly that his financial institution, Ocean Bank, a southern Maine community bank, would cover the unauthorized debits. When he learned otherwise, he tried to cut a deal.

“We thought there were enough red flags that the bank should have detected” fraudulent activity, Mr. Patterson said, “but we also knew the malware was on our systems.” Because the bank was able to recover about $240,000 by halting or clawing back money from transfers processed within 24 hours of discovering the fraud, Patco’s actual losses were about $350,000. So Mr. Patterson asked Ocean Bank to reimburse $250,000. When the bank refused, he called a lawyer.

Patco brought suit against People’s United Bank, a regional bank based in Bridgeport, Conn., which had acquired Ocean Bank. With both sides in agreement that money was stolen and about how it was stolen, the facts of the case were never in dispute. In August 2011, Maine’s Federal District Court ruled in favor of the bank, finding that People’s United’s security systems were “commercially reasonable,” meaning the bank had done everything possible to protect its customers from fraud.

But Patco appealed, arguing that because People’s United had configured its security systems improperly, the bank failed to prevent the crime. “In this case, the bank put settings in place that were counter to good security,” said Dan Mitchell, a partner in the Portland, Me., office of Bernstein Shur and a member of the law firm’s data security practice. Mr. Mitchell represented Patco in the case. “The way they operated it left holes in the system.”

Mr. Mitchell explained that thieves spirited away money from Patco’s account to places like California and Florida, where the company does not normally conduct business. The timing and values of payments were also inconsistent with regular orders.

While People’s United assigned a risk score from zero to 1,000 for every transaction, the bank did not monitor scores to halt the fraud. “Patco’s typical scores were zero to 214 max, but in this case the risk scores were in the high 700s,” Mr. Mitchell said. “So the bank had the ability to generate these scores but didn’t do anything with them.”

On this basis, Patco won the appeal, and in November People’s United agreed to pay back the full amount stolen from Patco, plus interest. Representatives of People’s United did not respond to requests for comment.

“The Patco case was the first to come from a court that high up,” Mr. Mitchell said. “This case is a guidepost now. My guess is that most of these cases get resolved, and this case will encourage that even more.” He believes the ruling will motivate banks not only to purchase adequate security systems but also to configure and maintain them properly.

Still, the impact of the Patco case may be muted, as financial institutions and their customers have become increasingly knowledgeable about computer security in the past three years. “If the status quo had been maintained, this decision would have put the fear of God into institutions,” said Sari Stern Greene, president of Sage Data Security in South Portland, Me., who testified as an expert witness in the case on behalf of Patco. “But in the interim, financial institutions have significantly enhanced their security controls and helped educate their customers.”

Ms. Greene also underscores that small businesses must erect their own firewalls and take precautions to prevent hacking. “Online banking security is really a partnership between the customer and the financial institution. When customers use online banking, they’re in essence creating their own personal branch,” she said. “Businesses invest in locks, alarms and motion sensors; they understand they need those controls in the physical world. And now they need them in the digital world too.”

As for Patco, the company no longer makes automated clearinghouse batch transactions. Mr. Patterson and his lawyer estimate People’s United spent more than $1 million in legal fees, while Patco spent hundreds of thousands of dollars to resolve the case.

“Yeah, I feel good about winning,” Mr. Patterson said. “But in the end, why does this stuff have to occur? Why didn’t the bank just settle?”

Article source: http://boss.blogs.nytimes.com/2012/12/12/a-win-for-small-businesses-in-bank-fraud-case/?partner=rss&emc=rss