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Given the high penetration of mobile telephony in developing countries like India, using it to deliver scarce banking services in rural areas is one way of fulfilling the government’s financial inclusion programme

Doing banking work via the mobile is convenient not just for hot-shot businessmen on the go but also for rural communities in the developing world that are often situated many miles away from banks. While it may not address scarcity of capital, which is the main issue of the poor, it does address the issue of access, and, in the case of AppLab (Application Laboratory), an initiative of Google and Grameen Foundation, of information.     

In India, the government is setting up elaborate technology and regulatory architecture to deliver basic banking services through mobile-linked accounts in rural areas. Around 73,200 villages with a population of over 2,000 people have been identified to receive mobile-linked basic bank services by March 2012.  

The idea is to marry the country’s 500-million-plus mobile phone network and basic financial services which are often not available in rural areas that have no bank branches. The National Payment Corporation of India, a not-for-profit company that provides low-cost infrastructure for providing payment services among banks, is helping formulate back-end technology solutions. These will link the person’s mobile number to his no-frills bank account. Eventually, it will be integrated with the unique identity number, once it gets operationalised. 

How will this work? One model, successfully tried out in some developing countries, like Kenya, is the banking correspondent (BC) network. The bank appoints a BC in a village, say the kirana shop-owner, and villagers give her their deposits.  

The BC services them in one of two ways:  

  • She has a phone on which the amount is entered and is wirelessly sent to the bank’s server -- if the customer has a mobile phone, he gets an SMS receipt; if not, the BC prints out a receipt (such a printer-phone set-up, which includes a scanner for fingerprints, costs around Rs 30,000).
  • The BC keeps the money, and the bank which has a deposit from the BC debits it from that. When the money is withdrawn, another wireless sync gets done, another SMS/receipt gets generated, and this time around the BC’s deposit account with the bank gets credited. 

There are some doubts as to whether, when the mechanics of this are worked out, this will be profitable for banks or the BC as the volume of money in the hands of those it should most benefit is small. One suggestion to increase volumes is to use the mobile telephony route for NREGS payments. NREGS payments for 2010-11 are expected to be in the region of Rs 60,000 crore. The idea is that the unique ID each citizen will get will be linked to the BC network. Not only will the government be able to ensure that the money goes to the person concerned, with zero leakage -- a major concern at present -- but it also means that the NREGS worker gets to know he has received his money without wasting the day or two it takes to visit the nearest bank branch to check whether the payment is in. The same holds for all other social sector payments the government makes.   

The system sounds good, but there are some glitches. Last year, banks in Madhya Pradesh were pulled up by the state government for not progressing fast enough in its financial inclusion programme, which involves opening more accounts in rural branches. Bankers say they tried to appoint business correspondents on a commission basis but received a lukewarm response. They have also opened accounts through hand-held devices and mobile phones but, in the absence of power and connectivity, the technology-driven solution has been a failure in rural areas. “Technology is the biggest issue, and the state government must understand that it is a tough task,” S Shridhar, Chairman, Central Bank of India, said.  

AppLab offers, via the mobile phone, a variety of information not easily accessible to people living in rural areas. The information -- on marketplace prices, health information, and tips on farming -- is compiled into an SMS database by Google, which can be accessed by people in villages and small towns through their mobile phones. 

According to media reports, the Bangladesh Post Office is offering mobile money transfers which, it is hoped, will also revive the flagging post office services which are competing with courier services, illegal money transfers and a decline in letter delivery since the arrival of mobile telephony.   

While there are many opportunities in mobile banking services, experts say some issues need to be dealt with first, such as lack of lingual support, providing voice-based support for people who are not literate, weak network coverage in rural areas and different technologies. 

Source: Central Chronicle, August 29, 2010
            www.ciol.com, July 26, 2010 
            www.cgap.org, April 20, 2010
            www.rediff.com, February 2010