Financial Inclusion | D Krishnan
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Financial Empowerment Through Mobile Phones
In marked contrast to the slow progress in reaching out financial services is the success that has been achieved in extending mobile telephony. The phenomenon presents us with the possibility of using the mobile as a channel to promote financial access, writes D KrishnanThe vision of empowering the poor, wherever they may be, has been central to the developmental agenda of the government. One sure way of empowering them is through financial inclusiveness - that is, making them able to own and operate bank accounts. This has acquired a sense of urgency since it is critical to our ability to reach cash benefits to the poor under various government welfare schemes. In recent times, we have seen how mobile handsets have penetrated the ranks of the poor, both urban and rural. On the one hand this shows how viable and scaleable delivery models can be built on the strong edifice of micro-payments made by the poor. On the other, this holds great promise in taking connectivity-driven branchless banking models to habitations that have no access to even basic financial services.
Taking Financial Services to the Poor
This opportunity assumes significance in a situation where access to basic financial services continues to be an unrealised dream for millions of our citizens; even more so for the citizens in rural and remote areas. The National Sample Survey 2003 data reveals that 59 per cent of rural households do not have a deposit account. Also, 58 per cent of rural commercial establishments and 70 per cent of marginal farming households do not have a bank account. In other words, a large section of the population does not have access to even basic financial services.
Recognising the gravity of the problem, a number of steps have been initiated in recent years that aim at improving access to banking services. Guidelines issued by the Reserve Bank of India urge banks to open ‘no frills accounts’ and allow the use of business correspondents (BCs) as intermediaries to reach the unbanked citizens. However, despite these initiatives, the impact on the ground seems to be limited and non-uniform. Currently, a bank branch in India serves about 16,000 people - a number very high when compared to the developed countries. While significant scores have been notched in the recent months in the opening of bank accounts, the actual usage of these accounts has been very minimal. And this, when an “active account” has in itself been defined as one registering just two transactions a year !
While this may appear shocking, the statistic in itself is not difficult to understand, since a visit to a bank branch in rural areas often entails long journeys and foregoing of wages on the part of the account holder. Little wonder then that the poor man wipes his account clean the moment he lays his hands on it! Given this situation, banks find it difficult to profitably operate a large number of these tiny accounts, since there is little interest income that the banks stand to earn. Viable and sustainable models are yet to evolve that meet the peculiar needs of the Indian poor, both urban and rural.
Mobiles- an Opportunity
In marked contrast to the slow progress in reaching out financial services to the bottom of the pyramid is the success that has been achieved in extending mobile telephony. The last five years have witnessed the tremendous impact of the advent of mobile technology on the lives of the citizens, both rural and urban. Even though mobile technology was a late starter in rural areas, it has seen a faster growth in recent times. The low tariff and low cost of handset coupled with a clear value proposition for its users have been the drivers of mobile growth. The phenomenon presents us with the possibility of using the mobile as a channel to promote financial access, especially when a large number of the new mobile subscribers happen to be poor and unbanked.
Although mobile banking is not new, its use in reaching out financial services for the unbanked has been very limited. When the policy makers began exploring the possibility, they were struck by the fact that that the current regulatory guidelines essentially view mobile banking as an added channel for the already banked affluent customers. There was a clear lack of a framework that leveraged the outreach of mobile technology among the unbanked and disadvantaged sections.
To explore the possibility of using mobiles to promote access to financial services, the government constituted an inter-ministerial group (IMG) to work out the relevant norms and modalities and to enable finalisation of a framework to allow financial transactions using mobile technology. After extensive discussions among members and other stakeholders, including the banks, telecom providers, security agencies, and the public, the group finalised its report in March 2010. The proposed framework sought to factor in the existing enablers in the regulatory framework that targeted the disadvantaged sections of the population -- the business correspondent model and the concept of no-frills accounts were therefore key pillars on which the recommended framework was built. A committee of secretaries accepted the report of the ministerial panel and approved its framework as the basis of delivering financial services using mobile technology.
The group’s framework envisages creation of “mobile linked no-frills accounts” by banks, which can be operated using mobile phones. The basic transactions permissible over these accounts will include cash deposit, cash withdrawal, balance enquiry, transfer of money from one mobile-linked account to another and transfer of money to a mobile-linked account from a regular bank account and from various government schemes like NREGS, etc.
The model allows persons with mobile phones to deposit and draw cash instantly into or from their “mobile-linked no-frills” bank accounts through a business correspondent (BC) having a mobile phone in the village. Also, the model enables any two mobile users, to transfer money to each others’ no-frills accounts, specifying only their mobile numbers without the necessity of any intermediary, including BCs. When fully implemented, the model will enable the same BC in the village to be shared by all the banks for supporting basic deposit and withdrawal transactions, somewhat akin to an ATM machines in urban areas being shared across multiple banks. The model will allow even users without mobile phones to undertake such transactions using biometric-based authentication through a BC.
To make the model sustainable and to ensure scaling up of operations, the IMG recommends that the RBI consider allowing “for profit” corporate entities to act as BCs. It also recommends relaxation of the 30-km distance criterion of the BCs from the bank branch in cases where there is no branch of any bank. The report provides indicative monetary compensation levels for each player involved in the implementation, which will serve as the basis for getting the system started. These compensation levels can later be fine-tuned in the light of actual experience.
The IMG has recommended setting up of various committees under the supervision of RBI and TRAI for setting of standards, supervising operations, specifying operational elements to cover all Government payments under the framework and ensuring transparency and fair play as and when the services are rolled out.
This IMG framework would facilitate payments under government schemes like NREGA etc. by:
- Enabling the government to pass on the benefits up to the "last mile"
- Allowing beneficiaries to easily access and use the money through their mobile phones
- Cutting down the delay in the process
- Significantly reducing the indirect costs incurred by the beneficiaries to avail the benefits
- Lowering the dependence on the intermediaries
- Aiding in the authentication of identities involved in the transactions and
- Easing end to end traceability of the transactions
This model will further help other stakeholders like mobile service providers in expanding their subscriber base while at the same time providing the necessary impetus in taking their mobile network to far flung regions. The widening reach of the mobile connectivity infrastructure will further help in the delivery of various services, including financial services, to the poor using the mobile.
Clearly, the IMG has taken the lead in pointing out the exciting possibilities in leveraging the reach of the mobile to deliver basic financial services. Key players will now need to work together in creating and deploying viable and self-sustaining models tailored to meet the financial needs of the poor.
D Krishnan is Principal Consultant and Advisor, National e-Governance Division, Department of Information Technology, Ministry of Communications and IT
