Achieving Financial Inclusion: By leveraging Mobile Technology to Bank the Unbanked
Nitin Malik, Mohit Saini- IRMA
INTRODUCTION
In India, the last mile access is one of the key issues faced by any rural development scheme. Many villages are located in remote areas where even physical access is difficult. For decades we have been unable to address the short fall of teachers, doctors and other professionals who do not want to teach and operate respectively in rural India because of the hardships associated with traveling and staying in remote locations. Primary health care services are not accessible to many because healthcare professionals are not willing to work in villages. India has the second highest number of financially excluded households in the world with only 34 % of its population covered by formal banking. The commercial banking sector has thus far focused on urban India, as it is more profitable and economically feasible to work in organized urban areas. The extension of banking and credit services to rural areas, however, remains a daunting challenge. The volume of business offered by these areas is commercially insignificant, as a result of which the unorganized semi urban and rural areas remain excluded.
BANKING THE UNBANKED: USING MOBILE TECHNOLOGY If we look at banking in particular, then the two critical issues that prevent us from delivering banking services to the poor are:
1. Accessibility to the poorest districts
2. Transaction costs involved in providing banking services.
The recent advances in technology in the last decade or so has given us the tools to address these key issues. Mobile technology is one space where countless innovations have taken place. These innovations are both technology led and process led. India is a unique country in the sense that more people have access to mobile phones than to a suitable toilet. India ' s mobile subscribers totaled 563.73 million at the last count( 2012), enough to serve nearly half of the country ' s 1.2 billion population.
Given that mobile phones in India have become easily affordable, a user can now buy a mobile for as low as `. 1,500. Here exists an opportunity where mobile technology can be used as an effective medium to bank the un-banked and address the issue of financial inclusion.
The C. Rangarajan Committee defines Financial Inclusion( FI) broadly as“ the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost”. In this context mobile banking is“ delivery of banking services through ubiquitous mobile phones”. Mobile services have offered us a technology based platform which is both economical and accessible. Various researches indicate that, the poorer a household; the stronger its need for financial services such as savings, remittances, credit, and insurance.
LESSONS FROM M-PESA MODEL IN KENYA: BANKING ON MOBILE PHONES
Safaricom, the largest telecom company in Kenya has developed a mobile banking model called M-PESA. This model operates through a network of agents also called Business Correspondents( BCs) in India. The key innovation in M-PESA is the use of E-floats as an online currency. Customers apply for an account through a basic ID. They deposit money to agents, who then convert it into e-floats. E-floats can be transferred to any person having an M-PESA account with Safaricom. The person on the other side can again convert e-float back to money.
Consumer can deposit small amounts of money periodically with agents. This money gets accumulated as E-floats and can be redeemed back into currency at any time. Agents receive a commission on every transaction.
Although M-PESA initially started as a service to help customers make remittances and payments, it quickly developed into a good savings instrument for the poor. M-PESA has now reached nearly 40 percent of the adult population in Kenya after a little more than 2 years of operation and contributes to 12 % of Kenya’ s annual GDP.
MOBILE BANKING: THE INDIAN PICTURE
In the present scenario, mobile banking penetration in India is very limited. Models like M-Paisa based on M- PESA model have been initiated in few districts of Rajasthan. One successful model which has attained some scale is developed by Eko Financial Services India Ltd. They have innovated mobile banking space using an agent led model. They have developed a mobile platform in collaboration with banks like ICICI Bank and SBI. They also use Kirana shop owners as agents of banks;
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