Mobile Banking - Can this
Change the Scenario of Rural
Banking?
India's growth story has always been criticized for not including the larger
under privileged population, majority of which is still deprived of basic
banking services. There have been many initiatives by the Government,
Financial Institutions and banks on financial inclusion programs. For
instance in the area of microfinance, providing “No-frills” bank accounts and
smart card based banking services. None of these has yet caused a mass
impact on India's under privileged.
However, the recent developments in providing banking services through
mobile technology and integrated technology platform have given a new
dimension to the financial inclusion initiatives in India.
With the
introduction of Before we study the impact of these new technological developments, it is
important to understand why financial inclusion is important for India. A
Mobile majority of the Indian population lives in rural areas and earns just enough
Technology for to meet its ends. They do not even have savings, assets or health insurance.
providing financial Moreover, the banks do not have their background information or credit
history. Hence, they are not considered in the “Bankable” set of customers, to
services, the whom access to Mobile Banking facilities could be given.
reach of financial
Such individuals, when in need of cash, often tend to go to moneylenders,
inclusion activities who charge high interest rates against mortgage of some form of asset as a
would be security deposit. Needless to say, in many of these cases, the individual will
enhanced not be in a position to repay his loan, losing whatever assets he kept as
security. In addition, since most of them lack financial planning, they are less
likely to come out of their debt cycle. Hence, it becomes the responsibility of
financial institutions to make mainstream products accessible to such
individuals at lower costs.
In the last few years, there has been a spurt of micro-finance institutions
trying to serve the lesser privileged. But these efforts have been limited to
certain regions or areas. The other challenge with microfinance is that,
microfinance involves many intermediaries and this increases transaction
cost, some of which are obviously passed on to the borrower in some form. At
the same time, it is not possible for banks to have a deep network in rural
India, because of sparsely populated villages.
With the introduction of Mobile Technology for providing financial services,
the reach of financial inclusion activities would be enhanced. State Bank of
India (SBI) has a plan of offering banking services to individuals, who earn
less than Rs. 5,000 (USD 107) a month. SBI will offer these products through
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a network of business correspondents, such as small grocery stores, phone
booths, retired teachers and others. Accountholders can deposit and
withdraw cash through these correspondents and they will also be able to
purchase financial products like loans, insurance, mutual funds and others.
Since it is easier to find grocery stores or phone booths in India, individuals
will be in a better position to put their money in banks and also use mobile as
a mode of transacting.
The mobile penetration in rural India is growing rapidly. According to
Cellular Operators Association of India (COAI), as of December 2009, the
Since it is easier total number of mobile subscribers in India stood at 380 million. And the
number of subscribers is expected to double by 2012, of which rural India
to find grocery will be the major contributor.
stores or phone
booths in India, As more and more people start using the mobile network for transactions,
banks can use the data thus derived, to gain knowledge on the rural economy
individuals will be and understand the needs of the rural people. This will in turn help develop
in a better position products, which are more apt for the lesser privileged.
to put their money Moreover, the Finance Minister, in the new budget, has plans to allocate
in banks and use funds for development of a common technology platform for providing
mobile as a mode banking services to the Low-income group. The government is also
considering distributing welfare payments meant for the under-privileged,
of transacting. through banks. Such actions could further encourage the adoption of
Mobile-based banking or banking in general. Parallely, the Reserve Bank of
India (RBI), has also asked the banks to provide a three- year plan on
financial inclusion initiatives.
Lastly, Mobile Banking for rural India will not only be socially beneficial but
can also be a commercially viable opportunity for banks. Although the
revenue generated per person would be far less than that generated by the
urban customers of the bank, but the sheer scale could make it cost effective.
Already major banks such has SBI, ICICI Bank and HDFC Bank have
presence in microfinance and many other banks also offer no-frills bank
accounts at their branches. SBI would be the first in the foray among larger
banks to rollout banking services through the Mobile network and if this
business model proves successful, it would give an upper edge to SBI, for
scaling up its rural business in the long-term.
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