Archive for: India

What’s more convertible for currency – a mobile payment or a goat? At the moment, in India, the goat is the only option for many people. So said Vikram Akula, chairman of Indian microfinance powerhouse SKS at today’s plenary session on correspondent (branchless) banking, chaired by CGAP’s own Greg Chen at this (at times overwhelmingly large) microfinance jamboree in Delhi.

“We have financial apartheid in India. Yes, we have microcredit. But when it comes to cashless payments and a safe place to save, poor people are not just not included – they are financially excluded,” Akula said. “The business correspondent model, if  done correctly, can end financial apartheid.”

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The summer seems to have come and gone - and with it, a surge of interest in mobile banking for the unbanked. But how much of it is hype - and how much of it will really change the way poor people get financial services? I asked that question just after the Mobile Money Summit. You tell me.

Sarah Rotman sent this dispatch from West Africa where Orange and MTN are in hot pursuit of market growth. And a common regulatory framework makes cross-border transactions possible.

Olga Morawczynski told us what we don’t know about M-PESA, while Cameron Goldie-Scot explained how to link microfinance with mobile banking.

We then got a rundown on mobile banking in Tanzania, as Sarah asked if Kenya’s success could be replicated next door. Gunnar Camner and Emil Sjöblom of the Royal Institute of Technology (KTH) in Stockholm, Sweden blogged about their attempts to investigate mobile banking services from a user perspective. In which contexts do alternative uses, e.g. savings, become popular and why?

All this talk about whether M-PESA would thrive beyond Kenya caught the eyes of more than a few folks….

And rounding out what was not a quiet August, Mark Pickens shared his thoughts on big names getting into mobile banking: Nokia, Microsoft, and PayPal have all taken fascinating steps in recent days to enable more financial services aimed at the poor and unbanked…someday. Mark also pointed us to exciting news in India, wondering if a new biometric ID card program could help make government transfers more secure.

India’s new government has promised big moves on poverty reduction. At the center is a plan to provide a new biometric ID card to every one of India’s one-billion plus citizens. To lead it, the government has tapped Nandan Nilekani, cofounder of Infosys, one of India’s biggest computer-services companies.

Part of the concept’s appeal is slashing widespread “leakage” (fraud, corruption, theft) in the government’s already prodigious subsidies intended for the poor. One in ten Rupees spent by the government are aimed at poor households - for example, India’s National Rural Employment Guarantee Scheme paid workfare wages to more than 35 million un-employed people last year.

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Greg Chen represents CGAP in the South Asia region. Recently he visited a new and innovative microfinance institution (MFI) that has begun operations over the last year or so.

India has 850 million people who live on less than $2 per day. There is strong government interest in expanding financial services, an active microfinance sector, and fast-evolving business and technology sectors.

When it comes to microfinance, information systems are critical to stronger internal controls (over cash flow, financial reporting, portfolio quality, etc.). You can see this in action at Equitas, a new MFI which has more than 200,000 borrowers and follows the Grameen style of group-based lending model.

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To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation.

The proper role of nonbanks in branchless banking bedevils regulators and industry alike. The central bank of the Philippines just released new regulations creating an e-money license. In recent months, Kenya has seen a wave of complaints from banks about the success of Safaricom’s M-PESA service and whether or not it constitutes un-regulated banking. Regulators in some countries — India, prominently — have made clear statements that banks should take the leading role (for example, see RBI’s mobile banking guidelines).

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Recently we spoke with Naushad Contractor about India’s mobile banking trends. A payments professional with over 12 years experience across geographies, Naushad heads marketing for mobile commerce at Vodafone Essar ltd., India. He is also on the regulatory committee of the Mobile Payments Forum of India.

Part of e-Businesses success stories, he has played a key role in launching India’s first eWallet and was a member of the core team that launched and made Remit2India.com the World’s No.1 Independent Money Transfer Portal for Non Resident Indians.

Q: Is mobile banking popular or hyped?
I think Mobile Banking is increasingly becoming popular but it is much more hyped than it is popular. Everyone says “I Do” but actually not many actually do as they say. However, the factor of sheer convenience for the customer and lower transaction costs for the banks is creating a conducive pull + push environment for increasing understanding and usage of this relatively new concept. As in the early days of internet banking, most people will tend to use mobile banking just as an information tool rather than conducting too many transactions on the mobile. Even the initial transactions will be much lower in value. Once trust in mobile banking increases as a result of good user experience, both usage and transaction values will begin to normalize.

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I have been tracking the mobile banking/branchless banking space in India for a few years - since the business correspondent guidelines were issued. India drafted those guidelines in the spirit of significantly ramping-up access to finance for poor people. The guidelines put Indians in the lead on branchless banking regulation in the South Asia region. Two years have passed and we have yet to see those guidelines translate into a dramatic change in the access to financial services picture in India. There are new companies and more experimentation with correspondents and innovative solution providers but banks have simply not been aggressive about pursuing branchless channels.

The Reserve Bank of India issued final mobile banking guidelines on Wednesday and banks are again front and center. Should we expect these guidelines to dramatically alter the picture of financial access in India? Are the unbanked winners or losers? Well….

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Mobile operators have notched some high profile successes in offering financial services to the poor. Think M-PESA in Kenya or GCash and Smart Money in the Philippines. They’ve have logged several million users for their mobile money transfer services which appear cheaper and more convenient than traditional banking products.

Will banks respond by emulating their new competitors from the mobile world? Banks have an appetite for offering multiple products to their clients, so it would be a boon to the poor if banks wanted to ramp up their offerings via new electronic channels. But the emerging picture is not always rosy.

Many banks see mobile as merely a threat, according to IFC’s Andi Dervishi, who leads investments in alternative-payments systems for the IFC. “Banks remain conservative. They don’t see this as a big opportunity. They are taking a more defensive position, rather than offensive, and not really going after the customer. Their business model needs to be changed.” Countries like India, China, Brazil and Russia now have more mobile phones than ATMs, giving rise to the notion that mobile will support the next wave of innovation in banking in emerging markets where low-revenue customers means banks need to find low-cost channels. But instead of jumping to explore, most banks are playing defense.

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Yesterday, the Reserve Bank of India (RBI) cautioned banks which have started offering mobile payment services to put a hold on such services until final Operative Guidelines are issued by RBI.

A draft set of mobile banking Guidelines were issued for comment in June, but are still in development. RBI signaled several times in the prior year that it planned to look in earnest at mobile financial services.

CGAP’s Notes on Regulation of Branchless Banking in India took stock of the situation earlier this year.

July 25 UPDATE: RBI has announced it will issue final m-banking guidelines within 2 weeks.

The Reserve Bank of India issued draft guidelines on mobile banking today. They are accepting comments through June 30.

Here is a report from the Business Standard on the move. Excerpt:

The wait for rolling out mobile banking seems to be over, with the Reserve Bank of India’s (RBI) issuing draft operative norms for such payment system. Now, RBI said, it will be easier and safer to use mobile phones for carrying out a gamut of banking transactions.

Banks can offer mobile-based services only to their own customers. Banks should have a system of registration before commencing mobile-based payment service to a customer, RBI said.