Banking a billion

The international community should work with urgency to place poverty in the museums, the only place it belongs, said Dr Muhammad Yunus, founder of Grameen Solutions, on receiving the 2006 Nobel Peace Prize. Guided by his vision, Grameen Solutions today has become the global pioneer in promoting economic and social development through information and communications technology. Having done some path breaking work in countries such as Bangladesh where some of the worlds poorest strive for basic financial services, Grameen has demonstrated how microfinance can empower the underprivileged. Now, Grameen is looking at extending its services to bigger markets such as India, where the government too has a strong focus on financial inclusion. As a first step toward achieving this objective, Grameen and Obopay, the pioneering service provider for payments via mobile phones, recently announced a first-of-its-kind alliance to use mobile technology to deliver banking services to a billion of the worlds poorest people by 2018. The Grameen-Obopay Bank A Billion Initiative will provide access to affordable financial services, including cross-border remittances, money transfer, payments, and savings and credit accounts through the ubiquitous mobile platform. 

Thrust on Inclusion

One of the biggest challenges the world faces today is financial inclusion or what one may call banking the unbanked sectors. There are many research and economic studies that state that when a critical mass of people or consumers are brought into the banking sector it has a multiplier effect on the countrys GDP, leading to economic growth. It is estimated that the banking sector itself grows by 10x while the countrys economic embassy undergoes a revamp. If millions of people are included into the banked sector, they get access to credit, savings, financial services, and remittances, which automatically increases their purchasing and investment power, says Vijay Balakrishnan, CMO, Obopay. Hence, many developing nations are looking at financial inclusion as an economic and strategic objective.

India is one of the biggest unbanked countries on the globe. According to certain estimates there are about 500 mn people in India who dont have access to basic financial services. This is why the RBI has asked banks to take up financial inclusion on a war footing. The financial inclusion project, as is envisaged by the RBI, looks at the creation of what is called a no-frills account. For example, in a metropolitan city like Mumbai, about 30-40% of the citizens are unbanked because they do not satisfy the orthodox AVCV norms (address verification and credit verification) as they dont have a permanent dwelling place or other collateral. This is where microfinance institutions come into play as they hold the capacity to create no-frills accounts that are more flexible compared to the conventional bank accounts. Microfinance institutions (MFI) identify groups that have the potential to break the poverty barrier, and depending on their own business model they are able to lend basic financial assistance at very low costs. The RBI and the Ministry of Finance have stipulated very strict regulations which demand that any kind of money transfer should be linked to a bank account. So, today, MFIs are actually taking on that responsibility where they borrow money from the bank and lend it to under banked masses while maintaining accounts for the money dispersed.

So how exactly will the Obopay-Grameen intiative work in conjunction with the financial institutions? The recent tie-up aims at creating an ecosystem consisting of Obopay and Grameen Solutions as technology providers, banks, microfinance institutions, and telecom operators. All of them will come together and create an eco-system that will be capable of achieving last-mile connectivity in reach and distribution. Obopay and Grameen are working toward creating a mobile banking solution that works well with the current MFI model. This initiative will help MFIs to leapfrog, and enable them to create no-frills accounts and provide low cost credit, while bringing the unbanked into the banking sector and delivering the kind of financial goals that the government of India is keen on. We believe that mobile based financial services will provide under banked people with multiple financial options. A significant portion of this population do not have the option of savings, so they see their future one day at a time. This project will bring about significant changes in their power, thought process, and their future, says Kazi Islam, CEO, Grameen Solutions.

While Obopay has already been partnering with most of the prominent banks in India to provide m-banking or m-wallet services to its existing customers as an add-on service, Bank A Billion is aimed purely at those masses who have basic earning capacity but still dont have any access to credit. Apart from offering financial services such as savings and credit, certain vanilla offerings such as mobile money transfers and remittances will also be made available to the customers so that they can carry out peer-to-peer remittances and also track their money in real time.

Mobile Micro-credit

The Bank A Billion initiative will be launched in November, 2008, and will reach out to at least a million unbanked or under-banked Indians within the first twelve months. The companies plan to kick-off the initiative from Mumbai and have already identified a pilot project where a MFI, telecom operator, and bank have come together to test the mobile banking project within an unbanked community. After the pilots and tests are successfully completed, Grameen-Obopay will extend this project to other geographies in India and then make it global. Our intention is to go global and we plan to explore African countries, as well as certain parts of Bangladesh, says Balakrishnan.

The project is not exclusive to any of the banks, MFIs, or telecom partners at the moment. Grameen and Obopay have opened up the ecosystem and have invited more banks and MFIs to partner with them. The companies plan to first understand the MFI business model and then enable them to lend and disperse money through a mobile device. MFIs will also be able to receive micro payments back, which will be recorded in the respective bank accounts. The entire process will lead to the creation of a new concept called mobile micro credit.

The service will be operator and technology agnostic and compatible with the GSM, as well as CDMA platforms. The core technology platform will be jointly developed by Obopay and Grameen at the new Obopay CoE at Bangalore, where employees from both companies will work as a team. A 10 member team will be working on developing the platform at the CoE, says Islam. It is being developed as one of the most cost-effective solutions that will be made available to banks, financial institutions, and MFIs, and promises low cost of transactions. The solution will be compatible with the MFI and bank networks so that they are able to transact smoothly with the micro credit loan applicant. In addition, Grameen-Obopay plans to build the application in multiple regional languages to make adoption easier and reach a critical mass.

While there has been much talk about the recent RBI guidelines and its impact on m-banking intiatives, Obopay has ensured that it is fully compliant with the existing security norms laid out by the RBI, especially the one that mandates that funds should be transferred only from one bank account to another.

Financial Sustenance

At the confluence of the un-banked and mobile phone lies an unprecedented opportunity to overcome one of the most crucial issues we face today. Using mobile technology to deliver mobile micro credit services overcomes previously limiting restrictions of space and time by using existing infrastructure to give even the most impoverished access to financial services. Over the next decade, the worlds economically backward can rely on mobile banking services for financial empowerment and achieve a higher level of sustenance.