The Dreams and Realities of Mobile Banking in India

It is an incredible image:

A woman in rural Bihar has recently been given a cell phone by her son who is a migrant worker in Delhi. Her son does not have lucrative job but has saved enough money so to give this gift to his mother so he can periodically speak to his parents and siblings. His mother, a farmer and bidi (hand rolled cigarette) maker, is a member of joint liability group which gets loans from a large MFI. Recently the MFI rolled out a program through which members can receive loans and save money through their cell phones. To make a deposit or repayment, the member simply has to go to the village kirana shop (ubiquitous daily needs stores in India). So rather than stashing it in some secret but precarious hiding place, the 200 rupees which she earned in the last few weeks from rolling bidis is given to the Kirana shop owner. The owner, acting as a remote branch, sends a text message to the MFI that he has received 200 rupees from this woman, and within five minutes she has received a message on her cell phone which displays her new balance. The woman is able to go through a similar process when she wants to make a withdrawal.

It is a wonderful world in which the benefits of technology are harnessed by those most in need, and there are places in the world where this fantasy is close to reality (particularly in latin America and Africa). India is not so close. The problems, not surprisingly, seem to be in a overly restrictive regulatory environment (see the RBI rules on mobile banking). .Particularly onerous is the 2,500 rupees limit of per transaction, and the 5,000 rupee daily limit,making it impossible to disburse even most microloans in one day.

In July 2008, CGAP recently released an accessible and exceptionally detailed focus note on the exciting possibilities of cellular banking and the stumbling blocks MFIs may face when trying to actually implement this new technology.

If you don't have time to read the entire note, I found the description of the "main application environment choices" on page 14 most illuminating. This section illustrates the choice mobile banking providers have to make about whether to use an SMS based service, which don't need to installed, or simpler to use applications which do need to be installed.

For more, read this interview with Vikram Akula of SKS on mobile banking, in which he argues against India's "prohibitive" regulatory environment.