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. Having done some path

breaking work in countries such as Bangladesh where some of the world's 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. 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 world's 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



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 country's GDP, leading to economic growth. “It is

estimated that the banking sector itself grows by 10x while the country's

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 don't 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 don't 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 don't 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.

Priya Kekre


priyak@cybermedia.co.in