Finnovation

Indian Government Eyeing Mobile Banking

By Priya Parker

The Hindu, one of India’s leading newspapers, published a piece today on the government’s efforts to develop a framework for mobile banking.  It discusses the government’s interest in developing a “mobile platform to improve the access of a large section of the population, especially the poor, to basic financial and banking services.”

This piece is one of a multitude of recent buzz around the Indian governments efforts to push forward their telecom sector to both get their citizens connected through mobile towers as well as bring services like mobile banking to the poor.  In October, 2008, RBI released its first paper on “Mobile Banking Transactions in India— Operating Guidelines for Banks”.  Gaurav Mishra of Gauravonomics provides a copy of the paper and his own take on these guidelines (which have since been relaxed).

In December 2008, the Telecom Regulatory Agency of India (TRAI) released a report on “Measures to Improve Telecom Penetration in Rural India.” More recently, in November 2009, the government initiated an Inter-Ministerial Group for Financial Services on Mobiles, to develop a framework to use a mobile platform for banking, as well as explore aspects like Know Your Customer norms in the telecom sector.

Another recent piece in the Indian Express, “Dialing Financial Inclusion” explores some of the issues the Reserve Bank of India (RBI) is now exploring as it realizes the limitations of the banking sector in reaching low-income households in India.  Last month the RBI Governor stated publicly that if banks prove to not be effective in reaching this sector, RBI would “not hesitate to explore other models of furthering financial inclusion.”

Some facts & figures

• As of 2007, according to the Reserve Bank of India, 45% of Indians hold a bank account, with a range of only 27% of those in rural areas making less than Rs50,000/year and 98% of those in urban areas making more than Rs400,000/year.
• More than 90 million households in India depend on cash for their transactions
• Transactions among many of the rural poor occur in very small amounts.  In 2005-06, more than 500 million people spend less than Rs 580 per month on average.

Given the combination of incredible growth (roughly 10 million new subscribers per month) and a growing need and recognition for access to banking services, India, and particularly the Indian government, is a place to watch to see how both financial, as well as the policy innovations unfold.

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