Mobile Applications and Financial Inclusion - World Banksiteresources.worldbank.org/EXTEDEVELOPMENT/Resources/Krishnan... · Mobile Applications and Financial Inclusion Workshop at

8 June 2010 Dharmarajan Krishnan

Mobile Applications and Financial Inclusion

Workshop at World Bank, New Delhi

Keynote Address8th June 2010

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Dharmarajan KrishnanPrincipal Consultant and Advisor

Department of Information Technology

Government of India


Vision of the Prime Minister of India

“Soon people will start using their mobile phones for micro

payments as well. In times to come, this could emerge as a strong

tool for financial inclusion of masses in our banking sector. I

understand that the telecom sector has started experimenting with

mobile payments under the guidelines issued by the RBI and soon

mobile banking will also be a reality in our country”.

Dr. Manmohan Singh

India Telecom Summit, December 2008

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% of Un-banked Rural Households in India

59% of rural households do not have a deposit account

58% of rural commercial establishments do not have a deposit account

70% of marginal farming households do not have a bank account

Source - Rural Financial Access Survey (RFAS – 2003)3

%

Landholding

Marginal farming households < 1 acre

Small farming households = 1 to 4 acres

Large farming households > 4 acres


Penetration of Banks & ATMs

Year Average Population Served by a Bank Branch in India (Approx.)

2005 16000

Source: ASSOCHAM’s Report on Investment Prospects in Indian Economy (2008-09)

Global ATM Market & Forecasts 2013 report published by Retail Banking Research (RBR)

India -

6,34,321

Villages

32,227 Rural Bank

Branches

1 Bank Branch for

20 Villages

Country Number Country Number Country Number Country Number

India <40 China 98 Singapore 419 South Korea 1600

Number of ATMs per million of population (Mar-2009)

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8 June 2010 Dharmarajan Krishnan5

Several initiatives have been taken but

the impact has been limited


Challenges in Rural Banking & Viability

Banks and BCs unable to operate a profitable model based on large number of tiny accounts and micro-transactions

Large & Scattered Rural Population

Financial Illiteracy & Unfamiliarity with Technology

Inadequate Infrastructure – Power, Connectivity etc.

BC /BF ModelSimplified KYC Norms

“No Frills” Bank Accounts

But

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8 June 2010 Dharmarajan Krishnan7

Number of Mobile Subscribers in India

has grown much faster than bank

account holders


Mobile Subscriber Growth in IndiaM

ob

ile S

ub

scri

ber

s (m

illio

ns)

Source: TRAI

0.34 0.88 1.2 1.88 3.58 6.68 1333.69

52.22

98.77

165.11

261.09

391.76

584.32

0

100

200

300

400

500

600

700

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The Indian Mobile Growth Story - Rural

12.2%

26.2%

50.0%

80.0%

1.2% 1.7%

14.2%

36.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2002 2005 2008 2011

Urban

Rural

Exponential growth from 2005

Faster growth in rural areas, though

a late starter

Rural penetration expected to reach

35% by 2011

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601 mn mobile subscribers; 17 mn subscribers added per month

More number of Mobile subscribers than bank account holders

Mobile subscribers growing many times faster than bank accounts

Low tariff & low cost of handset – Tailored for Rural Market

Mobile penetration has demonstrated the feasibility of handling and accounting for huge numbers of micro-transactions profitably

The message…

Mobiles can be an option for financial access

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Opportunity to leverage Mobile penetration to provide basic financial services to the unbanked

Overlap of several regulatory domains

* telecom, banking, payment system supervisors, anti-money laundering agencies, etc.

Enabling framework to be

* carefully coordinated across all these domains

* tailored to meet the objective of financial inclusion

Nov 2009 -- Constitution of Inter-Ministerial Group by Govt of India to help finalize an enabling framework

Enabling Framework through coordinated action

Government of India constitutes IMG

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April 2010

Government of India Accepts IMG

Framework for delivery of financial

services using mobiles

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IMG Framework for Delivery of Basic Financial Services

• Similar to the regular “No Frills” account

• Operated using a mobile device

Mobile linked No-Frills Accounts

Balance Enquiry

Cash Deposit

Transfer from regular bank a/c

and Govt. Schemes

Cash Withdrawal

Account to Account Transfer

Basic transactions

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IMG Framework for delivery of Basic Financial Services

Back End

Mobile

based using

m-PIN

Biometrics

(fingerprint)

based

through

Micro ATMs

Interoperable

repositories

for hosting

and

maintenance

of accounts

MiddlewareFront End

CBS of

Banks or

servers of

Outsourced

Partners

Regulated by RBI

Identifies

the bank &

account

associated

with a

mobile

number &

UID number

Account

Mapper

Routes the

transaction

to the

issuing &

receiving

bankCentral

Switch

Two options

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Shareable elements for optimal delivery framework

“Know Your Customer (KYC)” norms, processes and actual data

Ubiquitous infrastructure for

“cash-in” and “cash-out” operations

Additional infrastructure to

facilitate management of large number of

small-value accounts

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Principle of sharing infrastructure to reduce costs

Successfully used by MSPs Can be applied to banking

IMG Framework for delivery of Basic Financial Services


The IMG framework will enable …

Cash In/Cash Out through any BC with just a mobile phone

Without the need to visit a bank branch

Transfer of money without an intermediary (BC)

From any bank account to any bank account

Through any mobile phone

At a fraction of cost

Reduced number of cash transactions in the economy

Build up individual financial profile of the poor

A huge Leap in financial inclusion & empowerment

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Enabling Framework for Government Payments

Payments under Govt. Schemes to Mobile linked No-Frills Accounts can

Be passed on upto the “last mile”

Be easily accessed & used by beneficiaries through mobile phones

Cut down the delay in the process

Significantly reduce the indirect costs incurred by beneficiaries

Lower the dependence on the intermediaries

Enable authentication of identities involved in transactions

Enable end to end Traceability of transactions

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Governing Principles for a Sustainable framework

PeoplePromote Financial Literacy

Develop Products that meet their needs

Create Awareness

TechnologyReduce transaction cost

Ensure interoperability

Reach remote areas

ChannelScale up network of Banking Intermediaries

Engage “ for profit” companies as Intermediaries

Devise suitable compensation for channel partners

PricingProvide services at optimal cost to the consumers

Create a viable model for all stakeholders


IMG framework lays emphasis on sustainability

Roles of the various stakeholders defined

Indicative compensation for each stakeholder suggested

Committee to ensure transparency and fair play in operations and ensure viability for all stakeholders

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[email protected]

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Mobile Applications and Financial Inclusion - World Banksiteresources.worldbank.org/EXTEDEVELOPMENT/Resources/Krishnan... · Mobile Applications and Financial Inclusion Workshop at