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September 30, 2008updated 04 Apr 2017 1:14pm

Obopay, Grameen aim to bank a billion

William Cain reports on a project that aims to bring one billion people in some of the poorest parts of the developing world into the banking fold over the next 10 years by exploiting the growing use of mobile phones Obopay, the US mobile payments service provider, and Grameen Solutions, a business founded by 2006 Nobel Peace Prize-winner Dr Muhammad Yunus, have launched an initiative that aims to bank one billion of the worlds poorest people by 2018.

By William Cain

William Cain reports on a project that aims to bring one billion people in some of the poorest parts of the developing world into the banking fold over the next 10 years by exploiting the growing use of mobile phones. If successful, the system will spread out from India into Bangladesh, further into Asia and Africa.

Obopay, the US mobile payments service provider, and Grameen Solutions, a business founded by 2006 Nobel Peace Prize-winner Dr Muhammad Yunus, have launched an initiative that aims to bank one billion of the world’s poorest people by 2018.

Obopay will act as a go-between for banks and microfinance businesses to link up customers with bank accounts, initially in India, and facilitate microcredit and repayments through mobile phones. Vijay Balakrishnan, Obopay’s chief marketing officer in India, told RBI the company would work with Grameen Solutions, one of the pioneers of microcredit, to improve its product offering and implement best practice.Grameen Bank-key figures

Obopay CEO Carol Realini set up the deal after a trip to Africa, where she noticed that while people in the most remote corners of the world often lacked access to basic financial services, almost all had mobile phones.

Trials are currently underway in Mumbai and Chennai, and a launch is scheduled for October. If successful, the system will be spread into Bangladesh, further into Asia and, later, Africa. The second phase of the initiative is to offer more products, including micro-insurance.

Grameen – which translates as “rural” in Bangla, the language spoken in Bangladesh, where Dr Yunus was born – represents a group of organisations, the most famous of which is Grameen Bank. It offers microloans without collateral to 7.56 million people in Bangladesh, 97 percent of whom are women. It has 2,529 branches in 82,994 villages. The business – which has lent out $7.3 billion since inception in 1983 and had $6.5 billion repaid – helped Yunus to the 2006 Nobel Peace Prize.

One of the driving forces behind the Bank a Billion initiative in India is the Reserve Bank of India’s promotion of financial inclusion. It is encouraging banks to offer basic ‘no-frills’ bank accounts to increase participation in the banking system. Obopay said its product would benefit from the increasing number of these accounts being opened.

The firm says it also makes the accounts more profitable to banks – the Obopay mobile phone product makes the account more convenient and easier to manage than a conventional account, potentially reducing the numbers which fall dormant.

And despite a chronic lack of ATM and branch infrastructure in some areas of India, microlenders can act as an extra element of the financial system, bringing previously unbanked people into more mainstream financial services through the mobile phone.

Balakrishnan said: “We are trying to put together the players and help them complement each other’s roles – and ensure financial inclusion in India takes place.”

India has more than 500 million people who do not have access to basic financial services, but around 8 million mobile connections are made every month. In some areas, people are more likely to have a mobile phone than a bank account – and these mainly rural locations are where Obopay believes the opportunity for its product lies. Balakrishnan said Obopay was currently in talks with a number of banks to offer the product, but was contractually bound not to say who they were.

The launch in October may be delayed, however, by the recent Reserve Bank of India decision to freeze mobile payments while it considers more formal regulation of mobile banking (see below).

M-BANKING India issues new guidelines

The Reserve Bank of India has issued a new set of guidelines governing mobile banking practises, including transaction value caps and restrictions on remittance activities. But the draft guidelines – which have still to be approved – do not restrict the activities of locally incorporated foreign banks’ mobile banking services, which earlier drafts had hinted at.

The guidelines said banks which are licensed and supervised and have implemented core banking solutions in India would be permitted to offer mobile banking services, restricted to rupee-based domestic payments. But the guidelines also stated the use of mobile banking services for cross-border transfers is strictly prohibited. The new rules included a INR2500 ($54) transaction limit on mobile banking transactions, up to a maximum of INR5000 per day, and stated services should only be offered to clients with debit and credit card products.

The guidelines acknowledged the increasing use of mobile phones as a delivery channel for extending banking services and their importance to the banking industry. It said there were 261 million mobile phone subscribers in India, out of a population of around 1.1 billion, with new contracts being signed at a rate of 8 million per month. The central bank said it was implementing the guidelines to ensure a level playing field for banks and to help limit opportunities for money laundering, fraud and the finance of terrorism through mobile banking.

Vijay Balakrishnan, chief marketing officer of Obopay, said the final set of guidelines were expected within a month. He said: “The Reserve Bank of India has suggested that banks wait for its guidelines before services can be launched in a fully fledged manner. The central bank wants to safeguard consumer interest and ensure [the market] is regulated properly.”

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