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.”