It can prove to be the transformational moment for using mobile technology for poverty alleviation. The government approval of the framework for the use of mobile technology to deliver financial services paves the way for linking people without bank accounts to formal economic ecosystem in the country. More people in villages in India have mobile phones than bank accounts. To begin with, the government intends to deliver welfare cash benefits directly to poor people. Its no mean development for financial inclusiveness in a country, where former Prime Minister Rajiv Gandhi used to say that only 15% of the development money meant for poor reaches them due to red tape and corruption.
The role of mobile technology in poverty alleviation is well known. Washington-based think tank World Resources Institute has noted that mobile telephones and the Internet have changed the lives of more poor people in the world in recent years than all development projects put together. Researchers have come up with hard numbers to prove the point. For example, a study conducted by the London Business School for Vodafone has demonstrated that deploying 10 mobile phones for every 100 people in a developing country pushes up GDP growth by 0.6% percentage points. A subsequent study by Deloitte and GSM Association for Telenor goes further and shows that adding 10 phones per 100 people can increase a developing countrys growth rate by 1.2 percentage points.
In India, development economist Robert Jensen of Harvard University has found out that mobile technology has benefited both sellers and buyers. While fishermen in Kerala earn 8% more from their produce, retail buyers pay 4% less. So far, producers and buyers were using mobiles only for price negotiation, cutting out middle men and saving time so crucial for perishable items. Now, financial services through mobiles are set to complement the farm to retail value chain and take it to the next stage. Since the proposed mobile linked no-frills accounts would not only enable cash deposits and withdrawals, but also transfer of money from one account to another, people without bank accounts can complete the whole monetary transaction on mobiles. It would not only expedite delivery of services, but also reduce the transaction costs. Its immediate impact can be felt particularly in the case of international remittance. Today, NRIs use electronic wires and Swift for remittance, which can cost 5% of the amount. Mobile banking or m-banking can help cut this transaction cost. In the Philippines, a small remittance of $20 through mobile can be done at 6% less transaction cost.
People without bank accounts are already participating in m-banking in a few countries. In Kenya, Safaricom and Vodafone run M-PESA, which enables people without a bank account to transfer money on mobiles. Embedded in the SIM card, the application is offered to Safaricom subscribers and can run on any handset. Its users, numbering 7 million, transfer $7 million daily. In a more recent initiative, the World Food Programme is running a pilot project in Syria to deliver vouchers to 1,000 Iraqi families via their mobile phones. The vouchers, sent every two months, help them buy goods from government stores. Similarly, SMART Communications and Global Telecoms offer banking solutions to poor people in the Philippines.
Some pilot projects are being implemented in India, too. In Pune, Nokia and Yes Bank have launched a mobile banking initiative, which enables the transfer of money from one person to another and payment of utility bills. The next stage would facilitate payment for goods and services. Nokia has also conducted a pilot study with Citibank in Bangalore.
It’s only the beginning of financial inclusiveness in the country. There are areas that need to be addressed to tap the full potential of mobile technology. Its not easy for poor people to buy mobile phones. There is need for innovative financial mechanisms to enable affordable ownership. Even shared access can be promoted. Even after people own mobile phones, they have to worry about recharging in an electricity-deficit country. May be, its time for mobile makers to focus more on alternative modes of recharging through batteries and solar energy.
Equally importantly, its time for service providers to provide utilitarian services and applications in local languages for poor communities, which are largely illiterate. Effective delivery of offerings calls for strong network coverage. Networks can be too feeble in some remote areas today. In fact, calls keep on dropping in urban areas, too. Finally, its important to build trust in technology, which is very important for m-banking. Its not only about m-banking but also its linkages with m-education and m-healthcare, which would in due course lead to the creation of a whole new m-ecosystem. Technology has to be seen not only delivering, but also providing for a working redressal system. The deployment of 3G or third generation mobile technology has an important role here.
Considering that the market would in any case deliver for itself, the government needs to focus particularly on creating an enabling environment to ensure that better services are delivered in a cost-effective manner. Its an imperative. The stakes are high, considering that the gains from the opportunities generated by tapping the full potential of mobile banking have the potential to change peoples lives.
Source: The Financial Express
Published on 17 May 2010