Money on the go: Sanjay Swamy, CEO of mChek, has made his Bangalore startup’s payment software work on all cell phones and networks. It’s one of several companies, including Obopay India, that are forging partnerships with lenders to provide mobile banking to the poor.
Soon, the phone could transform how she deals with Grameen Koota. In one of a handful of such initiatives in India, a Bangalore startup called mChek is plunging into microfinance. Its software is already used by 500,000 people, who can use their mobile phones to pay their phone bills and purchase a limited number of goods and services, such as airline and movie tickets. Through a pilot project, as many as 5,000 borrowers will begin using the system to manage their finances–tapping keys on their cell phones to access bank accounts and execute transfers, make payments to Grameen Koota, and possibly even do business with local merchants. Several borrowers should be able to share one phone. The new system could help Grameen Koota achieve its goal of roughly quadrupling its lending efforts by 2010. “All this will get eliminated,” Krishna exclaims, pointing to photos of his loan officers poring over stacks of rupees. “All our transactions will be captured digitally. The back-office functions will become automated. It will become so much more efficient and save a lot of time. So we can add on more borrowers.”
If this and similar efforts succeed, the concept could be extended to millions–even hundreds of millions–of Indians, giving them access to banking and credit for the first time. And India’s national economy would stand to gain as well. Money that is electronically lodged in accounts earns interest for banks and account holders. Money sitting in wallets, or under mattresses, does not–and right now, 95 percent of financial transactions in India are conducted in cash. “You are talking about tens of billions of dollars in organized commerce on an annual basis,” says Mohanjit Jolly, the executive director of the Indian office of the venture capital firm Draper Fisher Jurvetson, which has invested in mChek. “Treasury coffers will have a lot more money, and villagers will start earning interest on this money. Overall, the cost of capital will get reduced, liquidity will get increased, and you will see phenomenal changes in terms of what the villagers will be able to do. The bottom line: it’s education, it’s connectivity, it’s improved quality of life … [and] this mobile connectivity, this mobile transaction, is one of the key ingredients.”
More than 450 million Indians live below the poverty line–that is, on less than 25 rupees per day. Increasingly, though, these people are buying cell phones. By the end of August 2008, 305 million Indians had cell phones; the total grew by more than 9 million in August alone, making India the fastest-growing mobile market in the world and the second-largest after China. At this rate, observers say, India could have nearly 750 million cell-phone owners by the end of 2012. And most new subscribers are poor rural dwellers taking advantage of plunging costs for no-frills prepaid plans (see “Phone Banking”). In signing up for cellular service, many of them are leapfrogging elements of the traditional infrastructure to which they have little or no access: landline phones, the Internet, the power grid.
All these new cell phones could deliver the benefits of no-frills banking and credit to the rural poor–something India’s central bank, the Reserve Bank of India (RBI), has been pushing banks to do, since it could improve people’s lives in myriad small ways. “A lot of poverty comes from having not even the tiniest amount of financial slack,” says Antoinette Schoar, an associate professor of entrepreneurial finance at MIT’s Sloan School of Management. “People who have no access to credit at all–like really small farmers–pay sometimes up to 10 percent per day. They literally take 100 rupees’ worth of goods from a vendor and have to give back 110 rupees in the evening. If they have even a tiny shock one day–a tiny accident–and can’t pay back the vendor, it is devastating.” Credit can smooth out farmers’ financial boom-and-bust cycles, she says, allowing more consistent access to food, medical care, and other necessities.