The reality for hundreds of millions of people around the world is that if they want a loan, they pay steep rates to the local equivalent of the mafia.
A few years ago Antoinette Schoar, a professor at MIT’s Sloan School, explained the context in India to me this way (see “Upwardly Mobile”): “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.” Around the world, she explained, “A lot of poverty comes from having not even the tiniest amount of financial slack.”
To some extent, increasingly cheap mobile phones can transform lives by enabling people to make financial transactions via text-message. But to enter the system for the first time, that farmer needs to open the account. And here another communications bottleneck arises: satellite links.
In India, where half of the 1.2 billion population lacks access to credit, the form-filling task of applying for credit or banking services is done at a growing number of far-flung rural banking outposts, including some automated kiosks. (In other cases, bank representatives slog to the end of every mud road to literally collect cash deposits.) But then the kiosk or representative needs to get the data to the back office, usually in a city.
With 3G network coverage not universal, and 2G networks unsuitable, the bank kiosks or branches often only have satellite links to communicate. But those links are unreliable—especially for data-intensive transmissions like scanned documents—and the transmission is relatively expensive. At best, it causes days-long delays as paper documents are couriered back and forth to cities for processing. As a practical matter, this satellite communications bottleneck blocks the extension of banking to many millions of people.
For the past year Xerox Research Center India, in Bangalore, has been wrestling with the problem, with a combination of ethnography research to study how people use technology, and through digital document management technologies.
I spoke this morning with Nischal Piratla, senior entrepreneur in residence there. Xerox has hammered out a prototype that deciphers the scribbling of applicants and extracts the key terms and numbers. The system checks that forms are complete and correct in 12 languages, then translates the content to English. Finally, only a minimal amount of data—not the whole document—travels over the satellite networks, reducing transmission needs by orders of magnitude.
This in turn reduces costs by tens of millions of dollars, making feasible the proposition of selling affordable banking services in many more places. “This could greatly reduce the cost of establishing bank branches in some of the most remote areas in India and the rest of the world,” Piratla says. The technology is getting a trial run with an unnamed bank in India through early 2013.
If it works out, it means more farmers and would-be entrepreneurs can say “no thanks” to the local mafia charging ten percent a day.