A case for mobile-based micro banks in urban areas

Today is Mahatma Gandhi's birthday--or Gandhi Jayanti, as the day is known here in India. While most know Gandhiji as the pioneer of satyagraha (resistance to tyranny through mass civil disobedience) that was founded upon ahimsa or total non-violence, he was also a good economist. He believed in the principles of economic self-reliance and brought back the spinning wheel in a big way, across India, so Indians wear "khadi" (homespun cotton) and abandon British textiles.

I for one was happy to learn that the Indian government renamed its flagship rural job guarantee program--National Rural Employment Guarantee Act (NREGA)--after Mahatma Gandhi to mark his 140th birth anniversary. NREGA has been rechristened, Mahatma Gandhi Rural Employment Guarantee Act.

NREGA has been instrumental in taking micro banks to the rural areas in India, particularly in states like Andhra Pradesh and Uttarakhand. In an interview this week with Anurag Gupta, founder and CTO of A Little World (ALW), a technology provider for mobile banking, I realized that lots is going on in rural India and the day won't be far when every villager in India would hold a bank account at a micro bank.

But, the need for micro banks is equally pressing in urban India. Six months back, Sita, a middle-aged lady who is my part-time domestic help, asked me to help her open an account in the neighborhood bank branch. She wants to save a part of her earnings for her old age and her two sons.

Sita has a voter's ID card. So proving her identity was not a problem. The problem was her name. Her relatives had named her Dukhni (someone who is always sad), when she was in Bihar. So her original ID card had the name Dukhni Devi. She repeated the name to the officer who was issuing voter ID cards. However, the officer heard it as Dushvi.

Being illiterate, she was not even aware that her name in the voter ID card is Dushvi Devi and not Dukhni Devi. Throughout the way to the bank, I kept telling Sita that her name is Dushvi and that's what she must tell the clerk at the bank.

At the bank branch, she faltered. And the bank clerk got annoyed. That's when I stepped in to explain matters. Eventually, I had to speak to the bank manager who finally agreed to open an account for Sita.

Despite having an account, depositing money is no easy task for Sita. She is expected to fill up a pay-in slip, but being illiterate, she has to seek favor from a literate person each time she needs to deposit or withdraw money.

Kishan, my full-time domestic help, who also hails from Bihar is scared to even walk into a bank branch to open an account because he does not have a voter ID card and no identity proof that he lives in Gurgaon. He, like many others from his village, deposits money with another man from his village who lives in Delhi and runs a chit-fund. This guy even lends them money at 20 percent interest per annum (which is way above what the banks charge).

Most illiterate migrant workers like Sita and Kishan don't know their date of birth. They often don't even know their real names and addresses. They mostly don't even have an identity proof. Nonetheless, they need a bank account (like any of us).

Banks are supposed to open no-frills accounts for such people without insisting on an identity proof (mostly, a letter from the employer should suffice). However, most bank officials turn down such customers. They don't bring in much money to the bank and need a lot of assistance every time they enter the bank branch. Nobody even talks to them politely.

This is where technology can help. Mobile phones used in micro banks act as a bank branch by storing the database of customers. These phones use biometrics to identify the customer. So people like Sita and Kishan don't need to look for literate people who can fill in the pay-in/withdrawal slips. These banks are run by agents, who are mostly not very educated themselves. According to Gupta of ALW, most of the mobile-based micro banks in rural areas are run by women who have studied till standard VII.

Big and small cities across India also need such micro banks, where you don't need to fill out forms to deposit or withdraw cash. The identity of the account holder is verified by his or her face and fingerprints.

It's a shame that even after 62 years of independence, around 40 percent of Indians lack access to formal financial services and are left unbanked. Everyone needs a financially-secure future. And if a US$500 mobile-based micro bank can address that need, why not go for a nationwide adoption of this technology?