An Indian born techie’s ‘India inclusion card’ may provide hope for the country’s micro-finance problems
Sandeep Chatterjee, a Masters and PhD from the Massachusetts Institute of Technology (MIT), has an enviable task on hand. The World Bank has appointed him to analyse the state of technology and processes in India’s rural banking sector, and recommend appropriate technologies and operational processes to help the task of financial inclusion in the country which aims at giving hundreds of millions of its deprived citizens access to banking facilities.
Financial inclusion is high on the agenda of the Indian government. In fact, on September 18, Union Finance Minister Pranab Mukherjee, has convened a high-level meeting of academicians, technology vendors, senior bankers and government officials to take stock of the situation and explore ways of taking the existing pilot projects to a national level. And Chatterjee, as a technology vendor and managing director of SourceTrace Systems India, will be part of that meeting.
His report on how to scale up financial inclusion in India, too, which will be ready by end 2009, will be presented to National Bank for Agriculture and Rural Development (NABARD), the Reserve Bank of India (RBI), and Finance Ministry.
Currently in India, explains Chatterjee, there are many small projects (including his own) using technology and running in conjunction with banks to provide micro-finance facilities to hundreds of villages across 14 states.
Typically, an intermediary — an officer of the bank or a third-party agent, acting on behalf of the bank — uses a handheld device, such as a mobile phone, together with custom software to capture customer transactions, e.g., withdrawals or deposits. Using the handheld device obviates the need for banks to build branches or for customers to travel long distances to branches to conduct transactions.
By using specialised software running on mobile handheld devices (instead of building expensive bank branches), transaction costs can be reduced close to zero. Depending on the type of transaction, the customer and the bank’s policies, cash may be collected or disbursed at the same time, or credit may be issued to allow the customer to purchase necessary goods, such as fertiliser or seeds. All of the transaction data is sent to the bank’s server using the handheld device’s communications facilities, which may be a cellular modem.
For instance, another technology implantation partner — A Little World (ALW) — has collaborated with NXP Semiconductors to design a mobile for the Andhra Pradesh government that encloses a Radio Frequency Identification (RFID) card, and works with ALW’s micro-banking platform ZERO. The mobile acts as a branch of the bank by storing a database of customers. It also has a smartcard, which biometrically stores the identity of the customer such as name, address, photograph, fingerprint templates and relevant details of the savings or loan accounts held by the issuing bank. Customers get a secure electronic identity via phone or smartcard, while agents take deposits and dispense cash. ALW (which also will be present at the meeting convened by the finance minister) works with the banks on a revenue-sharing basis.
New Delhi-based Ekgaon Technologies, too, has developed a system for tracking transactions made by self-help groups. It has partnered with the likes of CARE, WorldVision and the World Bank to conduct a pilot which it plans to extend to 14 Indian states.
Bharti Airtel, too, has tied-up with two banks to extend its mobile remittance services to rural areas. It has already partnered with the Indian Farmers’ Fertiliser Cooperative Limited (IFFCO) to set up IFFCO Kisan Sanchar Limited in Rajasthan. Under this initiative, the cooperative department will provide mobile handsets to farmers at marginal price through its outlets in the rural areas. These handsets would be loaded with green SIM cards, which will flash daily updates on agricultural practices and weather forecast free of cost.
Reliance Communications allows ICICI Bank account holders with Reliance handsets (even the low-end Rs 1,000 ones — with or without Internet connectivity) to make intra-bank (to ICICI account holders) money transfers. It has already tied up with HDFC to offer Reliance mPay — a virtual credit card.
The list is not exhaustive. Unfortunately, rues Chatterjee, these projects are spread all over the place and their solutions cannot be used across the country. “We need to scale up these projects, and make their solutions interoperable, to make financial inclusion meaningful in the country,” he asserts.
Chatterjee’s SourceTrace Systems, on its part, has a 32KB smartcard called ‘India inclusion card’ which uses biometrics for recognition, but also has a magnetic stripe which can enable users swipe the card at ATMs or points of sale (POS). “The problem with most other solutions,” explains Chatterjee, “is that when villagers migrate to cities or other villages, they have to trash the smart cards. Thus, the villagers lose interest in such schemes. My analysis reveals the need for a technology platform which gives us a card that can be used all across India.” He adds that the ‘India Inclusion card’ can be used across the country.
Chatterjee says his analysis has raised many concerns. For instance, he points out, many banks are deploying — usually unwittingly — technologies and processes that are risky. A common risk is banks transmitting customer and transaction data over e-mail or other means, without encryption, thereby compromising a customer’s information. Another common issue is that banks like to compensate their intermediary on a per-transaction basis. Although this may initially be good for the banks, it encourages fraud and coercive behaviour.
Consider, for example, that a customer wants to deposit Rs 150. The intermediary may mislead the customer and state saying that a maximum of Rs 100 can be deposited at one time. Then, the intermediary may proceed to perform two transactions — one for Rs 100 and one for Rs 50 — for a total of Rs 150. Or, conversely, the intermediary may mislead the customer by informing him/her that the minimum deposit amount is Rs 500, when in fact there is no minimum. These actions may be beneficial for the intermediary who is able to collect a larger commission, but, nonetheless, result in confusion and distrust in the marketplace, which ultimately may be damaging to the bank’s entire effort and reputation.
Accordingly, the selection of the intermediary is critical, as they are the bank’s customer touch-point. However, many banks in India, cautions Chatterjee, are opting for simplicity by outsourcing the intermediary function to third-parties.
For a solution to work, concludes Chatterjee, three things have to come together — technology, operational processes and education.