Cellphone Banking Helping To Fight Poverty In India

An anonymous reader writes "Technology Review is running an in-depth story about the way cellphone banking is transforming the lives of many poor people in India. By enabling users to manage a legitimate bank account and finance micro-loans, cellphones are a major force of social and economic change. It's perhaps not surprising, given that despite widespread poverty, India has the world's fastest-growing cellphone market and the second largest number of cellphone users (after China). The article mentions one Indian start-up, mChek, that is thriving as a result. There's also an excellent video report."

Comments

Re:despite widespread poverty

[Anonymous Coward]

Well India has got so many cellphone users because:

1. People may be poor but the cellphone compnies arent :) Here are a few mobile operators:

TATA
Airtel
Reliance
Vodaphone

and the list goes on. Reliance operates the world's biggest CDMA network. These companies have the financial capability to lay there own fiber network accross India and opera PAN india mobile networks.

2. Competition: Well, unlike other countries, there is a lot of competition among these mobile operators. They will install a mobile tower in the most remote location of India if they can acquire a few more customers.

3. Openness : People are used to buying mobile phones and SIM separatelly. Most people will have more than one companies SIM. It's cheap afterall, you can get a new SIM for just around 100 Rs ( 2 dollars ). So open GSM system has helped the mobile network grow a lot.

4. Culture: Japan is mobile crazy, so is India. Don's ask me why, but almost everyone wants a mobile phone. It's not fashion, it's considered a requrement in India.

Re:Super security

[flyingsquid]

You know, perhaps to stimulate this form of banking, we could allow people to buy up the various loans, then bundle them into securities, and sell the securities off on the market. Think of the tremendous impact we could have on the economy of the developing world.

Iqbal Quadir Long Now talk

[doom]

There was a Long Now Foundation talk covering the early stages of this story by Iqbal Quadir. (He was the guy who had the idea that the Grameen bank could fund cellphone purchase in small rural areas). Here's their written summary of the talk: Iqbal Quadir, "Technology Empowers the Poorest" (If you poke around on the site you can find the video of it, or listen to the mp3):

[...] a remarkable invention of another Bangladeshi, Mohammad Yunus, who developed micro-financing (and later won a Nobel prize for this invention). In Yunus' scheme a woman who owned virtually nothing could get a loan of $200 to purchase a cow. She would then sell the surplus milk of the cow to pay back the loan, earn both milk and an income for her family, and maybe buy another cow. Ordinarily, no bank would have lent her this trifling amount because she had no collateral, no education, and the costs of overseeing such a small loan with small gains, would have been prohibitive. Grameen Bank, Yunus' creation, discovered that these illiterate peasants were actually more likely to repay these small loans, and were very happy to pay good interest rates, and so that in aggregate, these micro-loans were more profitable than loaning to large industrial players.

Quadir proceeded to ask, what if the women could rent a cell phone instead of a cow? Grameen Bank could make a micro-loan to the poor for the purchase a cell phone, which they then could sell/rent minutes to the rest of the village. The enterprising phone-renter would benefit and more importantly, the entire village would benefit from the connectivity. It did not really matter if the minutes were expensive, because when you have no connection, you are willing to pay dearly for it. Quadir started off his GrameenPhone with 5 cell towers, and eventually GrameenPhone erected 5,000 towers.

Microloans = Too much banking regulation

[TheSync]

The only places in the world you see the need for microloans are in countries where there is too much bank regulation.

Here is what the Index of Economic Freedom says about Indian banking:

India's 28 state-owned banks control about 75 percent of loans and deposits, and 29 private banks and 31 foreign banks make up the rest. The government owns nearly all of the approximately 600 rural and cooperative banks and most other financial institutions. Banks must lend to "priority" borrowers. Foreign ownership of banks and insurance companies is restricted.

That's why there is microlending in India, the banking system is almost totally an inefficient government monopoly.