Branchless Banking in Other Countries

Branchless Banking in Other Countries

The experiences in the countries of Brazil, Kenya, Mexico and South Africa are relevant for India given the challenges being faced by these countries are quite similar to India's challenges in Financial Inclusion.

Banking is provide through agents called Banking Correspondents (BC); by easing the restrictions on BC and allowing them to provide a range of services. In 1997, 40 million out of 62 million Brazilians did not have access to financial services. In a decade 1, 50,000 BCs' cover more the 60% of the customer services points and in the period 2000 to 2008 the number of bank accounts increased from 63.7 million to 125.7 million. 

ÿIndian financial inclusion model has borrowed the BC concept which has worked in Brazil and has been successful in India too.

Kenya has been the front runner in harnessing mobile banking in the world with its M-PESA implementation.  Thus they have done away the need to have a bank account and have empowered the mobile company to act as a banker for keeping and transacting money. The mobile phone company acts as the repository of customers' money and allows them to transact using their mobile phones; but the money stored in the mobile phone does not earn any interest and is not cash. The M-PESA was launched in 2007 by Safari.com & Vodafone and the transactions had a cap of $500 and included more than 17,000 agents. The client base has reached 10 million customers about 40% of the population. In a recent development there is a deposit facility in a savings account in partnership with a Bank named as M-KESHO which can be operated from the customer’s mobile phone. 

ÿThe Reserve Bank of India has allowed use of 'semi closed wallet' by mobile companies, customers can now can send and spend money through the mobile network, but can't withdraw cash. Airtel, Vodafone and Idea are offering such services in collaboration with Indian Banks and RBI approval.

Mexico has used the microfinance route for financial inclusion by providing micro credit and similar financial products funded by private capital and substantial investment in technology and resources. The microfinance for profit behemoth has 1.5 million clients and is the largest microfinance institution (MFI) in Latin America and is named as Comparators. The interest rates are usurious at more than 100 percent per annum, and there are host of compliance issues with Comparators.  But it is a success story of innovation, efficiency and tight cost controls and is efficient at training and managing a very de-centralized base of loan officers. Comparator has demonstrated how a MFI can succeed by being extremely profitable for its shareholders. 

ÿIn India Micro finance companies tried this model before the Malegam Committee appointed by the RBI recommended that MFI's charge no more than 24% on loans and that their margins are limited to 10%. The report has disallowed more than two microfinance companies to lend to one borrower and to enforce this it had recommended the setting up of a microfinance credit information bureau which is in operational today. It also stipulated a ceiling of Rs. 25,000 to a single borrower and loans only to families with income less than Rs. 50,000.  It also classified NBFC's with microfinance operations as NBFC-MFI and recommended that loans to these entities will be treated a priority sector lending.

South Africa has taken the no-frills banking approach with negligible minimum deposit and a given number of free transactions. The Central Bank of South Africa mandated five banks to launch the no-frills banking with no monthly fees and five free transactions in a month and it was named as "Mzansi" in 2004. South Africa is one of the most expensive banking markets and the Government devised the Mzansi scheme to provide affordable financial inclusion.  As per a 2009 report the adoption of Mzansi has been limited to 6 million in a population of 32 million, only 3.3 million accounts were active, with an usage rate of only 58 percent used for transfer of money and payment of bills and remittance of salary.  The downside is that once the five transactions were exhausted the additional transactions were charged at regular banking rates which were exorbitant for the poor.

ÿIndia has adopted this no-frill financial inclusion route with limited success, with 25 million people signed up only 2.77 million are active uses, which is an usage of just 11 percent.  The government is planning to launch direct transfers of subsidies to these accounts and there is a renewed interest in this no-frills model in India which seems to be a workable model for disbursement of money from various government schemes created for the poor in India.