Digital currencies and mobile banking transform India’s rural poor

India leads the way in digital currency and mobile banking transactions even among the rural poor. Now, with just the mere push of a button, most if not all of India’s rural population can access online banking, send and receive funds and perform basic purchase transactions. With the use of mobile technology, India is transforming its economy into a global financial market leader, establishing a fiat currency beyond that preliminary critical boundary of basic cash money.

India’s Demonetization

Cash leads to corruption. Namely money laundering and black market transactions. This is the primary reason India’s Prime Minister Narendra Modi announced the demonetization of India’s currency in November 2016.[1] This paved the way for a nationwide move toward institutional banking.

Forcing individuals to deposit their holdings of all ₹ 500 and ₹ 1000 Notes into bank accounts to obtain credit, makes physical cash less attractive.

On-line banking changes life for the poor

Banking, an art once outside the reach of the poor because of the limits to time, human and physical resource infrastructure, is now available 24 hours a day, on any point on the globe. In the era of 21st-century banking, the needs of the poor are easily addressed with a less cumbersome framework than non-digital banks require

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Allowing individuals to keep track of spending, financial balances, and pending transactions in real time could never be any easier than through the use of the internet, mobile phones and digital banking.

The key benefit of mobile banking is the convenience, while the key cost is security.[2] The most important hurdle to widespread adoption of mobile banking over the use of physical cash was the perceived risk of security.[3]

Why mobile banking works for India’s poor

A cell phone is currently the most inextricable personal device available to all humankind. The relationship exists without regard to race, age, sex, or even income level. In India, the number of mobile phone subscribers will reach between 700 and 900 million users by the end of 2018. This is more than half the total adult population.

Adaptation is most notably because of the cost.

Mobile phones are a fraction of what it would cost to purchase a television, a computer, and an automobile to access a brick and mortar bank.  And they carry out most if not all of the same functions.[4]

Why India’s banks cater to the poor

The myth is that banks cater only to the rich and wealthy. This is not altogether accurate. Banks depend on deposits to survive. Having a wider, more diverse customer base provides additional deposits banks depend on. These deposits eventually become a revenue stream, forming the financial undercarriage of various forms of commercial paper and credit lending facilities that define a financial institution’s portfolio.

The poor also want more financial products.  Agricultural loans, short-term credit, and subsidized small business lending demands create a competitive market for lenders.

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 Having a mobile device with online banking features saves rural families that long trip to an urban hub to find a bank that can provide access to these services. This makes them more apt to engage in bank based transactions over barter and black-market financing.

According to World Bank statistics, in the 1950’s and 60’s money lenders accounted for over 60 percent of all rural India’s credit debt. Banks provided about 1 percent.[4]

In addition, online banking automates routine transactions that make repayment less risky for banks.

According to research done at the International Research Foundation for Development (IRFD):

“Mobile telephony offers an attractive solution to many rural poor individuals and communities, due to its general accessibility, collective ownership models, and flexible payment options.”[5]

India Online Banking app features

The number of retail banking features increases as banks compete for customer accounts.

  • ICICI Bank, allows users to transfer funds, pay credit cards, manage Life Insurance policies and check loan availability.
  • SBI Anywhere allows users to transfer funds to a mobile number or email id.
  • Vijaya Bank allows ticket booking: including movie and flight tickets through the mobile application.

Most of all these mobile apps are free.

Benefits for the poor

For the poor, this means competitive structured lending rates from accredited banking institutions. It also means no more long lines to process transactions, saving them much needed time and energy. Ultimately, customized banking features for individuals who have small frequent financial transactions becomes the norm in the digital economy.

Most important, it helps both  government and the poor keep accurate track of their finances and overall economic growth. According to Menekse Gencer’s article on the Mobile Money Movement:

“A number of studies have concluded that a 10 percent rise in mobile subscribers in emerging markets will lead to a .6 percent to 1.2 percent increase in GDP in those markets, due to the productivity gains associated with communication and new jobs.”[6]

  1. Beyes, P., & Bhattacharya, R. (2017). India’s 2016 demonetisation drive: A case study on innovation in anti-corruption policies, government communications and political integrity. OECD Global Anti-Corruption Integrity Forum.
  2. Yung-Cheng Shen, Chun-Yao Huang, Chia-Hsien Chu & Chih-Ting Hsu (2010) A benefit–cost perspective of the consumer adoption of the mobile banking system, Behaviour & Information Technology, 29:5, 497-511, DOI: 10.1080/01449290903490658
  3. Sumeet Gupta, Haejung Yun, Heng Xu & Hee-Woong Kim (2017) An exploratory study on mobile banking adoption in Indian metropolitan and urban areas: a scenario-based experiment, Information Technology for Development, 23:1, 127-152, DOI: 10.1080/02681102.2016.1233855
  4. Basu, P. (2006). Improving access to finance for India’s rural poor. World Bank Publications.
  5. Sinha, C. (2005, November). Effect of mobile telephony on empowering rural communities in developing countries. In International Research Foundation for Development (IRFD) Conference on Digital Divide, Global Development and Information Society (pp. 4-8).
  6. Gencer, M. (2011). The mobile money movement: Catalyst to jump-start emerging markets. Innovations: Technology, Governance, Globalization, 6(1), 101-117.