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17 Nov 2008 03:44 pm

Mobile Microfinance

David Talbot reports on how cell phone banking is changing microfinance for the better. Two key paragraphs:

In one of a handful of such initiatives in India, a Bangalore startup called mChek is plunging into microfinance. Its software is already used by 500,000 people, who can use their mobile phones to pay their phone bills and purchase a limited number of goods and services, such as airline and movie tickets. Through a pilot project, as many as 5,000 borrowers will begin using the system to manage their finances--tapping keys on their cell phones to access bank accounts and execute transfers, make payments to Grameen Koota [a microfinance institution], and possibly even do business with local merchants.

Several borrowers should be able to share one phone. The new system could help Grameen Koota achieve its goal of roughly quadrupling its lending efforts by 2010. "All this will get eliminated," Krishna exclaims, pointing to photos of his loan officers poring over stacks of rupees. "All our transactions will be captured digitally. The back-office functions will become automated. It will become so much more efficient and save a lot of time. So we can add on more borrowers."

If this and similar efforts succeed, the concept could be extended to millions--even hundreds of millions--of Indians, giving them access to banking and credit for the first time. And India's national economy would stand to gain as well. Money that is electronically lodged in accounts earns interest for banks and account holders. Money sitting in wallets, or under mattresses, does not--and right now, 95 percent of financial transactions in India are conducted in cash. "You are talking about tens of billions of dollars in organized commerce on an annual basis," says Mohanjit Jolly, the executive director of the Indian office of the venture capital firm Draper Fisher Jurvetson, which has invested in mChek. "Treasury coffers will have a lot more money, and villagers will start earning interest on this money. Overall, the cost of capital will get reduced, liquidity will get increased, and you will see phenomenal changes in terms of what the villagers will be able to do. The bottom line: it's education, it's connectivity, it's improved quality of life ... [and] this mobile connectivity, this mobile transaction, is one of the key ingredients."

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